The sustained levels of economic prosperity and high level of employment have been the two key drivers of growth in the corporate PMI market over the past 12 months, writes Ben Marquand.
The last time the MARKET experienced such a strong growth in the demand for corporate PMI was in the late 1980s when the economy was booming and firms were boasting high profits, but with the recession in the early part of the 90s it has taken nearly 10 years to again reach volume growth of around 8% a year.
The current strength of the corporate PMI market was confirmed by the findings of the latest Laing & Buisson PMI sector report. The research found that as at 31 December 2000 there were around 2.45 million company paid PMI subscribers in the UK, up 7.4% on the same time in the preceding year. However, the findings seem to confirm the pattern of polarisation noted in earlier reports where the rise in demand for corporate PMI is matched by a drop in demand for individual policies.
One of the main reasons for this may be the competitive pricing of company paid schemes, which are in direct contrast to the spiralling premiums of the individual market. But, while there are few signs at the moment to suggest a reversal of fortunes between these two sectors, efforts to contain premium increases and the fading impact of the removal of over 60s tax relief may halt the immediate decline in the individual market.
The strength of the economy is currently being underpinned by the growth in the service industries, in particular the IT and telecommunications sectors, which are well suited to small businesses. As the number of people in full-time employment rises so does the premium placed on skilled workers, which may be one of the reasons behind the change in employers' attitudes towards PMI. Employers want to retain the services of skilled employees and in small businesses the loss of even one skilled worker through sickness or injury may prove serious.
Insurers have recognised this and in the corporate market a number of providers have been deliberately targeting smaller or virgin companies for the last few years by designing high quality packages with relatively low premium rates, and this trend shows no sign of decreasing. PMI product innovation remains focused on this sector, with insurers continuing to offer policies with lower priced premiums with limited cover, restricted access to hospital networks or high claims excesses.
Launched last year, Enterprise, from Western Provident Association (WPA), is targeted specifically at this market and is available to firms with as few as three employees. It is designed to be flexible so employers can choose to tailor the benefits around their needs and budget. The standard cover package provides employees with comprehensive cover while they are in hospital, including all treatment, hospital charges and medication. But, employers have the option to choose to add on cover for outpatient treatment, physiotherapy, worldwide cover as well as a dental and cash plan.
The Clinicare plans offer three different bands of hospital where the band reflects the level of cost for hospital accommodation and ancillary care. If the policyholder decides to undergo treatment in hospital that is above the one chosen by the employer, or is not included in the hospital network, then they may have to pay more. For example, if the scheme is based on band C hospitals and yet the employee decides to have treatment in a band B facility, during which they stay in hospital for three nights, then the insurer will pay a maximum of £630. If the cost is any more than this then the individual will find themselves responsible.
The most recent entrant into the corporate market is Healthcare4Life with its '4 in 1' group policy. This is another flexible plan which allows employers to choose a combination of inpatient and day care treatment, pre-hospitalisation and outpatient treatment, post-hospitalisation and outpatient treatment, and additional benefits such as alternative and complementary medical treatments. The plan also offers a range of high excess discounts, which start at 7.5% for a £100 excess and rise to a 27.5% reduction with an excess of £500. Other discounts include a 5% premium cut for annual payment, and where more than one person is insured on a member's policy a further 5% discount will be applied.
At the larger end of the market there are now relatively few businesses that do not have some form of PMI scheme as an employee benefit. But, despite this it remains relatively competitive with providers fighting for market share by offering increased service levels, which causes business to be churned on a regular basis.
The future of the group PMI market looks set to be dominated by the larger insurers which can develop cost containment initiatives such as the network schemes, because only they have the purchasing power to negotiate the deep discounts from providers across the country. However, there are few barriers to entry into the market and insurers that offer flexible plans aimed at smaller businesses will continue to be successful irrespective of their size, which will maintain choice and competition. However, there has been another increase in the number of large companies deciding to self-insure for medical expenses by creating a non-insured fund under a trust deed. This can make it cheaper for firms because they are not paying the insurance companies overheads or insurance premium tax (IPT), and also the policyholders protection levy and the cost of capital needed for FSA solvency margins. The Laing & Buisson report found that there were roughly 309,000 company paid, non-insured schemes at the end of 2000, in increase of 9,000 from the end of 1999. Trust schemes now account for 11.2% of the company paid market, with close to 582,000 people covered by such schemes by the end of last year.
Ben Marquand is staff writer
