The impact of cash plans on the individual market has been significant in the past few years and the signs are that their popularity will continue to grow. But their individual success has yet to be mirrored in terms of penetration into the corporate sector. However there are those who believe that, given the nature of the beast, cash plans have the potential to become a major benefit to employer and employee alike.
Employers are looking in more detail at absence figures and proactive ill health management – sickness absence costs have risen to £476 a year per employee according to 2002 CBI figures. Human resources teams may be increasingly occupied with duties of care, and stress management is no longer seen as a malaise of professional high flyers but an issue for the broader workforce, which is working harder and longer.
Indeed employers now have a major issue with regards to the management of staff absenteeism. (And it has little to do with predictions that the UK will have lost £3bn in lost productivity in the last month due to employees taking time off to watch the world cup competition).
Cash plans vs PMI
Private medical insurance has long been a popular product for many firms and the benefits are self-evident. However, there is a growing consensus which believes that a healthcare cash plan can work as a risk management tool in a way that a traditional PMI policy could not.
The fact that cash plans will provide benefit to cover the more mundane medical and health issues such as dental, optical and physiotherapy treatment is seen as a potent weapon to get staff back to full fitness as soon as possible.
While there are still those who see the cash plan option as a direct competitor to corporate PMI products, others believe that there is a real opportunity for an integrated product or for firms to offer the two products alongside each other. Cash plans are also increasingly being used as an adjunct to PMI because their benefits are more accessible.
What both major insurers and cash plan providers agree on is that intermediaries are not playing their part in the equation and, by doing so, are not only missing a major opportunity but also failing to provide their clients with the best possible advice and service.
Wendy Dawson, direct sales manager at cash plans specialist Medicash, says: “I believe that staff absenteeism is very high on the corporate agenda and to address that companies need products which will provide a workable solution.
“PMI has often been seen as prohibitive because of its cost and they [firms] have been looking for cheaper solutions which is where cash plans come in. Companies look to employee benefits and see cash plans as a better option.”
Dawson adds: “The big plus with a cash plan is the fact that it is a very visible benefit for the employee. They receive a cheque to pay for, or part fund, their dental treatment or physiotherapy and while the cheque may have the insurer or cash plan provider’s name on it the employee sees it is a direct cash benefit from their employer.
“Recent years have seen employee benefits being placed high on the priority list when it comes to staff retention and also staff recruitment. Many employees now put a great deal of importance not only on salary but also on the employee benefits on offer and some type of health benefit is now a must for new staff.”
Dawson says: “There is a tremendous amount of potential in the cash plan market. Research from Laing and Buisson put the cash plan market in the UK at £339.4m in 2000 and the expectation is that the size of the market will effectively double by 2005.
“It is interesting that of the plans sold in 2000, 97% were sold directly to the client leaving just 3% sold by intermediaries. Clearly there is a huge opportunity for the intermediary in a market where they have had little penetration and the market is expected to go through massive growth in the next three years.”
Medicash is currently seeking to develop its links with intermediaries. The company went “live” with its products on the MediQuote system in June and hopes that the move will provoke interest in its products from intermediaries.
“We are excited about our move onto MediQuote and hope that we can work with intermediaries to promote the benefits of cash plans to employers,” says Dawson.
Catherine Derrington, head of business development at Norwich Union Healthcare, says that there is a place for both PMI and cash plans as risk management tools for managing the impact of staff absence but that both sides of the equation need to have a greater awareness of the issues.
“The management of staff absence is an issue for all firms and it is an area where insurers are increasingly asked to provide solutions,” she says. “However, one of our problems is that many firms do not have the systems to capture the data on staff sickness and the reasons for it. You really need to have the data to identify the problems and to accurately identify the current and future trends.”
Derrington adds: “Take for instance a firm which has a young workforce. It may well be that a solution which includes a cash plan benefit would be best, given the fact that you may find that the majority of the problems could be sports injury related and therefore need physiotherapy treatment to speed the return to work.
“If the firm has serious stress-related problems at work there are some products which will not cover all of this while some, including Norwich Union, will.
“The choice, both of product and provider, is not an easy one and the key to providing the right solutions for an individual company’s needs is identifying the causes of the problems and the potential needs of the workforce given their age and the work that they do.”
Derrington adds that the market is still waiting for the latest research on how cash plans have fared in 2001 and if the projected growth is still on target.
“Cash plans are growing and will continue to grow,” she says. “That has been seen particularly in the individual market because of the cost. For large companies, however, it is all about information. They do not have the detailed data on who has been off sick and, more importantly, why. If they knew that information we could tailor the product to suit their needs and underwrite the risk more effectively.”
Derrington says that it is up to intermediaries to help both the insurer and the client by explaining to clients what is needed and by ensuring that the market has the information that it requires.
“Insurers want to work with intermediaries to find solutions that work and are cost effective on both sides. We both want to retain the client’s business, and to do that we have to have a detailed knowledge of what the client wants, and what problems they currently face, before we can arrive at a solution.
“The biggest issue is educating the client to capture the information. While it may make our job a little easier, the bigger issue is that we will not be providing a product that the client does not really want and that does not fulfil their needs.
“Intermediaries have the face to face relationship with the client and therefore have a key role to play in educating them on the levels and type of information that they are expected to provide to enable the intermediary and provider to identify the proper solution.”
Cost cutting ethos
The economic climate is such that employers now face a number of factors that are pulling in different directions. For example, on the one hand there is a need to offer a package of employee benefits to a workforce which has, in recent years, come to expect such health benefits.
On the other hand, however, the need to reduce a company’s cost base has seen staffing levels cut in many sectors and with those cuts has come the fact that any staff sickness will be more keenly felt by those who have to take on the additional workload.
The cost cutting ethos has spread to all areas but while employers are looking to remove the excess expenditure, they are still well aware that if they were to cut employee benefits it would have a detrimental effect on staff retention and recruitment.
It is clear that employers realise the benefit to be had. The challenge is to ensure that the industry offers the right product. The potential in the market remains huge, but it needs careful nurturing.