Healthcare cash plans have traditionally attracted little attention from IFAs and brokers.
Intermediaries dealing with health products have preferred to concentrate instead on private medical insurance, attracted by the significantly higher subscriptions and commission on offer.
Yet it would be wrong to ignore cash plans entirely. Commission maybe small, and in some cases non-existent, but the low subscription rates and a wide variety of benefits offered makes them popular and relatively easy to sell to clients, so earnings can add up.
There are two types of cash plan: health cash plans, which provide cash benefits towards a wide range of care, including hospital admission and optical and dental treatment; and hospital cash plans, which provide a specified cash benefit on admission to an NHS or private hospital.
The market is sizeable, with more than three million subscribers to health cash plans, and one million hospital cash plan policy holders.
Since a single contribution covers member, partner and family, the number of people with access to a plan is far higher. The British Health Care Association, the trade body for cash plan schemes, claims sales have more than doubled over the last six years, compared with a 25% decline in PMI subscribers.
This growth suggests that cash plans, which have been seen as a blue-collar product for those who do not want, or cannot afford, private medicine, have increased appeal for the middle classes.
The benefits are intended to meet the incidental costs of illness, from dental expenses to prescription charges, with treatment itself coming on the NHS.
Although cash plans do not pay directly for private medical treatment they can be used to plug the gaps left by PMI, particularly budget medical insurance packages that may exclude out-patient treatment. It is increasingly seen as an add-on product to PMI, rather than an alternative, so keep on your toes and you may be able to sell both at the same time, and many health insurers also sell cash plans.
One drawback for intermediaries is that some cash plan providers, notably the Hospital Savings Association (HSA) which is the largest, pay no commission at all and rely on gaining new customers through their sales forces and press and poster advertising rather than intermediaries. You have probably seen Will Carling and Steve Redgrave grinning at you from billboards. However, it would be wrong to conclude that cash plan providers are not interested in selling through IFAs, as a number of products do offer attractive commission.
Most cash plan providers are non-profit making organisations, and this helps them give customers a wide range of benefits. Some offer more than 20 benefits, contributing towards the costs of a range of healthcare including maternity, physiotherapy, specialist consultations, in-patient and casualty admission, hospital parental stay and hearing aids.
The low subscriptions (starting from around £l a week) coupled with the wide range of benefits offered, should also endear the product to clients, who may quickly receive more in benefits than they have paid in.
Cash plans are particularly attractive to subscribers with families or those who are planning to start a family. For example, an HSA member paying £1.60 a week into its SuperPlan will receive £100 for each child born, rising to £800 per child for a £12.80 weekly subscription, with a 10-month qualifying period. The subscription covers both the member, their partner and children under 18.
Older clients may also find cash plans to their liking. They can join cash plans up to age 65 or 70 and remain indefinitely, paying the same subscriptions as a member aged 20. This at an age when PMI premiums become prohibitive for many. No medical is necessary before joining. Cash plan benefits from HSA, for example, include a convalescent home, a recuperation grant, elderly care and home help payments.
The cash plan market is seeing new entrants, with Surgery Merchandisers having launched its cash plan, Medex, in January, to be sold through intermediaries. Director Stephen Katz says the cash plan market is likely to see substantial growth. “The private medical insurance industry has experienced almost no market growth over the last few years. This suggests there is greater demand for low-cost schemes to help out with day-to-day financial difficulties arising from health problems.”
He says that cash plans are easily understood by customers, whereas PMI policies, because they have a range of exclusions for different levels of cover, can be confusing. With no medical underwriting and no age differentials, he says cash plans are easier to join and offer tangible benefits. “Anybody who wears glasses, visits the dentist or thinks they might get ill, ought to have a policy. It can be cheaper to have a policy than pay for these things yourself.”
A family paying a weekly subscription of £9.45 with Medex could claim an annual maximum £309 for both dental costs and optical costs, £9,373 for hospital costs and for accident care and £1,028 towards maternity and physiotherapy costs.
Katz says intermediaries will be the major sales route for Medex. “Traditional providers have not recognised the value of brokers, have refused to work with brokers or understand the added value a broker can offer,” he says. Commission is available from Medex on both individual and corporate membership, with no clawback if subscriptions are cancelled after four months’
commission has been collected. Another provider that pays commission is Manchester & Salford Hospital Saturday Fund, which has 250,000 members. Spokesman Stephen Newton says commission works out at 40% of premiums in the first six months, and 5% thereafter.
He says cash plans are attracting customers from higher social groups: “People are beginning to see a greater need to take on the burden of healthcare costs themselves. They are less inclined to trust the State to look after them should they fall ill. Cash plans are seen as distinct from PMI and have escaped the bad press that medical insurers have faced.”
He adds his company sees growth in the corporate market rather than the individual market, as employers realise this is a low-cost way of giving a highly popular benefit to employees.
“Cash plans are not heavily regulated so it is easier for IFAs to get involved. They don’t need to do a full financial health check, which is a benefit. In recent months we have seen a definite increase in the number of enquiries from IFAs,” Newton says.
Western Provident Association pays IFAs 30% commission on its cash plan in the first year, and around 10% after that, says director of corporate communications David Ashdown. WPA sells a large proportion of its cash plans through IFAs and Ashdown backs Newton’s view that more IFAs are getting involved. “They find cash plans easy to sell because they are so simple. All you need is to put down your name and address and how you’re going to pay. Premiums are lower but you can sell more of them.”
Ashdown says a different type of customer is now attracted to cash plans, and this has widened the market. Just as cash plans, which have existed for more than 100 years, adapted to survive following the introduction of the NHS in 1948, he argues they have evolved to meet the needs of new customers. “We have now introduced chiropody, acupuncture, osteopathy and physiotherapy benefits, and have just introduced a prescription charge benefit. There are indications from the new Labour Government that perhaps people will pay something a night when they go into hospital. If that happens then cash plans would come right back into their own,’’ he says.
Ashdown says there is a trend for businesses to offer cash plans to all their employees, whereas PMI, because it is relatively expensive, is generally restricted to senior management.
Cash plan costs are protected from the relentless pressure of medical inflation, which rises at around 10 to 12% annually and constantly pushes PMI premiums upwards.
Sue Richmond, publicity executive at HSA, which has one million subscriptions covering three million people, says another attraction of cash plans is that money is often paid when the customer is not necessarily ill, for example for maternity or dental treatment, and can be spent on whatever the customer chooses, even a new car or holiday to help recovery.
She says claims are settled much faster than for PMI, with the majority settled within 72 hours. Richmond says cash plans are attractive to customers who already have PMI. “If you go into a private hospital and your insurance picks up the tab you can also claim the nightly rate from us. The two can be used to complement each other, if your private insurance doesn’t offer such a wide range of benefits.”
BUPA also offers its own cash plan, HealthCash, which complements its PMI by meeting additional health costs and providing income while in hospital. The policy pays a 25% initial commission, and 5% renewal. John Castagno, head of market development, says the BUPA policy offers a narrower range of benefits than some cash plans, to avoid duplication of cover where members already have a PMI policy and to keep costs down.
He says while many customers get their PMI through IFAs, most buy the BUPA cash plan direct. “We are keen to receive more business through IFAs and they will find in 1998 BUPA will have a greater presence in the intermediary market.”
Cash plans may never form more than a small chunk of IFA business. Commission, when paid, is at a high initial percentage but of a small sum. Yet the policies remain attractive to clients and can help cement the bond between customer and intermediary.
And when the first benefits come trickling through from a cash plan you recommended, you should have a happy client on your hands.