Healthcare cash plans look set to grow in the intermediary channel as clients become increasingly priced out of the private medical insurance market, finds Angela Faherty
In its market sector report in 2001, Laing & Buisson reported that over six million people in the UK held a healthcare cash plan at the end of 2000. While this equated to 11.6% of the UK population, the growth of the market had actually stalled and penetration of cash plans had dropped from 12.3% in 1999.
Although growth of the market had seemed to peter out, the sector now looks set for change. A dramatic shift in market dynamics coupled with an increase in demand for healthcare services should see sales of cash plans rise over the next few years.
While the market certainly offers further growth potential, industry players are already reporting an increase in sales of cash plans, particularly over the last 12 months. Raman Sankaran, marketing and communications manager at Healthsure, says growth has far exceeded expectation over the last year and believes the market is headed for greater success. 'On the general sales side, this has been our best ever year in terms of new acquisitions, and this reflects the increasing demands of a changing market,' he says.
Seeking alternative routes
One of the key changes in the sector has been the rise in the number of advisers entering the cash plan market for the first time. Traditionally, cash plans have been sold directly by providers to consumers, but with private medical insurance (PMI) costs spiralling, brokers have been seeking out alternative routes in the healthcare market.
'Brokers are tuning into the opportunities presented by health cash plans because of a number of reasons,' says Sankaran. 'Two years ago, the majority of brokers were not interested in the market, but because of the increase in demand for healthcare products and spiralling PMI costs, they are increasingly seeing the ongoing benefits, especially for business clients.'
Jill Davies, executive director, sales and marketing, at Westfield Health, agrees one of the major changes in the market has been an enhanced interest from advisers. 'The market is definitely changing. Not all cash plan providers have supported advisers in the past, but because of their increasing involvement in the cash plan sector, more are and that is very important,'she says.
Davies believes the growth in corporate sales is also a direct result of an improved interest from advisers. Most businesses use an adviser to sort out their insurance and protection requirements, and everyday healthcare needs are no exception. What is different, however, is the number of companies using cash plans as an employee benefit tool instead of catering for the minority through a corporate PMI scheme.
Although new areas of the cash plan market are beginning to open up, the more traditional, individual sector continues to boom as consumers become more concerned about their well-being. With access to affordable dental care in the UK becoming increasingly limited, and NHS waiting lists failing to drop, consumers are becoming more attentive to their healthcare needs.
'Increased costs in healthcare, notably dental treatment, means there is greater demand for cash plans,' says Sankaran. 'Well-being is a key issue for today's consumers. Years ago, people used to visit the chiropodist when they had problems with their feet, but now they go to keep their feet in order. The way people view their healthcare needs has changed hugely,' he says.
As the market continues to grow and more business potential is offered through an increased interest from advisers and companies, it is hardly surprising that the larger traditional PMI players have started to introduce cash plans into their product portfolios. While traditional cash plan providers admit larger profit-making organisations could change the face of the industry, most remain confident of their place in the market.
Julie Draper, marketing officer at Health Shield, says new entrants to the market are only to be expected. 'Typically, cash plan providers are not for profit organisations, and now we are seeing larger profit making insurers coming in to the market, which does change things. However, we hope to eventually bring PMI into our own product portfolio because it gives consumers wider choice,' she says.
While others admit profit making companies could lead to a more competitive market and an increase in claims, the general feeling is that having larger players involved could help to boost an awareness of the cash plan market.
'I see larger insurance companies coming into the market as an opportunity rather than a threat,' says Sankaran. 'All it does is increase awareness of cash plans, and that can only be a good thing as that is a major challenge facing this sector. The vast majority of the population are not aware of the benefit or think it is PMI.'
Davies agrees that raising the profile of cash plans is one of the key benefits of seeing larger insurers come into the market, but she remains adamant that the traditional providers will continue to commandeer the market.
She says: 'A lot of insurers have come into the market and while that helps to raise awareness and makes the market more effective, many came in thinking it would be easy, and they have not forced the traditional players to the wall yet. It is all about good value and it is better to pay out more on four benefits than to pay out less by offering 30 benefits.'
With changes afoot in the market, it seems the surplus benefits to which Davies refers could gradually begin to dwindle. Des Benjamin, chief executive at HSA, believes the benefits offered through cash plans are likely to change in line with new developments in the healthcare sector.
'The proliferation of benefits that do not add real value and are confusing to customers will slowdown,' he says. 'Benefits which work with a new style of NHS delivery will come to the fore, such as more day case and short hospital stay benefits. NHS provision is different from five years ago and cash plans need to reflect this.'
Regulation
Perhaps the most significant change to the industry is the forthcoming Financial Services Authority (FSA) regulation in 2005. The FSA has said that all health cash plans written as general insurance contracts will be subject to regulation. Sankaran admits that while it is still too early to know where cash plans will sit under the new regulatory regime, there is concern about how sales will be affected.
'While nothing is set in stone, as it stands health cash plans would come under CP160's remit and regulation could affect the way products are sold in the market. There are also fears that cash plans could be lumped in with standard PMI, which is a much more complex product. Cash plans are a much easier sale, the products are not tailored to each individual's needs,' he says.
For the cash plan market, the landscape has been and will continue to change for the foreseeable future. However, most cash plan providers are optimistic about the future and the changes afoot in the market. Sales have been steadily rising in both the personal and corporate areas of business and the industry believes this trend is likely to continue.
While there are challenges ahead in terms of regulation, increased competition, consolidation and product innovation, providers feel these are obstacles they can overcome to help lead the market to greater growth.
