Cash plans are no longer the best-kept-secret in the health and protection industry. But as their popularity increases, are there even greater opportunities out there than many brokers think? Nicola Sullivan reports
The cash plan market is a story of two halves. While the numbers of people covered by company-paid cash plans increases, the proportion of those covered by voluntary schemes continues to fall.
Laing and Buisson’s Health Cover UK Market Report 2012 shows that in 2011 plans paid for by the individual (including employees) fell by 4.6%, representing a total of decline of 22% since 2008. In contrast the proportion of company-paid cash plan members have more than doubled in the past five years, rising by 13.5% in 2011, following similar strong growth (up 11.2%) in 2010.
The study also found that intermediaries were more likely to favour company-paid plans over voluntary plans. In 2011, an estimated 14.5% of all cash plan sales were made via an intermediary, and 12.5% of those were company-paid, compared to just 2% that were paid for by the individual.
Colin Boxall, corporate director at specialist intermediary ADVO Group, says that a voluntary scheme does not generate enough commission to make it worthwhile for intermediaries and brokers unless it is being rolled out to an employer with a large workforce. The trouble is, says Boxall, new business with large corporates is increasingly hard find, meaning intermediaries are tending to work more with SMEs, which do not have the critical mass to generate decent commission on voluntary schemes.
He says: “A voluntary cash plan works well in a very large organisation that employs thousands of people. Take-up of voluntary plans is historically so low there needs to be a big pool to make it work.”
He adds: “For us putting a company-paid cash plan is a simple straight forward solution, which is often cost-neutral to the client because we reduce spend in other areas. Once you have put the resources in place required to implement, promote and manage a voluntary cash plan very rarely do you actually make an attractive profit.”
Commission on voluntary plans can also be lower than that offered on company-paid plans. For example, in some cases a cash plan provider might offer somewhere in the region of 7% commission on the annual premiums for voluntary schemes, which is sometimes reduced after the first year. This is compared to a fixed figure of 10% that is typically available across the board on company-paid schemes, which generate higher levels of take-up and therefore require less intensive communication to staff.
But Peter McAndrew, sales director at Health Shield, believes that brokers are missing a trick by dismissing voluntary plans, which he points out have higher premiums and can therefore generate decent levels of commission even if take-up is fairly low. Health Shield’s entry-level company paid cash plan, which costs 85p per week (generating an annual premium of just over £44 a year), achieves about £4.40 in commission for each member. However, voluntary cash plan members, says McAndrew, pay on average £5 a week in premiums (£260 per year), resulting in £26 of commission per member for the broker.
“I think what intermediaries forget about is the size of premiums that voluntary schemes bring in. This is the message that we would like to get across”, he says.
According to McAndrew, brokers do not have bust a gut to earn commission from a voluntary plan, especially if they already have a relationship with the client. If for example a broker has put in place a private medical insurance (PMI) scheme for senior management, a voluntary cash plan to cover the rest of the workforce would be an easy sell because its not going to cost the employer anything extra.
He says: “There is one area that I feel that is missed out completely and it is the uninsured people at the organisations where the brokers are already working. They might have a PMI scheme for 20 or 30 senior managers or directors but there could be, 300, 400 or 500 people in that company that have nothing in place.”
Employees who have chosen to self-insure by selecting a voluntary cash plan will also be more likely to make the effort to understand and use the benefit and opt for higher levels of cover in the future.
Paul Shires, executive director – sales and marketing, Westfield Health, says: “Once a person has decided to buy a voluntary plan it is usually with good reason and they use and enjoy the benefit. It usually stays on the books for many years and if anyone leaves employment we can retain them on a similar plan with very little upset.”
However, it is generally acknowledged by both cash plan providers and brokers that extensive communication is required to attract people to voluntary plans in the first place, especially in the current economic climate. Paul Roberts, a senior consultant at IHC, says: “People have less money in their pockets and have to carefully assess what they are looking at purchasing.”
Many of the leading providers are keen to promote the fact that they have specialist sales teams dedicated to the marketing of voluntary plans, which they say takes the pressure off intermediaries and brokers when it comes to communication.
“We couldn’t commit to that resource if voluntary plans didn’t sell”, says McAndrew.
The most effective way of promoting a voluntary cash plans is face-to-face either in the staff canteen or during a benefits fare of workplace health and wellbeing day.
Westfield’s Shires says: “We have put a lot of commitment and resource into promoting plans within the workplace. The organisation has to buy into it they have to give us access to the employees.”
Howard Hughes, head of employer marketing, Simplyhealth, adds: “Cash plans offer customers really good value. The problem is that they don’t understand them unless we get in front of them and talk to them.
“The most effective way of selling a cash plan is to have a conversation with somebody – you can’t beat that.”
Employers also have an important role to play in the communication of voluntary schemes. “We have some massive clients who allow us access to their canteens and their workplaces to talk to their employees. This is because they can see the benefits to their organisation. Employees might be funding it themselves but it is great that they have access to a pyhsio, opticians or a dentist. Most organisations are very happy to help organisations like ourselves promote the plans to their employees”, says Hughes.
Another good way of showcasing a voluntary cash plan is to place it in a flexible benefits scheme or employee benefits platform, alongside other core and voluntary benefits. Not only can the employee use a dedicated reward website to sign up to the perk, they can also easily access information on all the benefits they are entitled to. As voluntary cash plans offered in this way are paid for via payroll and are a lot more visible to employees, some providers, such as Westfield, offer higher level of commission.
“We are able to pay full commissions to intermediaries on the flex scheme”, says Shires.
Matthew Judge, technical director, Jelf Employee Benefits, adds: “Building a cash plan option into an online benefits platform is a good way of ensuring it is promoted.”
However, according to Roberts the increased focus on online systems and sign up processes shouldn’t overshadow the importance of face-to-face communication.
He says: “The massive desire to push towards online sign ups and online systems doesn’t help the insurance industry and it certainly doesn’t help cash plan sales because they need describing.”
In addition, any communication campaign for voluntary plans should also ensure employees are aware of the umbrella of benefits that cash commonly offer alongside more traditional healthcare treatments. These include retail discounts and second-opinion medical services such as Best Doctors.
Shires says: “We do continue to evolve our products and we’ve got more modern benefits in there. No longer is just money back for dental and optical. We have got more emotive benefits.”
The jury is still out on whether brokers and intermediaries will come around to the argument that voluntary cash plans can add value while at the same time achieve decent commission. Although voluntary cash plans may appeal to cost-conscious employers, brokers may feel that the company-paid market not only allows them to offer more competitive packages, but also has enough flexibility in premium levels to suit employers with a variety of different budgets.