By Rachel Williams Subscriptions for private medical insurance are on the increase for the first tim...
By Rachel Williams
Subscriptions for private medical insurance are on the increase for the first time in a decade on the back of growth in the company-paid market
Subscriptions in 1998 rose by 3.6% on the previous year, bringing the total amount of insured subscriptions to 3,570,000, according to the 1999 PMI UK market sector report, published by healthcare consultants Laing & Buisson. But sales growth was not uniform growth was focused in the company-paid market with subscriptions to individual/ employee paid schemes suffering a slight decrease
While sales may have picked up, the evidence suggests that there is still far to go. The Datamonitor report UK Health Insurance 1999 forecast that the corporate sector would only achieve annual growth of 2% by 2002
Laing & Buisson research told a similar story, predicting a deceleration in demand over 1999 due to substantial premium hikes. The report said this would be followed by moderate increases in 2000 and 2001 with a more tangible pick up in 2002. However, it is likely that this improvement will be bolstered by an increase in demand for non-insured schemes
The Laing & Buisson report suggested that any growth in demand will be in the company-paid market, but this may be limited in 2000 by the extension of employer national insurance contributions to cover benefits in kind. Further premium hikes are expected to remain moderate and this will be the key driver of income growth rather than an increase in the number of policyholders
Derry Andrews, general manager at Strasbourgeoise UK, which is the parent company and underwriter of Clinicare, said: "Laing & Buisson has become more realistic in its predictions than in recent years. We believe growth prospects for PMI are going to be small or static until we see some sort of change from the Government
Despite this, he added that all insurers will be expecting some growth in the smaller end of the corporate market where the need to manage sickness absence is greater
The failure of the individual market to show any signs of pick up after years of being static does perhaps suggest that this sector of is now saturated. But health insurers are not convinced
John Castagno, managing director, healthcare at Legal & General, said: "We believe there is an additional penetration opportunity of between 3%-4% coming from people who are predisposed to buying PMI but have not purchased it as yet
Andrews said that Government promises may cause many to delay taking out cover. "The market has not reached saturation point, the perception at the moment is that individual PMI is expensive and with the present Government making promises about NHS waiting lists, many will look at the product and be put off buying it until another time
Robin Payne, business development manager at Exeter Friendly Society, said that the take-up of individual PMI is not going to increase until the Government admits there is a role for PMI in the provision of healthcare as NHS services become increasingly selective
"To try and pretend that the NHS will always be able to deliver all treatments to all people is a fallacy. A public and private partnership is in the interests of everyone, but we need political will to accept this as reality," he said
Despite a struggling individual market, it is not necessarily an area advisers should neglect. "There is still enough new business to warrant interest from IFAs," said Castagno
Although the Laing & Buisson report found that PMI volume growth increased, revenue growth fell in 1998 due to falling average real premiums paid by the individual. The cause of this is most likely to be a combination of above average lapsing, particularly in the over 55s market where premiums can be high, and downgrading through higher excesses or network discounts in an attempt to steady surging costs
Castagno agreed that lapsing in the older policyholders' market is still occurring. "PMI is still being affected by high lapse rates after the removal of tax relief for the over 60s in 1997 and the effect of this is still feeding through
The report also found that moderate claims growth reported in 1997 appears to be a short-lived blip with claims incurred rising in real terms by 5%. Increased claiming, rising hospital unit costs, diminishing effects of network policies and increasing referrals from GPs are all likely to be contributory factors. Improvements in medical technology are traditionally regarded as the driver behind increasing claims costs yet data does not provide a breakdown of components
With claims increasing beyond subscription income, insurers have been experiencing falling margins. Across the industry, gross margins fell from 21% of subscription income in 1997 to 17% in 1998, the lowest in seven years, yet this lull is expected to be temporary as insurers focus on regaining their margins. This has already been marked in above average premium hikes for individual subscribers this year
The Laing & Buisson report found that penetration of PMI stood at 11.5% at the end of 1998, or 12.5% if those on non-insured medical schemes are included. The market is still dominated by BUPA and PPP who between them have a market share in excess of 70%. Provident insurers are no longer the dominant suppliers of PMI in a market split 50:50 between commercial and provident providers
By 2002 total market penetration is expected to rise to 13% of the UK population, inclusive of those on non-insured schemes
