Historically, rating in this market has been fairly blunt edged, often based only on age and hospita...
Historically, rating in this market has been fairly blunt edged, often based only on age and hospital band/location, with conditions that have occurred before usually excluded, at least for a period. Using additional rating factors such as weight, height and smoker status theoretically improves risk selection, but success will depend on the quality and depth of data allowing the correlation between the rating factors applied and eventual claims experience.
The effectiveness of applying increased sophistication will remain to be seen, but rewarding those with healthier lifestyles is logical, provided that improved claims experience follows, which is essential to justify lower rates.
BUPA already uses a similar approach for individual business and so, with the two market leaders heading down this route, there is potentially bad news for competitors who do not follow suit.
While better risks will be priced at a lower than average level, attracting them to the companies with sophisticated rating, the worse risks will have to be priced higher, encouraging them, or their brokers, to seek cover elsewhere. While volumes are not likely to be huge, other players may unwittingly find themselves acquiring an increased proportion of sub-standard customers, with the associated potential of deteriorating claims.
Should other insurers follow this route? In some measure it will depend on the success of this approach and whether costs for healthy consumers are visibly lower than market rates. If so, other insurers will have a strong incentive to follow or create innovative alternative approaches. And if all that makes PMI attractive to more people it has to be good news.
