Once disregarded as the poor man's PMI, healthcare cash plans seem to be taking the market by storm,...
Once disregarded as the poor man's PMI, healthcare cash plans seem to be taking the market by storm, with advertisements appearing on underground networks, billboards, newspapers and in doctors' surgeries. According to the British Health Care Association (BHCA), the market has more than tripled in the last 10 years, rising to over £200m in premium income in 1998.
Formerly known as Hospital Saturday funds, cash plans came into being in the mid-19th century. They allowed employees to make a small weekly contribution into a fund in return for a cash sum on receipt of medical treatment. Despite their humble heritage, in a nation where the brunt of many healthcare costs falls on the shoulders of the individual, healthcare cash plans are as relevant today as they were 150 years ago.
The market itself, however, is fragmented. A number of regionally-based mutual funds are still thriving, but merger and acquisition activity has been rife. Also, as a testament to the potential of the market, many of the larger PMI providers such as BUPA, Norwich Union, WPA and BCWA have entered the fray. Scottish Provident is the latest entrant and one of the only life offices in the market, adding a health cash benefit option to its Self Assurance term range. While cash plans are often considered as a complementary benefit to PMI, Roger Edwards, marketing manager, protection, at Scottish Provident, says that the benefit also sits well alongside term benefits.
He remarks: "For example, cash plans are a nice tie-in with disability benefits. If a policyholder is off work with a bad back they could use the cash plan to meet 50% of the costs of alternative therapies." He adds that they can alternatively complement critical illness benefit as they would pay out on surgery that would not be covered under the critical illness cover, such as an appendectomy. While cash plans are not a product in which IFAs have had much involvement, Edwards says they can form an uncomplicated additional sale.
"By including the cash benefit we provide another opportunity for IFAs to up-sell to their clients. It is a non-underwritten benefit that is easy to sell."
The most significant merger to occur recently was that of the Manchester & Hospital Saturday Fund and the Northampton-based Healthcare Insurance Alliance which combined in September 1999 to become Healthsure, the second largest provider of cash plans in the market.
The newly-formed group has shaken off its regional alliances and is now a fully-fledged national provider. Richard Sear, chief executive at Healthsure, says that its newly gained bulk has given it a number of advantages, in particular flexibility. He says: "Our size means that we can be more flexible and can turn out bespoke schemes for companies in a matter of hours."
Competing against larger mutuals and widely known life and health insurers, the smaller hospital Saturday funds are in for a challenge. However, Mirage Islam, assistant business development manager at the Birmingham Hospital Saturday Fund, is not fazed and says that smaller providers can actually benefit from advertising carried out by larger competitors.
He says: "Many PMI providers are looking at alternative products as the cost of PMI rises so turn to cash plans. The marketing spend they have to sell their own products raises awareness for the industry as a whole. Employers looking into the market will want to know who else provides cash plans and these bigger players cannot compete in terms of price."
He adds that as part of its marketing strategy it has to try to differentiate itself from its competitors. It has achieved this by developing a health solutions package.
"We offer standalone personal accident cover that is considerably better value than cover usually found in cash plans and we offer a Well Woman plan that provides personal cancer insurance and counselling."
The Patients' Aid Association has taken the approach of sticking to what it does best. Martin Cook, commercial manager at the PAA says that in a bid to survive, many regional providers have looked to develop a national service, but he says this is an area fraught with competition.
"We have decided to concentrate our efforts locally. There is still massive potential in the West Midlands, so we want to grow our local market and reach saturation point before we look elsewhere," he says.
However, there is still a belief that consolidation will continue. Stephen Flanagan, director of sales at BUPA, comments: "A lot of local funds are associated with trade unions and industry, but as manufacturing continues to decline there will be a period of rationalisation."
Sear agrees and suggests that eventually we could see just six or seven players remaining. Cook, however, is confident that smaller players will survive. He remarks: "The number of providers will decline, but there is still a place for the local provider. If you look at the building society market, there are many good societies just operating at a local level."
Until recently, cash plans have not been recognised in the broker market. However, this is changing and many providers are now looking to push this channel. Philip Fowles, sales and marketing director at BCWA, says: "Our feedback from brokers suggests that corporate clients are increasingly looking at cash plans as an additional benefit to PMI."
One reason why the plans have been ignored by brokers is because it is a low-cost product. But Fowles says it does have its rewards as it can be a volume sale. He says: "Commission on cash plans may not be great, but unlike PMI where you may be arranging it for just five key employees, with cash plans the whole workforce can be covered. It should be viewed as an additional sale rather than as an alternative and this is how successful sellers have approached it."
Andy Parker, strategic business development manager at Norwich Union Healthcare, agrees: "This is certainly an opportunity for IFAs that has been underexploited. We see it as a first step on the ladder for entry into the market. On renewal, people often upgrade or consider PMI. We have also noticed those that can no longer afford full PMI often downgrade to a cash plan."
While cash plans are not an alternative to PMI, Healthsure has noted that more people are dropping their PMI because, if they are not using their it, they do not feel that they are getting value for money. Sear says: "People are now actively switching to cash plans. PMI is far too expensive and many people are not claiming on their policies. Every member on our cash plan will claim at least once a year."
In recent years, the product has also become more suited to the broker market as the profile of plans and plan members changes. While plans do offer low-cost options starting at around a £1 a week, people are increasingly looking to make larger contributions.
"Traditionally the market has targeted Ds and Es but we are now seeing more Cs and Bs coming into the market who have high dental costs and want expensive glasses and can see the benefits of a cash plan. We now have a younger, more affluent membership," Sears says.
Mirage has also noted this change. He comments: "Our plan was originally set up for blue-collar workers, but over the last year we have had a massive influx of younger people. We have implemented a new top-rate scheme according to market needs and we have seen a lot of demand."
Plans traditionally include hospital, dental and optical benefits, as well as cash payments on recuperation, maternity and physiotherapy. A number of the traditional schemes also offer members free stays in their own convalescent home. However, as competition in the market increases more and more providers are looking to offer a wider range of benefits.
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BUPA, for example, offers a benefit for infertility treatment; WHCA and the Bolton & District Hospital Saturday Fund include a fracture benefit; and the Leeds Hospital Fund offers legal and domestic helplines. WPA and Forester Health provide a prescription benefit, as does Norwich Union, which also offers free GP consultations over the phone. Parker says that as a new entrant to the market it was important for Norwich Union to offer an attractive portfolio of benefits.
"Our thinking was that this is a functional product and so tangible benefits are important," he says. "It is relatively simple to weigh up the benefits on a cash plan and we felt that it was important to offer a product that was second to none."
While an endless list of benefits may look impressive, Parker says that purchasers should also be looking at levels of benefit. He says: "Not all benefits are applicable to all people. What is important is to look at the levels of benefit on those that are likely to be used most."
Rachel Williams is a staff writer
