Back in your pocket

The individual private medical insurance (PMI) market has seen some decline in the last few years. The growing number of companies offering group PMI, the increase in self-pay and cash plan options, and the issue of affordability for those aged 50 and over, are all factors contributing to the fall-out within the market as a whole.

There is a wide selection of PMI products and providers currently operating in the market, each offering a range of different services. However, the increase in the number of consumers aged 50 and over cancelling their PMI cover at the time of life when they need it most, questions the suitability and long-term affordability of certain products.

Speaking at the 2002 Annual Private Healthcare Insurance Conference in London, Stephen Walker, chief executive at Medical Insurance Services, highlighted the issues concerned with PMI.

'Private medical insurance is still considered by the majority to be expensive. The main reason for people not taking out insurance is affordability. The lack of take-up is down to cost. Affordability, particularly long-term affordability, should be an essential element of the sales process.'

The options available to consumers over the age of 50 are as wide and as varied as the choices on offer to all other age groups. Most providers have a portfolio of PMI products ranging from top of the range comprehensive cover to a more basic plan that focuses on healthcare essentials. Many schemes work on an age-related premium basis, with the annual sum a consumer can expect to pay into their PMI plan, increasing year on year. It is this point that Walker feels needs addressing.

Priced out

'When you reach your late 50s or early 60s, premiums go through the roof and become unaffordable, but at this age, people feel vulnerable without cover. The question is: are insurance companies fixing age-related increases in order to get the desired fallout? Are they trying to price people out of the market when the risk gets too high?' he asked.

While a high number of PMI providers increase premiums on an annual basis, some products offer premium increases based on the age band in which the consumer falls.

Norwich Union Healthcare, for example, offers a 20-year age band on its Personal Care policy. Depending on when the customer joins the scheme, they will pay the same rate every year until they move up an age bracket. Once they enter the next age bracket, the premium increases significantly, and someone who was paying an annual premium of around £1,222.70 when they were 74 under the 60-74 age band, will find themselves paying around £2,499.59 when they enter the 75-99 age bracket.

Carolyn Derrington, head of business development at Norwich Union Healthcare, explains: 'The 20-year age bands means premiums do not increase as often, but when they do, it is significant, and can be a shock to the system. However, the majority of Norwich Union Healthcare's products come with a five-year age band and newer products are rated on a yearly basis, so the premium increase for some is not as substantial.'

Despite Walker's insistence that cost is the driving force behind the decline in the personal PMI market, some insurers believe there are other factors contributing to the lack of uptake and the level of fallout.

'Over the last few years, there has been a change in the dynamics of the market,' says Derrington. 'The Government's decision in the late 1990s to pull tax relief for the over 60s caused some level of fallout. There has also been a move towards corporate PMI policies, which affects the take-up of personal policies. It also means the cost of individual private medical insurance has increased at a faster rate.'

Similarly, Fiona Harris, head of actuarial and risk management, personal division at BUPA, supports Derrington's beliefs, saying there are a number of issues affecting the cost of healthcare. 'If you look across the whole market, there hasn't been a huge fall-out in personal private medical insurance. What you will find however, is that more companies are taking out corporate policies as a perk for their employees. Healthcare is expensive, but it shouldn't be about money, it should be about your health,' she says.

Age-capped policies

To tackle the issue of rising annual premiums, Walker suggests insurers introduce age- capped policies, where the cost of risk is spread over a longer period of time.

'Companies that currently use age- capped policies work on a different principal. They look at what it would cost to insure that person over a particular length of time, and what they would need to charge over that period of time in order to cover these elements of risk.'

At the moment, age-capped policies are few and far between in the personal PMI market. Exeter Friendly Society, Norwich Union and Healthcare 4 Life are examples of insurers that offer this service.

'Customers are not forfeiting any level of benefit with age-capped policies,' adds Walker. 'Perhaps they can be slightly more expensive for younger people, but not hugely. The cost of the risk is spread so that when they reach 50, they won't have to go elsewhere or sacrifice their cover because of cost.'

Walker says a 30-year-old joining an age-capped policy with Exeter Friendly Society will pay approximately £60 a month, and with Norwich Union's Medios Executive Plus policy, it would be just under £60 a month.

'The difference is,' he says, 'that with these policies, you will be paying the same amount plus the standard inflationary increase, when you are 60. Whereas, an age-related policy will require a 60-year-old to pay out anything between £110 and £151 a month.'

Despite Walker's enthusiasm, Roger Hymas, chairman at Health Care Navigator, says age-capped products can cause problems: 'Age-capped products are still subject to inflationary increases, and it is likely that medical inflation is going to race ahead of any other inflation in years to come. People should really be looking at creating their own personal health fund when they reach their 40s.'

Hymas believes when children leave home, people often find themselves richer than they have ever been. As a result, any surplus money might best be set aside to pay for some level of healthcare.

Hymas says 80% of PMI claims are under £2,000, and if consumers can self-assure for this, then they can knock 60% off their premiums by paying a high excess: 'Insurance companies are currently charged between £2,500 and £3,000 for a cataract operation. It can be attained through self-payment for £1,250.'

However, the self-pay market does have its limitations. 'The key,' adds Hymas, 'is to use private medical insurance intelligently. Consumers should look at their asset base, how much they can afford to self-pay and how much cover they will need. It is important to remember that after the acute part of a stroke, for example, when the condition becomes chronic, private medical insurance stops. It offers little rehabilitation cover after a stroke.'

Derrington agrees the high excess on PMI policies caters for the self-pay market, but considers that it acts well as a complimentary element rather than as an alternative to PMI.

'Self-pay works well for small things like cataract operations, if the customer feels they can afford it. Generally however, people don't have a feel for how much things cost. If they needed a heart bypass for £10,000, it is important they are covered,' she says.

Cash plans

Cash plans also offer an additional service to PMI policies, but it is important they are not viewed as an alternative solution, says Raman Sankaran, marketing and communications manager of HealthSure.

'Cash plans can work well with a PMI policy as it covers core products like dental and optical treatment that PMI products do not usually cover.'

Starting with premiums from £1.80 a week ranging to £9.36 a week and covering 18 different areas, HealthSure's cash plans work on a refund basis. Customers paying £9.36 a week have cover for up to £180 dental costs and £220 optical costs in any one year. Although a person can only join the scheme when they are aged between 16 and 65, they can continue with the plan for life.

'Cash plans look after different areas,' adds Sankaran. 'People still need private medical insurance for a heart bypass operation, but because medical expenses are increasing, it is good to know that you can get money back from visits to the dentist if you take out a cash plan.'

While there are no real alternatives to handling the increase in cost of PMI for those aged 50 and over, there is a range of options that can compliment a person's policy. The introduction of age-capped policies has offered a solution for those facing the challenge of retaining their current plan.

Walker believes it only needs one of the major PMI providers to wholly embrace age-capped products for others to follow suit. Alternatively, there are other ways to supplement a PMI policy. It is the adviser's role to ensure clients over 50 have the right protection in place at the time of life when they may need it most.

Angela Faherty is a staff writer