Bad news for PMI as sales continue to fall

Doom and gloom for the private medical insurance (PMI) sector looks set to continue as sales of individual policies have continued to fall.

Figures from a recent report by Datamonitor, UK Health Insurance 2004, showed the PMI market has sustained its seventh consecutive year of falling numbers, with 2003 measuring 82,000 fewer individual PMI policyholders compared to four years earlier.

The falling number of policies in operation can be largely attributed to the rising cost of private healthcare, said Fiona O'Regan, financial services analyst at Datamonitor and author of the report.

"There is little doubt that ever increasing premiums have suppressed demand, driving some consumers to give up their cover and preventing others from taking it out in the first place," she said.

Findings from the research back O'Regan's view. It showed that consumers regarded the cost of policies and a lack of need for cover as the two most common reasons for the low take up of PMI plans.

While this is bad news for advisers in the market, it is one that remains a constant battle. Jill Fletcher, director of W B Baxter, said clients are carefully considering pricing and re-evaluating their needs.

"In some cases, many clients feel they could save the money themselves and, if required, use it to buy medical care directly. After all, the hospitals and consultants will still offer services if no insurance exists," she said.

However, the PMI market is showing some signs of optimism, as Datamonitor's report also highlighted that while the individual PMI market has experienced ailing sales, the corporate PMI sector has faired better, with most potential future business coming from this area of the market.

Datamonitor predicted that the number of corporate PMI policies would increase by almost 32% from 2,603 in 2003 to 3,432 in 2008. The research attributes this to the increasing number of employers using PMI as a management tool to help them control the cost of absence, with many seeing a link between a reduction in absence and offering healthcare benefits.

However, a survey carried out by Aon Consulting, contradicts this view, arguing that sales of corporate PMI are more likely to fall as employers - just like individuals - will find the cost of PMI too heavy to bear. According to its results, some 80% of employers claim rising costs are their biggest concern when renegotiating private healthcare arrangements.