The family way

Young families probably need private medical insurance (PMI) now more than ever. The world in which we live and work is becoming more demanding, more stressful and less forgiving, meaning consumer demand for private healthcare is changing. Over the last decade there has been a change in the public's perception of PMI. It is no longer considered to be a luxury buy for the wealthy, who want the comfort of a private room, nice surroundings and cordon bleu meals. PMI is now seen as a key protection insurance ' an important investment in your livelihood and wellbeing.

People bringing up a young family cannot afford, in terms of time and money, to wait for treatment of a condition that interferes with their employment. In today's world, promotion prospects can be severely dented, or even destroyed by a lengthy absence from work. For the self-employed the situation can be catastrophic ' if you are not working you are not earning. The reality is that PMI is now a necessity and not a luxury.

This brings us to the key issue of affordability. Medical insurance is still considered, by the majority of people, to be an expensive buy. The major reason for people not taking out a PMI policy is cost. A couple in their 30s with two children, will pay a monthly premium of around £140 to £160 a month and more for a good comprehensive PMI policy with no excess. Young people like the concept of PMI for their family and the security that it offers, but the cost can be prohibitive.

PMI has always provided access to private treatment for those who cannot afford to self-pay. More people are considering self-pay as a cost-effective option when compared with high PMI premiums, but this may not be a feasible option for a young family ' they may not have the necessary funds put by to finance a costly episode of medical treatment. And even if they do have the money to pay for one medical catastrophe, it may not stretch to two or possibly three consecutive catastrophes. The larger the family, the more chance there is of several episodes of medical treatment being required over a period of time.

When considering what cover is appropriate, you could take the key man approach and come to the conclusion it is only essential for the breadwinner to be covered. However, if the spouse and the children are not insured and suffer a serious medical condition the breadwinner may have to take time from work to look after them while they are waiting for treatment on the NHS.

Comprehensive cover is advisable, as the up-front outpatient benefits are essential in order to obtain speedy access to a consultant and the subsequent diagnosis of a condition. It makes sense to insure the whole family on a comprehensive policy, if it is affordable.

As we are all aware, there are the industry standard methods of reducing premiums ' take an excess option, or compromise on benefits and take a budget policy. But neither of these is really suitable for a young family. To reduce premiums significantly, it will be necessary, generally, to opt for quite a high level of excess which itself may not be affordable. And as already mentioned, cover for outpatient consultations and diagnostic tests are important for a family.

A fair share

However, there is now another, possibly more affordable, method of reducing premiums. WPA's Flexible Health policy utilises the concept of 'shared responsibility', probably one of the best innovations to hit the market in recent years. The customer agrees to pay the first 25% of claims per person in any one year up to £1,000, £3,000 or £5,000, for a reduction in premiums of 35%, 45% and 55% respectively.

Let us compare the workings of the Flexible Health £1,000 shared responsibility option with a standard excess arrangement of £250.

An individual sees a consultant and has some diagnostic tests, resulting in a bill for £240. The patient will have to pay the full £240 on a £250 excess arrangement, but only £60 on the Flexible Health policy. For a young family who only suffer occasional minor problems, this is a cost-effective arrangement. Should inpatient treatment be required, the patient will have only another £10 to pay on the standard excess arrangement, but anything up to £940 with Flexible Health, depending on the full cost of inpatient treatment. However, they could be saving substantially more than the £940 in premiums with shared responsibility over a two-year period. And because people are involved in the cost of a claim they will, in theory, ensure that they are getting treatment at a competitive price, therefore reducing costs and ultimately minimising annual premium increases.

However, affordability will depend on the area of the country in which the family live and premiums do rise on an age-related basis to age 90, making this good short/medium term value, but not good value long-term.

Possibly the best long-term value for comprehensive cover for a family with up to two children is provided by The Permanent Health Company's (PHC) Healthcare 4 Life policy. This is an age-capped policy, with the premiums being set at age of entry, and the policy provides cover for both city and provincial hospitals, as there is no hospital banding. PHC provides a 12% discount on standard rates for non-smokers and a further 2.5% discount for people who are members of a fitness club. Premiums for those aged under 50 are competitive.

Large families

The Norwich Union Healthcare (NUH) Medios Healthcare policy comes into its own for families with more than two children, as it only charges for the first two children. For large families this provides excellent long-term value. The policy has one age-related premium increase, at an individual's next tenth birthday ' join in your 30s and the premium increase is effected at age 40. You will then continue to pay at the rate for a 40-year old for the remainder of the policy life. This policy also provides cover for alternative and homeopathic treatment without referral from a GP, making it attractive to young families. The excess arrangement can provide substantial savings of up to 37.5% of the premium, making this a very competitive product.

Although a comprehensive policy is generally the ideal solution for a young family, the NUH Medios Optional policy provides a good low-cost option and is probably one of the best value-for-money products currently available. The policy provides excellent long-term value, being an age-capped product with no age-related premium increases. It operates on a menu system enabling people to match benefits according to their needs and budget. The basic policy provides full cover for inpatient and day-case treatment, with options available at extra cost for outpatient consultations and diagnostic procedures (a £500 compulsory excess applies to these benefits), plus post-hospital therapies and home nursing. The monthly premium for a couple in their early 30s with two children on the provincial hospital band with all the outpatient options would be approximately £78.

Although there are products currently available that have particular appeal for young families, the PMI industry should be doing more to target this client base. Many insurers seem to be of the opinion that a large percentage of young people generally have PMI cover provided by their employer. That may be the case, but there are a growing number of young people who want to choose the cover that is most suitable for them and benefit from a policy that is transportable. They want the consistency of cover provided by a single insurer, rather than have their cover chopped and changed from one insurer to another over a period of time.

The industry needs to adopt more of a 'cradle to grave' philosophy by providing sustainable premiums over the lifetime of a policy. Good long-term business can provide a portfolio with a better risk spread, which is where innovation can enter the equation.

Unfortunately actuaries tend to shy away from new ideas ' it is safer to revamp the tried-and-tested format. Although the larger insurers like to think that they lead the way, PMI is generally driven forward by innovations introduced by the smaller insurers. Intermediaries need to support these innovators, as they have the tendency to provide our clients with the cover they require and the potential to grow the market.

Stephen Walker is chief executive of Medical Insurance Services