What does the future hold for private medical insurance in the UK? Alex Broad reports on our latest Think Tank debate
Angela Faherty: How well are current PMI products meeting consumer needs?
Stephen Walker: In terms of benefits, they are meeting consumers' needs, but not in terms of cost. There's a dichotomy between what the consumer wants and the price they are prepared to pay. We need to address that as an industry.
Angela Faherty: How can it be addressed?
Stephen Walker: Through product innovation. The consumer needs more information about the cost of a proper health service and the resulting cost of PMI. We need more innovation with regard to products. It's happening already - PatientChoice's offering is a good example of the shared care concept.
Bill Poynton: I would like to define innovation. Innovation suggests something new. Shared costs and excesses are fiddling with existing products - it's not new.
Dr Thom van Every: I think the tinkering that has occurred isn't new, but the market has never been so receptive to it. The problem is that the consumer doesn't know how much medical treatment costs so there's no way for them to define whether a fixed benefit or an excess is worth having. With the existence of these treatment sourcing companies, it's never been more transparent to consumers about how much things cost. This will feed through to the market.
Bill Poynton: Any good intermediary will tell customers what things cost. But you are right that most of them don't know and education is a major issue.
Julian Ross: So what innovation has there been? There's been a lot of evolution. It's the old story about excesses not being new, but evolution is a good way of taking the market forward. PatientChoice is coming in with a different kind of product, but even that isn't completely new in concept - it's along the lines of another product that was touted around for a while, but the insurer decided not to pursue it. The way products are evolving to meet customers' needs is a positive step. We regularly conduct our own research and four out of five people say the best thing about PMI is that it means quicker treatment. The concern is the price of the products. Some of the things that are coming out are high excess products. We also have to face the fact that perhaps we have all underpriced what getting health is all about.
Bill Poynton: We are saying: 'Yes, PMI products do meet customers' needs, but they can't afford it and there's nothing we can do about it.'
Peter Bye: It's not necessarily true that the general public can't afford the product. What is true is they can't see the value in it. We have to see a major product redesign. Contracts have evolved since the 1950s, but not enough effort has been put into this. A PMI contract starts with two major benefits - inpatient and outpatient treatment. Very few clients who have problems know what that means. This is ludicrous because we are trying to sell a product people don't understand. We should call it eligible private treatment and this would do away with all the niggly little things that annoy people. There's also a lot of business to be written in getting cover for people with existing problems. In any other policy, you get a lower premium if you have an exclusion - why not with PMI?
Julian Ross: I don't know. I think it's probably too easy to assume that if someone has a condition and you exclude it, then that makes them a better risk. I am not sure one equals the other.
Peter Bye: Information must exist, otherwise Clinicare couldn't rate medical conditions. I think we could do more at the point of claim to assist people in believing they are getting something of high value. We could get doctors to sign the claim form stating they are referring the patient to a suitably qualified consultant to deal with that particular condition. I would also like to see the consultant sign a claim form to say the patient has been admitted to a hospital equipped to carry out the procedure. That would give the client more of a guarantee of quality healthcare and at the end of the day, I'd like to see the client sign the bills, because then they will understand what it costs.
Dr Thom van Every: It's always struck me as odd that PMI insurers seek to duplicate everything about the NHS, rather than be a bit more selective about what they offer. Regarding the cost argument, we have artificially pushed up the cost by trying to duplicate what the NHS does. Some of the products that don't duplicate things, but concentrate on those that matter, are smart products. Duplication is wastage in terms of premium and this is reflected in uptake. Regarding patients' choices, there's not much information about what's available and what's not and until there is reliable data that allows us to say which person is competent to do what, it will be very difficult for people to make an educated referral.
Angela Faherty: How can the market open up and make products more accessible?
Dr Thom van Every: It's sensible to bring the cost down by being selective.
Stephen Walker: You have to be careful when being selective regarding treatments because you are playing with people's perception of what is a risk and what isn't. One insurer doesn't cover cancer because it says the NHS provides a good service. But I have spoken to doctors who say that's not true.
Dr Thom van Every: It's true, but it's also regional.
Bill Poynton: My wife was diagnosed with cancer five years ago and it was because of the early diagnosis through PMI that it was caught. It might not have been caught if she'd used the NHS. We could say people owe their lives to PMI.
Stephen Walker: There are also certain drugs that aren't available on the NHS.
Sue Smith: Health is a funny thing. If you pick a product that only covers A, B and C, it will be D, E and F you come down with. It's a risk to choose.
Bill Poynton: There are people who only want to be covered for a few things.
Sue Smith: But most people want to be covered for everything. It's also easier to explain.
Kirstie Redford: Do you feel uncomfortable advising on products that do not offer comprehensive cover?
Sue Smith: Yes, I'd feel much more comfortable saying you're covered for everything, this is what it pays for.
Julian Ross: The whole market is shifting. Treatments that were undertaken as inpatient are now outpatient and it's fraught with that kind of danger. That's the problem that we face as insurers. We have to find ways of reducing costs while being innovative but, ultimately, people want to know they are covered if they are ill. We are among the insurers who provided budget plans in the past. But they are the most difficult plans to manage now because things have shifted and people's expectations from those products don't reflect what they think they bought. That's why, "uninnovative" as it appears, excess plans and cost sharing will have an impact on the individual market.
Angela Faherty: Who is the target market for PMI?
Stephen Walker: No one can afford to sit on a waiting list because no one has a job for life. If you're on the NHS list with something that stops you working, people tend to want to be treated as soon as possible. That's the world we are living in.
Angela Faherty: But surely take-up is higher in the over-50s?
Stephen Walker: That's because younger people don't think they'll be ill.
Peter Bye: We need more young people coming into the market in their 20s. If you look at the contracts, they say 'available between 18 and 69'. It takes no account of people in their 20s with certain needs and health requirements, a family man in his 30s or old couples with different circumstances again. It's the same contract for everyone. We tend to focus on single people. They only see the effect of private healthcare when their parents are taken into hospital. People who are buying it in their 20s are taking up the continuation of family schemes. We need to focus the marketing on the younger generation and be flexible with the contracts.
Kirstie Redford: Do you think we'll see more specific marketing at particular target groups?
Bill Poynton: I remember in the late 1980s working for BUPA there were 10 different brochures and 19 different forms, so I can see that there could be specific marketing aimed at specific groups. But the problem is the product literature is still complicated.
Stephen Walker: I think literature is a lot better than it is, thanks to the Association of British Insurers. It tends to be the larger insurers that are lagging behind. I only consult on one or two products for individuals and those products haven't changed for 10 years.
Bill Poynton: The other consideration is that the average cost of PMI for a family is probably twice as much as their mortgage. It is unaffordable unless you have stacks of money.
Peter Bye: It depends whether you want to accept the risk yourself. I don't think the press help with this. If you hear of private treatment in the press, they talk about hip replacements at £7,000-£8,000, but when you explain the costs of cancer to a client, £100,000 is not unusual.
Dr Thom van Every: That is because they don't understand the price.
Stephen Walker: If people are thinking of self-paying we say it's fine if you have one medical catastrophe, but not if you have three things that need treatment in three years.
Angela Faherty: Has self-pay helped raise awareness of costs?
Stephen Walker: It's raised awareness of costs, but whether they are talking about realistic costs I'm not sure.
Dr Thom van Every: People tend to put PMI alongside household insurance, but when you take out insurance, you don't expect your house to burn down in your lifetime. However, most people see a doctor at some point. There's a different risk attached to it.
Stephen Walker: Hopefully the new PR campaign being organised by the Association of Medical Insurance Intermediaries will help people understand the cost of treatment and the real value of PMI.
Peter Bye: There's no culture in this country of knowing how to source private treatment and what it's going to cost. Where people are self-paying, they can recognise the value immediately.
Julian Ross: It is ironic for those of us who have tried to make claims easier for customers. You try to create a better user journey, with excellent service from beginning to end and everything is perfect, but we aren't good at telling them that it costs £7,500.
Bill Poynton: Why don't you tell this to your members?
Julian Ross: I think we should look at it.
Stephen Walker: I think insurers should feed it through at renewal. People only become aware of the value when they claim. It's the people who haven't used it for a number of years who pull out.
Bill Poynton: Particularly with no-claims discounts. They have no idea of how much it costs.
Angela Faherty: We all agree that cost is important, but how will regulation affect the PMI market?
Bill Poynton: Those who are prepared will manage.
Stephen Walker: We all need to understand it better - the problem is because it's statutory regulation, the rulebook has to be watertight from a legal point of view. Apparently, there is a plan to bring out a simplified rulebook for general insurance. The biggest problem is that a one-size-fits-all regime is being created.
Julian Ross: The Financial Services Authority has demonstrated it is willing to listen. It took the consultation literally and what it came back with was in response to the industry's concerns.
Bill Poynton: There are still things that it is proposing for small firms that would be onerous and costly. I don't think there's any recognition that anyone does any less business than £1m a year.
Stephen Walker: The biggest problem from an industry point of view was that people thought CP160 was it. But consultation papers have been published since then regarding reporting requirements. I know for a fact that many people haven't read it.
Bill Poynton: It's not about reading it, it's about understanding it. Some of the annexes are very complicated.
Stephen Walker: The reporting side will impact quite heavily on intermediaries. There's an awful lot of work involved.
Kirstie Redford: Is there a chance that the additional burden of regulation could stifle product innovation?
Stephen Walker: You could say it will have the opposite effect and raise confidence in the market.
Dr Thom van Every: I was wondering if we are gong to see those big documents explaining products appear again?
Julian Ross: There's a risk of that. It's something as an industry. We already produce a lot of information for customers, and some would argue too much.
Peter Bye: The differences between medical underwriting and moratorium have to be spelt out with examples of both at different ages and in different circumstances. By the time you've finished, you will have four pages just with that. The difficulty with PMI is that there are so many benefits and definitions that have to be spelt out. It's a frightful job and the cost to insurers will be immense.
Stephen Walker: And I am afraid that those costs will impact on premiums. What it's costing insurers in terms of time, money and effort, and it will also impact on the intermediary in terms of reducing the time they can spend with clients.
Peter Bye: If you came up with a product with a premium of £20 a month, insurers couldn't afford to produce it.
Kirstie Redford: Do you think there will come a point where the industry recovers from regulation and the costs will start to come down?
Stephen Walker: I hope the FSA will fine tune it. They will hopefully recognise that medical insurance is different to other insurance and that perhaps it needs to be fine tuned to accommodate each part of the market. Whether that will lead to more effective regulation I don't know.
Julian Ross: Yes things will even out over time. Insurers will have to find ways to make things better to reduce their operating costs so they can continue to be effective. We have launched electronic point of sale (EPS) and technology will have a very big role moving forward. The savings could be huge. It can't be paper-based year after year. At some stage you have to be able to derive benefits from technology. What comes from that is a reduction in costs as well.
Sue Smith: I think the market will recover. Once the FSA has settled, confidence in the market will come back and we will continue to grow as before.
Stephen Walker: We are already regulated but it's a big hammer hanging over our heads because it's statutory regulation now. People did start to panic and some have taken or are considering the network route.
Julian Ross: If the FSA hadn't come back on CP160 it could have been a disaster for IFAs. How onerous the regulation would have been then in terms of training, competence and having to take exams. Having PMI with a high risk rating would have had huge implications for both intermediaries and insurers. The costs would have been mind-blowing.
Kirstie Redford: So we should count our blessings?
Julian Ross: Yes, it's not as bad as people were thinking. Although with CP197 there are a couple of aspects that cause us concern. There are things on the reporting front that we think will add further costs to us that we don't think are necessary.
Stephen Walker: We have effective regulation under the General Insurance Standards Council. The FSA didn't want to take on the task; it was forced on them by the Treasury.
Peter Bye: I am for regulation because it will make business more professional.
Angela Faherty: How might there be greater interaction between the public and private sectors?
Sue Smith: When the Conservative government gets in, I think its patient passport will open the health insurance market to a whole range of new health insurance products.
Stephen Walker: Interaction between the two already happens but isn't always recognised.
Peter Bye: I had a meeting this time last year with Liam Fox to talk about PMI. He said over the years PMI insurers had done a lousy job. He said if people expect the Conservative government to come in and feed business through to medical insurers they can think again.
Bill Poynton: Fox has also said that they will be actively looking at incentives for people to take out PMI insurance. He was talking about a government scheme. He was talking about some form of partnership scheme between the government and insurers. They are talking about a patient passport that will be based on costs for certain courses of treatment which the patient can take anywhere - privately or treatment through the NHS. It would open up the opportunity for top-up plans.
Peter Bye: But this calls for a revamp within the NHS, for the government to say this is what the NHS is going to do and this is what the NHS isn't going to do.
Dr Thom van Every: But is it better for the insurers to offer more of a reward to policyholders than they currently are for using the NHS where it's good? It always strikes me as odd that we've been duplicating the NHS.
Stephen Walker: There's too much duplication of services.
Dr Thom van Every: And it's led to wastage.
Julian Ross: Access to private facilities have been around for a long time. For Liam Fox to imply we've got nil points I don't know what he means. We can only operate in the context of what's available right now.
Wojciech Dochan: We are spending about £70bn through the government on health and care and about £5bn through the private sector. Until the next election the Conservatives are not going to cost their patient passport scheme. Even if they get into government the Conservatives won't cost it for a few years.
Julian Ross: The move by the current government in terms of offering services through private partnerships is indicative of the way in which they are thinking. Publicly they're not about to get into bed with private medical insurers, but behind the scenes I think things are changing. They are listening more to what we have to say. I suspect it's a realisation that the NHS isn't a bottomless pit.
Peter Bye: The Ministry of Defence has spent in the region of £30m on private treatment for people who work there. This Labour government is actually spending public money on private treatment.
Wojciech Dochan: The question is how much of a difference will it make. It's tinkering with the edges. B2B absentee management is where the growth will come from. On the consumer side it will continue in this mature state.
Stephen Walker: The impact in the insurance industry depends on how the NHS changes. Everyone recognises it needs to change and insurers need to keep on top of that situation and look at how products can dovetail with the public sector.
Wojciech Dochan: The government says it is treating more people and waiting lists are down.
Dr Thom van Every: The NHS is drinking in the last chance saloon here. I don't think it will improve in all areas sufficiently to make people think that their taxes have been well spent. Therefore I don't think any electorate will tolerate another tax hike to justify helping the NHS. I actually think the outlook is quite good for PMI.
Stephen Walker: We have to ask how manipulated the figures the government gives us about waiting lists are. There's a lot of manipulation going on.
Dr Thom van Every: But the truth will come out and I don't think it will be sufficiently optimistic to justify what's gone on. People have their own experience to go on.
Wojciech Dochan: Where the private sector can make a big inroad would be on the quality agenda whereby you take away the debate about public and private and look at outcome data and the quality of care and where they are treated in terms of specialist units. The quality data is not available in the NHS and isn't available in the private sector. I think that the private sector has to improve and be able to say this is the outcome of coming into the private sector as opposed to having treatment in the NHS, particularly on a regional basis. This is the big area we are working on.
Angela Faherty: Does anyone have any closing comments?
Stephen Walker: I think a lot more effort needs to be put into design and we need a lot more dialogue between insurers and intermediaries. Some are starting to use our knowledge and face-to-face experience with consumers to help them on product design.
Julian Ross: This is focused on the individual but on the corporate side we have seen growth not reduction. I think the benefits for employers are tangible in terms of getting employees back to work and there are bottom-line elements here that are important to them.
Stephen Walker: If the private sector folded tomorrow the NHS wouldn't be able to cope.
Wojciech Dochan: In the last two years the industry has been reacting to that and will continue to react. There will be more products coming out and more tailoring of products rather than actuaries and insurers getting together in a room.
