With the launch of BUPA's new Heartbeat policy last September and the imminent launch of PPP's Uniqu...
With the launch of BUPA's new Heartbeat policy last September and the imminent launch of PPP's Unique range, the trend of individually underwritten private medical insurance (PMI) in the UK seems set to grow rapidly. But, will the offer of cover for pre-existing conditions and lower premiums for healthier customers widen the market or ultimately mean a rise in premiums if the risk pool is narrowed?
There is no doubt that the PMI market is in desperate need of innovation. With potential customers being priced out of the market, many intermediaries have reported yet another fall in new business and are looking to insurers to come up with an answer to ensure a rise in future sales. Stephen Walker, specialist PMI intermediary at Medical Insurance Services, says: "We need to open the market to more low cost policies. Insurers need to get together with intermediaries and come up with a way to provide good policies at a lower cost."
Reducing the cost
BUPA's initiative to provide individually underwritten PMI through its new policy Heartbeat, plans to do just that. Giving customers the opportunity of lower premiums with risks calculated on an individual basis, means that healthier people may benefit as they will no longer be subsidising the less healthy. With the added benefit of cover for some pre-existing conditions, it may also mean that customers can switch from one insurer to another without losing out on cover.
Fiona Harris, actuarial risk manager at BUPA, says: "A proposition driven by customers rather than products is well overdue. The Heartbeat policy is very customer focused, and this is something that should be welcomed by the industry."
The idea of promoting prevention rather than cure is not a new concept to the industry. But the fact that customers can benefit financially through good health as well as insurers could perhaps mean that more people may be tempted to buy cover.
Andy Sampson, head of planning and research at Legal and General, says: "These policies could potentially widen the PMI market by attracting younger, healthier people who would not usually opt for cover. It is well established that PMI customers are mostly an ageing population, so this could pull in the younger end of the market."
And it is not only healthier customers who could benefit from the developments. With both BUPA's Heartbeat and PPP's Unique initiative including cover for some pre-existing conditions, the new policies can benefit two separate needs. Nye Jones, channel development manager at PPP healthcare, says: "Individually underwritten PMI appeals to two groups of customer, those who are price sensitive when choosing cover and those who may want to cover some or all of their pre-existing conditions."
BUPA also sees the potential for grabbing a share of the market. Harris says: "As some pre-existing conditions are covered, it enables us to target markets we have not previously been able to reach, as well as existing customers. People who have a single condition or those who are fit and healthy may not have seen the immediate value in PMI before, but now they can benefit from lower prices as they are seen as a better risk."
Cause for concern
Some insurers are concerned, however, that instead of widening the market, individually underwritten policies could confine the risk pool and bring a rise in premiums for traditional PMI customers.
Gillian Gibbons, PR manager at Standard Life Healthcare, says: "Although individual underwriting is a revolutionary approach to PMI, I think it will inevitably increase premiums as risk is not spread across customers."
Sampson agrees, and says: "At the end of the day, individually underwritten policies will attract people who are healthy already. Pricing at the moment is dependent on a true pooling of risk. If all the good risks opt for individually underwritten policies, prices could go up for customers sticking to traditional policies."
But Harris insists that BUPA's policy will help to widen the risk pool and lower premiums across the board. She says: "A large proportion of the premium paid is to do with risk share. It is only the smaller proportion of the premium that reflects whether individual customers are a good or bad risk. To make successful PMI, the bigger the range of risks the better. Individually underwritten PMI gives the opportunity to widen the risk pool, attracting both good and bad risks."
So what do these policies cover? BUPA's Heartbeat policy, the first individually underwritten policy in the UK market, claims to be a flexible personal health plan that puts as much emphasis on keeping people well as helping them when they are ill. Customers pay an individual price based on lifestyle factors, including occupation and their levels of health in a bid to form a more accurate calculation of risk than the traditional - and somewhat limited - age and medical history criteria.
Cover is wide ranging and includes outpatient consultations and therapies, theatre charges, body scans and private ambulance. A large number of pre-existing conditions are also covered, with exclusions mainly being chronic conditions such as diabetes or allergies. BUPA claims nine out of 10 customers will have no exclusions from pre-existing conditions.
PPP claims that its soon to be launched Unique range will offer individual PMI products at premiums of up to 40% lower than current prices. Details of the plans are unavailable at present as they are still in the pilot phase and only available direct or through a small number of their active business partners to ensure controlled testing. Like BUPA's policy, however, the Unique plans are set to provide additional cover for non-chronic pre-existing conditions, including some forms of hypertension, asthma and bronchitis.
Covering unhealthy clients
Both products appear to have great potential for customers who fit the right criteria. But what about those who do not? In addition to those suffering from chronic conditions and what is considered to be an unhealthy lifestyle, customers in need of immediate treatment may also lose out. This is because premiums would take these factors into account so it may be more effective to self-pay.
Harris says: "The Heartbeat policy would not be cost effective for customers who are in need of immediate medical care, such as a hip replacement operation, as premiums would need to be paid to cover the cost of the operation plus a price margin."
Hazel Berril, managing director of Healthcare 4 Life, agrees, saying: "I think the new policies have potential growth for all areas of the industry, but I would advise customers who had experienced recent medical problems to stick with fully underwritten PMI."
In addition, Walker claims that some clients who may benefit from lower premiums when taking out a policy may be stung later on. He says: "BUPA's Heartbeat policy is a step up from its previous fixed-price policy and it is moving in the right direction. But it is not the complete answer. It can still work out to be an expensive policy as there is a hefty age-related rise in premiums if customers want to renew the policy when they are older. The best options at the moment seem to be age-capped policies."
Individual underwriting may be a new concept in PMI, but according to Jones the benefits have already been proved in other markets such as life assurance, income protection and critical illness. He says: "This development will not undermine the concept of PMI, but will use the sophisticated methodology in underwriting already seen in other insurance sectors."
Future development
With two key players in the PMI market making the decision to offer individually underwritten policies, is it inevitable that other insurers will soon be developing similar products? At present there is a mixed response.
Healthcare 4 Life and Standard Life Healthcare have both been developing more flexible moratorium policies and feel that customers with a healthy outlook can benefit just as much from these as they can through individual underwriting. Gibbons says: "We feel that our moratorium policy accommodates the potential market for individual underwriting and have no plans to follow BUPA's lead."
Legal and General, on the other hand, feels that BUPA and PPP may have sown the seeds for further product development. Sampson says: "This is definitely a development we will be keeping an eye on. Although we have no plans at present to follow suit, we are not ruling individually underwritten PMI policies out for the future. It is undoubtedly a good development and has been a long time coming."
Whether or not other insurers decide to follow, BUPA is confident that this new development has great potential for the future. Harris says: "I would hope that the market follows the customer driven route of individually underwritten PMI, as I think it has benefits for the whole industry."
Kirstie Redford is senior staff writer
