When Cornhill Insurance announced in September that it was to leave the PMI market, there were more than a few bemused reactions. And although it had less than one per cent of the market, it came as quite a surprise when it made the announcement.
Earlier in the year it had signalled its commitment to the market with the purchase of Healthsave, the healthcare arm of Johnson Fry. Right up to the announcement that it was leaving the PMI market, all indications were that it was busy integrating the Healthsave systems into its own and readying itself for a powerful push for market share.
“We need to focus on developing areas of the market which we believe will bring long term value to Cornhill,” explained Cornhill Life’s general manager, Ian Reed. “Unless you can see some likelihood of a return to profitability then you have little choice but to make some difficult decisions.” So on September 30, 1999, Cornhill ceased to renew any of its existing PMI business.
And now more upheaval has been announced with the news that Cornhill has transferred its book to BUPA. The offer, effective from December 1, 1999, means that clients are covered by their Cornhill policies until expiry. At this point, clients are offered a renewal of their PMI policy through BUPA with no further underwriting. In terms of commission, brokers transferring business are entitled to standard BUPA agency terms and renewal commission in relation to that business.
Naturally, Cornhill has expressed approval that the situation for its customers has finally been resolved. “When we decided to withdraw from the healthcare market we wanted to ensure that our customers, including their intermediaries, were not unnecessarily disadvantaged,” said Reed.
“I believe that the arrangement we have agreed with BUPA is in the best interests of our health care customers who will continue to receive the highest standards of security and service.”
BUPA’s reaction has also been enthusiastic. Implying that the move was partially an endeavour to maintain consumer confidence in the PMI sector, BUPA explains that it is ensuring the withdrawal from the market has as little impact on brokers and Cornhill policyholders as possible. This, in turn ensures that the interests of the medical insurance market as a whole benefit.
BUPA also admits that any boost to its client base is welcome: “Any new business is a benefit for us,” said Stephen Flanagan, sales director at BUPA. “So we will try to be as flexible as we can.”
Intermediaries, however, have expressed mixed reactions.
“I was very surprised to learn that BUPA took the business,” said Glen Smith, intermediary at Healthcare Partners. “BUPA is undergoing a lot of changes at the moment and there is a lot of pressure for it to perform. Perhaps it has bought the business to raise its profile.”
Others agree that the BUPA acquistion of Cornhill is a manoeuvre to improve its public perception.
According to Larry Bulmer, partner at Kent-based intermediary, Health Decisions, “BUPA may have done this to be seen as a market protector. It is quite similar to the National Farmers Union takeover in 1994, when BUPA also gave guaranteed continuity of cover irrespective of medical situation.”
The BUPA profile, however, is not seen so benevolently by intermediaries. Smith complains of a lack of communication from BUPA and says that he is still unsure of the status of renewals and other commission details. While some uncertainty is common at the time of a takeover, it is not preferential. For many brokers, the transfer of the book was a worrying time as Cornhill was a popular insurer with intermediaries offering comprehensive products for competitive premiums and commission levels.
“The Cornhill product was a superior one,” said Bulmer. “It offered unlimited out-patient care and also gave £10,000 of permanent and total disability cover. It also imposed no limits on private ambulance and home nursing.”
And benefits are not the only area of concern, as Bulmer emphasised. “Although the BUPA product is a good product, the rates can be between 20 and 25 per cent higher. BUPA is going to have to look carefully at the Cornhill client’s needs. They may have to give a favourable rate banding so that the increase in premium is contained.”
Other concerns revolve around commission levels, an area in which BUPA has provoked negative news space earlier this year. Flanagan, realising this would be a highly contentious area, agreed to take special measures. “I have taken note of these concerns and in view of the work that will be required to transfer the business to BUPA, will pay a commission rate of 10 per cent for any business transferred from the Cornhill book,” he said, but added “this will apply to the initial transfer only”.
And while Cornhill policies offered brokers a 10 per cent initial rate, which is also offered by BUPA, Cornhill also offered 10 per cent on renewal. BUPA’s renewal rate was five per cent and, since the introduction of the flat fee system, it looks as though intermediaries may lose further.
But while it is a difficult time for intermediaries, it is not the easiest for BUPA either, as Flanagan readily admits. “Cornhill had an excellent reputation with brokers, which admittedly, we haven’t,” he says. “This is an opportunity for us to show that we can get it right with brokers.”
However, can BUPA justify the caution of some industry members who feel that BUPA just cannot match the Cornhill pricing or product? Flanagan explains that, although this may appear to be the case, BUPA believes that it can rise to the challenge of the Cornhill product range. “Initially we were not sure that the pricing of the product would compare, but, especially with the company products, it looks as though we can be very competitive,” Flanagan enthused. “In fact, like for like, it looks as though we can match cover in some cases.”
Flanagan is also proud of the speed at which BUPA managed to conduct the transfer: “Every renewal will be back in the marketplace after five working days of us acquiring the book.”
Ultimately, it appears that BUPA hopes that the public’s perception of the shift will be favourable. Time will tell how the former Cornhill clients feel about any new terms resulting from the transfer, or how BUPA’s image will be affected. While some providers are upbeat about the decision, others are more sceptical.
“I am surprised that BUPA has decided to buy a book that Cornhill couldn’t make any money from,” said Philip Fowles, sales and marketing director at BCWA.
“BUPA has been losing market share lately, so perhaps it is to massage sales figures,” he added. “We have had several small groups transfer to us from the Cornhill book and we are more than able to match the scheme. Cornhill schemes were very comprehensive, but BUPA network products do not provide the same benefit levels.”
Market flux is never going to benefit the industry and it is a meritorious move on BUPA’s part to take the Cornhill book. However, the industry is generally agreed that while it is a short term bonus for BUPA, it may not be a position the insurer is able to maintain.