Getting the price right

Most people understand the benefits of private medical insurance (PMI) and the idea is usually well received by clients, but sales often fall at the first hurdle when the issue of cost is raised. Price has always been the downfall of this potentially prosperous market.

However, having access to medical treatment when you need it should not be the privilege of the rich. Policies should be affordable for every budget.

Insurers are recognising the need to design new products that bear price in mind and more options for budget plans are slowly appearing on the market. For advisers, having better access to more budget plans cannot come soon enough.

Stephen Walker, a specialist PMI intermediary at Medical Insurance Services, says that with a bit more input, budget plans have the potential to attract a whole new customer base.

'More people are beginning to take out budget plans because at the end of the day, policies have to be affordable. Providers have to be careful not to price themselves out of the marketplace. There is definitely room for more innovation and providers need to concentrate on providing more low- cost policies. If they do, they can expect to reap better rewards in the long run,' he says.

The problem with traditional budget plans is that in order to push premiums down, an element of cover needs to be sacrificed. For many advisers, it is hard to try and sell a plan with numerous limitations or exemptions. Another consideration is that clients' need to understand what they are, and are not covered for to prevent disappointment when they come to claim.

Standard Life Healthcare's (SLH) budget plan Primecare SuperSaver has suffered from just that problem. Premiums for the policy range from a reasonable £26 to £36 a month and the plan gives access to inpatient treatment and covers all hospital costs. But outpatient cover, which is the most popular area for claims, is not included.

The missing piece

This gap in cover is, according to Iain McMillan, national sales manager at SLH, where the problem lies.

'Our Primecare SuperSaver has not been a big seller for us, especially through intermediaries. I think advisers tend to deal with fully comprehensive plans as they do not want to sell a plan that their client will not be able to claim on. This plan does not include outpatient cover unless it comes directly after inpatient cover. Seeing as around 80% of claims are for outpatient cover it does not appeal to many clients. People on a budget would really be better off with a fully comprehensive plan if it means they will not be able to claim on a lower priced plan. It is not cost-effective,' he says.

Other traditional budget plans have had similar issues and many providers no longer offer a specific budget plan. However, more menu-based plans are emerging where clients can choose to increase or decrease cover according to the premium they are happy to pay.

Royal SunAlliance's Values plan is one such example. The provider does not have a budget plan, but customers can opt for basic cover without the additional benefits. Core benefits include specialist fees, including specific treatments such as radiotherapy and physiotherapy, hospital charges and out-patient treatment charges such as drugs and dressings, diagnostic procedures and treatments such as acupuncture. Excess levels up to £500 can also be taken to help bring premiums down. But again, without adding on other benefits and hiking up premiums, cover can be incomplete.

Working it out

Providers are, however, waking up to these problems and realising that in order to design the most effective products for budget schemes, input in the ideas process is needed by advisers.

Being on the front line of sales, they have a better understanding than most about which aspects of plans will appeal to clients and which are seen as non-essential. PPP healthcare has recognised the importance of broker input and has formed a working party with six intermediaries sitting on its panel to come up with new ideas for developing PMI products.

Walker says this initiative should provide some positive results. 'Intermediaries are at the sharp end of the industry as they are receptive and sensitive to the issues concerning clients. One of these issues is undoubtedly the need for more innovation in the budget sector, so hopefully some good results can come out of it,' he says.

One innovation that has emerged over the past 12 months is individually underwritten PMI. Providers claim that premiums can be dramatically reduced for healthy customers as they do not have to subsidise less healthy policyholders. This may not, however, result in the lowest premiums for everybody and underwriting can prove extensive and time consuming. BUPA's version, Heartbeat, also offers excess options to reduce premiums. A healthy 30-year-old non-smoker can expect to pay around £40 a month for the policy, £20 with an excess of £1,000 and £16 with £2,000 excess.

Norwich Union Healthcare (NUH) has taken another fresh approach with one of its PMI offerings, Fair + Square. Again, this plan is not strictly a budget plan, but clients can choose cover levels to suit their expenditure. The plan works to keep premiums down by offering substantial cashback for policyholders opting for NHS treatment. A total of £10,000 can be claimed back for stays in NHS hospitals per policy year, working out at £250 per night. For basic plans there is limited outpatient cover however.

NUH is considering introducing what many other providers are currently offering ' high excess policies. Louise Zucchi, media relations manager at NUH, says: 'We are looking at other products such as high excess and self-pay options. Many people tend to be interested in paying for smaller operations and insuring for larger, more expensive operations, such as a heart bypass.'

There has been a surge of self-pay options appearing on the market. Premiums look enticingly low, but clients have to ensure they can afford to pay the high excesses.

Fiona Harris, actuarial and risk manager at BUPA, says high excess plans can work out well for people who would otherwise self-pay.

'Large excesses can be very attractive for some customers. If they are looking to self-pay, then they should have the excess amount in the bank so it can significantly reduce premiums and provide vital cover for more serious illnesses,' she says.

PPP healthcare's latest offering has a one-off £5,000 excess. If clients can afford this initial pay-out, premiums are slashed to around £17 a month for a healthy 30-year-old. Cover is comprehensive and benefits also include up to £2,000 cashback a year for NHS hospital stays.

Western Provident Association's (WPA) Self-Pay Protect plan, has been a popular choice since its launch earlier this year. Clients pay a proportion of all treatment costs and can choose to be reimbursed by 30%, 50% or 75% of costs up to a limit of £50,000 per year. For someone aged between 25 and 34, annual premiums stand at £38.75 for 30% cover, £77 for 50% cover and £125 for 75% cover.

A different perspective

David Ashdown, communications director at WPA, says the product has not only been a great seller, but claims have also reduced.

'Our self-pay product has become our best-selling product. We have also seen the number of claims decline because people have a different attitude when they are paying some of the cost themselves ' they take more responsibility and stop and think before claiming.

'Self-pay as a whole is definitely a growing sector. A recent Which? survey said over 40% of people are prepared to pay towards health costs themselves, but want to protect themselves against high cost operations and long waiting lists,' he says.

SLH's high excess plan, Choices, also helps to decrease premiums. A policyholder aged between 30 and 39 could expect to pay monthly premiums of around £19 with £1,000 excess, £11 with £2,500 excess and £7 with £5,000 excess.

McMillan agrees that high excess plans are becoming more popular and says policies that contain an element of self-pay can also be lucrative for advisers, as they provide the opportunity to sell investment vehicles to help clients cover possible extra costs.

'These plans appeal particularly to advisers as they can sell investment products alongside them to build the health fund. If you look at the market, most insurers are concentrating on high excess products linked with self-pay. In 1999, 180,000 people in the UK were paying for private treatment through self-pay and in 2000 this figure had risen to 300,000. It is the most effective way to level off expenses without compromising on cover,' he says.

Self-pay options undoubtedly work well at pushing premiums down, but without adequate savings in place, they may not provide a true budget plan. There is a market out there for budget PMI, but, as Chris Thomas, marketing manager at RSA Healthcare and Assistance, says, providers need to innovate in order for the market to reach its full potential.

'Our research is telling us there is going to be growth in the budget sector. When premium rates go up, clients are downgrading cover rather than paying extra. There are various initiatives being implemented by providers trying to penetrate the market. But providers need to offer something new to attract the market,' he say