Individual PMI sales still lag behind the group market and as Paul Robertson discovers, providers need to innovate products if they are to attract new business and expand the appeal of PMI
The reputation of the NHS has not noticeably improved over recent months, despite all the Government's commitments to improve it. While the numbers on waiting lists have fallen, it would seem that the length of wait has not.
With the economy, at least in the first three quarters of the year, performing strongly, conditions for the take up of private medical insurance (PMI) would seem to be good. This has been reflected in the growth in group sales, but it would seem that premium rates have continued to cause the individual market to, comparatively, loose ground.
Louise Zucchi, media relations manager at Norwich Union Healthcare, says: 'Compared with group sales, the individual market remains pretty static as providers are under the same pressures as the NHS. The premiums are going up because there is more and more treatment that can be done and costs are rising. We need to think about pressure on premiums.'
Legal & General focuses its PMI sales on the individual market, and estimates it takes 12% of the business available in the market. However, Andy Sampson, head of planning and research at Legal & General, thinks there is more to the problem than premiums.
'Premiums have been an issue, but there are issues in the political environment, such as the introduction of the NHS Plan and the commission looking at long term care ' so there would seem to be a stalling element in people's minds,' he says.
He is in broad agreement with Zucchi that product development is one of the main issues in attracting new business. He says: 'What is missing is products that are really attractive to younger consumers. The market tends to be ageing with the products and maybe now is the time for something different. Certainly our consumer research tells us people want more choice, people want to pick elements of the policies for themselves. But we do feel this market will grow in the next 10 years or so as pressure grows on the NHS.'
In general, the industry has seen the route to greater market penetration through product innovation, with the development of new products aimed at keeping individual premiums under control. It seems 'budget' plans are set to shape the market in the immediate future. Some companies have brought out high excess policies allowing policyholders to self-pay up to a certain level, while offering the peace of mind that if they need expensive treatment, that cover is available.
PPP healthcare is a case in point of a company tailoring innovative products for the individual market. Earlier this year, the company launched Healthy Outlook, a one-off high-excess policy, which is aimed at people who are not insurance minded, but who want to cap their exposure to private healthcare costs. The policy excess is £5,000.
Western Provident Association offer a twist on this by electing to pay only 75% of policyholders' bills, through its Self-Pay Protect policy.
Discussing PPP healthcare's assessment of the market, Nye Jones, PPP's distribution development manager, says: 'We have a strategy of developing products and services outside of core PMI. Healthy Outlook, was launched last January and so it is relatively early in terms of its evolution. It was a response to our opinion that there is a growth market in self-pay ' so it is a hybrid between self-pay and insurance. We are tapping into that market by capping policyholders' exposure to self-pay, rather than giving the customer open-ended liability, which a large excess per claim or a large excess per policy year might do.'
Zucchi sees another way forward. She says: 'One of the things needing emphasising is added value. The customer thinks, 'if I am never ill I will never get anything for my premiums', so doing things like putting the emphasis on wellness rather than illness, using insurance as an aid to improve health rather than just for illness may help. This could involve screening or lifestyle improvements, while still retaining the insurance element.'
Derry Andrews, managing director of Clinicare, says that individual policies are still a very small part of sales, but he is looking to the longer term for any major changes in the individual market. He says: 'In the short term, the next five years or so, most policies sold to individuals will be budget versions in some way or other ' restricted benefits, high excess or some other variation. In the much longer term when there is a proper partnership between the public and private sectors in healthcare, there will be an opportunity to be much more imaginative in terms of other products.'
He gives the example of the French system whereby the government elects to pay approximately 70% of the cost of treatment and requires all but the old or unemployed to take out a policy covering the remaining 30%.
Commenting on whether he sees this approach being adopted in the UK he says: 'I am not sure I see that particular model, but it is an idea, and even Tony Blair has referred to it. The reality is that the State cannot afford the level of healthcare that the population requires, or demands, and at some time in the future the Government is going to do something about it. This has the possibility of being in the five to 10-year timescale.'
It would seem that any sort of innovation is welcome as a means of stemming the rising costs of individual PMI. While it is fair to say that budget policies may not have taken off in the past, market changes have made clients more amenable to cost saving plans ' a trend that has been witnessed in the move towards high excess plans.
The latest Laing & Buisson figures show 11.5% of the UK population had PMI by the end of December 2000. This is up from 11% the previous year, but shows a growth of just 0.2% over the last two years. The figure of 11.5% breaks down to 8% of the population with a group policy and 3.5% covered in the 'other' category of individual or employee paid. This figure remains unchanged since 1999, which is the lowest figure since 1984.
On the bright side, the industry is estimated to have made an operating profit of £60m in 2000 (subscription income less claims incurred, less operating expenses, excluding investment income), this is a vast improvement over the previous year's estimated losses of £20m. Performance over the 2001 period is expected to be roughly in line with last year, as margins in the company sector are maintained, through hardening of prices, and individual price increases are moderated.
Overall it has not been a bad year for most of the individual PMI market, but the main challenge is firmly set on providing value for money at a time when people perceive premiums to be high. The near future is likely to see the market focusing on adding value, budget plans reducing cost to the consumer, a catering for the growing self-pay market and new avenues of product distribution. The rather stagnant individual market is undoubtedly the ripest area for radical change in the future.
