The healthcare cash plan market, Philip Wood tells me, is evolving. It is a market that is more innovative than ever, more lively than ever – and more competitive than ever.
Wood is well placed to know. Now executive director for sales & marketing at Health Shield, he has spent some twenty years working his way up the ladder at what is now widely acknowledged to be one of the “rising stars” of the cash plans scene.
The provider, which is currently sixth largest in terms of market share, has been looking after the everyday healthcare needs of its members since it was established in 1877. Now, it is aiming high and Wood is spearheading a five year sales and marketing push which he hopes will see it challenge for a top three position in the sector.
Those are ambitious plans for an organisation which started out as a small friendly society called the Transport Hospital Fund, based in Crewe, Lancashire. In the early days it was allied to the railway, providing healthcare for workers prior to the establishment of the NHS. However, as the shape of that industry changed, so did the society, opening its doors to the wider public and companies, to become the organisation now known as Health Shield.
Wood has been with Health Shield throughout the past twenty years of its evolution into the modern healthcare provider it is today. He has had, he says, “a good grounding from the floor up”.
“I’ve been involved in building the sales team up from scratch in the early years, involved in going out the market itself, involved in the decision to change the name of the society and then promoted to the board,” he says.
Now, Wood and that board are in the midst of a hugely ambitious growth strategy that has caught the attention of both competitors and intermediaries alike.
The five year business plan, which began in January 2009, aims to double annual premium income to £38m by 2013. In 2009, turnover stood at £22m and Wood concedes it will be a challenge to meet the target. However, last year the society recorded an increase in new members of 63%, from 24,656 in 2008 to 40,311 in 2009. The number of company paid schemes also surged, by 145% to 147 and Wood says the society is “right on track”.
“Ideally, if we carry on this way we will have over 200,000 members and have doubled our turnover by 2013,” he says. “It is stretching, it is a challenge but that’s why we’ve invested to take this forward.”
THE PRICE OF SUCCESS
That investment in growth has seen acquisition costs surge by 28% in the first year of Health Shield’s five year plan, from £2.7m in 2008 to £3.75m last year but, Wood says, that is a figure very much in line with the organisation’s strategy.
“It’s an investment that is being made to increase our presence and awareness in what we believe is an expanding market,” he says. “Roughly less than one in ten of the population have a health cash plan and there is no reason why two in ten shouldn’t have one. The market that is perceived to be worth £500m at the moment could easily double in the next five years.”
Is there not a danger, then, that such challenging ambitions – to double turnover within five years, for example – might prove to be too much of a stretch?
“If we didn’t take this on we would have been at risk of sitting back and losing members and premium income in an expanding market,” Wood explains.
He denies, though, that Health Shield has been buying business in a bid to gain market share. Any suggestion that it is over-stretching its reserves – a key barometer of provider solvency – are wide of the mark, he insists.
As a friendly society, Health Shield has no shareholders to pay. However, like other not-for-profit cash plan providers it does need to manage the relationship between premium income and claims and expenses carefully and a review of the 2009 accounts underlines the aggressive nature of its growth plans.
While 2009 saw Health Shield’s claims ratio fall four percentage points to 79.4%, its combined claims and expenses ratio remains over 111% and critics suggest that there is only so long a cash plan provider can eat into its reserves as it grows its business. Wood, however, says that solvency and financial stability remain the organisation’s number one priority.
“We believe we are the most financially strong provider in terms of reserves per capita,” he claims.
Indeed, Health Shield’s accounts for 2009 show that its total assets rose to almost £48m from £41.7m in, largely due to improvements in the stock market.
That, plus the attitude of the Health Shield board to financial stability, means that the society remains in good shape, Wood says. The fiercely competitive nature of the cash plan market at present is resulting in some aggressive and – some would argue – unsustainable pricing but it isn’t a temptation that Health Shield will fall for.
“It is a very competitive market, yes,” he says. “Providers are stepping up to the plate. But we will not do it at any cost. We are aware of the risk factors.”
Wood expresses surprise that some of his competitors in the cash plan market do not seem to be in tune with the potential implications of Solvency II, the European Commission directive which is designed to align insurers’ capital requirements with the risk they take on. Health Shield, he says, has been making sure its processes match the new requirements and is in the process of recruiting a group risk officer.
While some of his competitors are, he claims, not up to speed when it comes to the wider implications of solvency and financial stability, most professional intermediaries take a keen interest in the issue.
“Financial stability is something that gets mentioned at tenders,” Wood says. “Intermediaries do want to see report & accounts and want to make sure that providers are stable businesses.”
RELATIONSHIP WITH INTERMEDIARIES
Intermediaries, Wood explains, should take comfort from the fact that while Health Shield aims to be a competitive player, it will not do so at any price.
“It is not our ambition to grow at any cost or to throw away where we have come from,” he says. “We’ve got a very strong and rich heritage linked to the railway and transport industry. We’ve got very loyal members. But there is the opportunity for us to offer new and exciting products to the group cash plan market.”
Those products include “off-the-shelf” ones such as the Tailored, Corporate, Essentials & Essentials Plus and Flexible Benefits schemes. But Health Shield is also increasingly working in partnership with intermediaries to design bespoke solutions for employers.
“We’re not too big a company that we cannot be flexible,” Woods says. “Intermediaries have been surprised about how flexible we are and how quickly we can turn around product propositions that they’re asking for.
“Intermediaries are businesses too and they want to be ahead of their competitors,” he continues. “They’ve been pleasantly surprised at how quickly we’ve been able to turn around bespoke product designs from concept, design and agreement to market stage.”
Wood concedes, though, that Health Shield has been slow to fully appreciate the potential that healthcare intermediaries bring to the table.
“Three years ago was the first time we attended the Health Insurance Awards, for example,” Wood says. “We had agency agreements with intermediaries dating back more than ten years but we realised that we were not doing enough to actively engage with them. Although we did have agencies and were happy to deal with intermediaries, we didn’t have a proper understanding of how they can help us with our ambitions.”
That, though, is changing. Commission to intermediaries almost doubled to £163,589 in 2009 from £84,650 in 2008, which not only represents an increase in Health Shield’s membership base, but also demonstrates how the provider is working through the broker channel more.
Wood is also adamant that Health Shield’s own direct sales function does not come into competition with intermediaries.
“We have our own sales team but we treat the intermediary as a key client,” he says. “We don’t have, for example, separate direct sales and intermediary sales operations which argue and fight over the business.”
It is a strategy which appears to be working, with Health Shield being highly commended in the Best Cash Plans Provider at last year’s Health Insurance Awards, Wood points out.
Health Shield is not content, though, to rest on its laurels, he stresses. Things are going well in the five year business plan but Woods concedes there is a lot of ground to make up if the organisation is to challenge the likes of Simplyhealth, Westfield Health and BHSF in terms of market share.
However, Wood says the Health Shield board is unlikely to take any short cuts. The cash plan market has seen consolidation over the years, but that is something that is not on the board’s radar, at present at least.
Wood is not sure that some of the smaller, local cash plan providers will be able to meet the higher costs of regulation necessitated by initiatives such as Solvency II and that, he says, could lead to mergers and acquisitions.
“It’s not our strategy at the moment, but the board does review strategy year on year,” Wood says.
So with organic growth foremost, Wood says he is certain that intermediaries will be hearing much more from Health Shield than in the past.
“When I set out I didn’t imagine we would be in this position of taking on the market,” he says. “We’ve always been good at what we’ve been doing but now is the time when we can tell more people about it and get more visibility.”
Philip Wood began his working life with the National Bus Company in coach and travel agency operations, gaining experience in accounts, administration and marketing departments. After a spell at a small Manchester-based friendly society, he later moved to Thorn EMI Financial Services as a financial control co-ordinator before deciding to pursue a career in sales and marketing. Wood joined Health Shield (then Transport Hospital Fund) as assistant membership manager in 1990 with a brief to develop new business outside the Society’s core railway membership, which was in decline at that time. He was actively involved in the establishment of Health Shield’s national sales team and in 1996 and became national sales & marketing manager in 1999. As marketing director, Philip was appointed to the board of management as an executive director in July 2005. He was elected a fellow of the Chartered Institute of Marketing in 2001 and has also lectured on marketing and business management. Philip is also a fellow of the Institute of Sales & Marketing Management and a Freeman of the Worshipful Company of Marketors.
LIFE OUTSIDE OF INSURANCE
Phillip Wood describes himself as an “aging mod” and music fan, with Paul Weller and the Jam his particular favourites. He enjoys watching most sports including rugby, which he previously played. He now plays golf although “rather badly and much to the amusement of friends and colleagues”. In additional to a busy family life, he is also interested in genealogy.