Providers must target specific socio-economic groups to improve take up of PMI
Product innovation and the exploitation of new distribution channels will be essential if more people are to buy private medical insurance (PMI) in the UK, according to Datamonitor.
The independent marketing analyst said the industry is facing dual problems of static market penetration and increasing claims costs, forcing premium rates up.
James Allingham, Datamonitor analyst and author of the report, said: 'The only way health insurers can significantly improve customer acquisition, particularly in the individual market, is through innovation. There are many types of people who could benefit from PMI, from healthy individuals to extreme sports people. In order to acquire these people, new tailored and cheaper products are needed.'
Allingham believes that in order to reach these customers it is necessary to advertise to specific socio-economic groups through new distribution platforms such as the internet or television. The report states a reduction in mean annual premiums is crucial to increasing market penetration through products such as excess and self-pay policies and streamlining systems ' especially in claims departments ' given the low margins in this market.
The report states one of the main concerns for the PMI market is that the number of individuals covered has remained roughly the same for the last five years. PMI consumers increased from just under six million in 1995 to approximately 6.2 million in 2000.
In the same period the group PMI market increased at an annual average rate of 4.7%, with earned premium levels growing by 7.6%, while, in the individual market, policyholders decreased at 1.7% annually, with premiums actually earned growing by over 5% year on year.
Overall growth of gross earned premiums is due to an increase in premium rates, rather than an increase in policyholders, with individual policyholders, rather than group plans, paying the price for increasing claims costs. The individual market saw average premium rate increases of 6.9% per annum between 1995 and 2000, compared with 2.8% for group policies.
Increases are the result of the increasing number and cost of claims. The UK demographic structure is shifting towards older age groups, and the over 60s are restricted to individual policies due their age. This oldest demographic group accounts for the majority of claims, hence the rise in premiums for the individual PMI market and the drop in clients, as policies become unaffordable.
Shaun Newcomb, of specialist PMI intermediary Healthguard, said: 'Although I do not doubt the figures, there are enough healthcare advisers in the market ' that probably speaks for itself. I do not see vast numbers of clients cancelling policies, but they do moan about premium increases. It does help that the providers are innovating so advisers can keep clients happy. However, I can see it being a difficult market for new entrants.'
