Medical inflation has risen year on year and currently sits way above general inflation. David Priestley believes it is time for the PMI industry to beef up and consider its options for future growth.
Few in the health insurance industry deny that the ongoing global economic crisis has taken its toll on the market. The most recent figures from private healthcare analysts Laing & Buisson paint a startling picture. The number of people covered by PMI (insured and self-insured) fell by 9% between 2008 and 2010 to just less than seven million (11.23% of the population).
While some may point to better statistics based on premium income, the truth is that this is driven by premium inflation rather than new customers and masks the reality that customer numbers are falling.
Against a backdrop of increased cost of living, falling consumer and business confidence, and rising unemployment and business failure rates, insurers and intermediaries alike have faced tough market conditions in the past two years.
For more than a decade, the health insurance market has seen premium increases significantly above the general rate of inflation. A key factor behind these increases is down to medical inflation, the year-on-year increase in the cost of claims per life insured.
In the past, both individuals and employers may have been more willing to accept or absorb above-inflation premium increases by weighing up the cost of cover against the benefits, including choice, privacy, speed of diagnosis and treatment, and access to the latest treatments. However, the cost of health insurance - or the value attached to it - is increasingly under scrutiny.
While precise figures are hard to come by, it is commonly accepted that medical inflation is running at a rate of about 9% to 10%. The need to control it and keep premiums both affordable and sustainable is clear, both in terms of halting the current decline in membership and by stimulating growth.
The challenge for the market is in finding effective and sustainable ways of doing so that do not result in devaluing the overall proposition.
Reasons for the rise
So why is medical inflation continuing to rise? Broadly speaking there are several primary factors that influence medical inflation. The first is utilisation, or the number of times customers make an eligible claim. If, year on year, the number of eligible claims made by customers increases, health insurers need to set future premiums to reflect this.
This rise in the number of claims being made can be attributed to an ageing population and a related rise in chronic diseases that require more medical care.
