Unlike mainland Europe where traditional employment patterns, such as jobs for life, live on, the UK’s current wealth is shored up by a vast army of the self-employed. In Britain, former executives who go solo after a company shake-out and one-man band software specialists are the new breed of worker.
They are possibly under stress, probably under-insured and certainly underrated as a sales target by intermediaries. While official figures put the total of self-employed at 3.3m, when unregistered workers are included, the real figure is probably nearer 4m. The total has risen by 300,000 over the past five years.
The proportion of these with PMI is small. And it can be assumed that those with critical illness (CI) cover make up an even smaller proportion. As Mark Newson, head of marketing for new businesses at BUPA, puts it: “Eleven per cent of the population has PMI and we’ve absolutely no evidence that the proportion is any higher among the self-employed.”
Research carried out by BUPA identified people who work for themselves or who run small businesses as among those most likely to value cover. Says Newson: “It is true that we are getting a good response from the self-employed. But is that because we are targeting them or because they are hand raising? The answer is both.”
Insurer OHRA attributes the recent modest rise in the overall PMI market in part to the self-employed. This is seen as off-setting a trend among big companies towards being a good deal more selective about which staff members should be covered. Hazel Berrill, head of marketing at the Dutch-owned group, which eschews corporate business, describes the self-employed as a huge untapped market.
“If you consider that sole traders and the bosses of small companies are hands-on people, their scope for taking time off is very tight. Many such people are grossly overworked and they know they will pay a high price for absence. It could even cost the business.”
The Society of Practitioners of Insolvency confirms the high price that can be paid in missing cover. It sees finance, including loss of income when ill, as a main reason why four in five businesses fail to last five years.
Berrill comments: “PMI can be the most important insurance of all because it can get you back to work. It is surprising how many non life-threatening illnesses can impair your ability to carry out your work. Even a bunion on your foot can be deeply disruptive. That is just the sort of operation the NHS is not very good at. You can wait a long time and when you get an appointment you can bet your bottom dollar it is at a busy time or when you are away. Time and again I meet self-employed people who say they bought PMI for the flexibility.”
Berrill adds that the sluggish PMI market of recent years is due to corporate schemes becoming less all embracing. She says: “Formerly companies would cover a wide range of staff, but the blanket nature of these schemes has been open to abuse which has led to steep premium rises. Now companies are saying: `Let’s insure just the key personnel.”’ But, argues Berrill, total numbers covered have not gone into freefall – latest figures from Laing & Buisson suggest a recovery – because insurers are recruiting the self-employed.
Among the first to latch on to the burgeoning market was Western Provident Association (WPA). Its Freelance policy, launched in January this year, is subtitled “protection for people who run their own businesses”. It is described as the first ever mix-and-match income replacement and health insurance policy sold through IFAs. Commission rates are 10 percent initial and 10 per cent on renewal.
Justin Clark, who handles WPA’s external relations, says: “It got a fantastic reception when it came out from people ringing in and from journalists writing about it because it was so novel. It filled a huge gap.”
Freelance breaks down into three arms. The Accident & Sickness arm is basically an income replacement product (up to £1,000 a month) but also pays extra cash for days spent in hospital plus a lump sum in the event of serious accident or accidental death. Cover starts from £16 a month.
The Private Medical arm offers either budget or comprehensive cover for 650 hospitals: WPA, unlike most of its competitors, does not back the preferred-provider network concept. It makes this a sales point. Cover is available from £10 a month.
The third Freelance arm, Routine Medical Expenses, is basically a cash plan, with cover starting from £3 a month. WPA reckons to be able to keep premiums some 25 per cent below general PMI because the self-employed are significantly less likely to take time off through illness.
People who work for themselves often say they simply cannot afford to be ill. Low sickness absence among the self-employed may also be connected with a wealth of data showing those in “interesting” jobs are markedly less absent than those in repetitive, humdrum and poorly-paid employment – although this presupposes that self-employed people find their work congenial.
PMI specialist intermediary, Bill Poynton, of Healthcare Plus in Oxford, recommends schemes by Axa and Royal & Sun Alliance, both of which give a 35 per cent discount over group schemes to self-employed individuals. “Axa won’t accept switches (people with an unresolved medical history) but Royal & Sun Alliance will for non-serious conditions such as hernia,” he says. Picking a random example, Poynton says a 52 year old pays £47.27 a month after the self-employed discount with Royal & Sun’s Values. For Prime Health’s “similar”
PrimeCare, the premium is £62.96. Across the 30 providers in the PMI market, discounts for self-employed groups average around 15 per cent, according to George Connelly, of Dorchester-based Health Care Matters. On WPA’s Freelance, he thinks the self-employed should be looking separately at income replacement, PMI and CI cover. “My feeling is that each is worth consideration on its own merits. I am wary of something that mixes things up because you could end up getting nothing.”
Connelly confirms keen interest among the self-employed in PMI, particularly among those who have been in company schemes, were made redundant and have set up business on their own.
“For a long time,” he says, “we have been seeing people shaken off the corporate tree who lost their cover at the same time. They realise PMI is important, they are used to having it, they realise they are vulnerable and have to protect themselves. They may want their families included too.”
These forty-somethings also tend to be among the most interested in CI cover. Di Gillam, chief underwriter at BUPA Health Assurance, says: “CI is the sort of cover the self-employed should have because they don’t have the State cushion that the employed have. Not only do employees get better State benefits, but their companies may continue paying them a salary. Some have group income replacement cover and group critical illness cover.”
The employed person who is unable to work through illness qualifies for statutory sick pay at £59.95 a week for up to 28 weeks. In contrast the self-employed person gets nothing, short of State safety-net Income Support, where amounts vary depending on circumstances.
Gillam adds that big employers often have generous sickness schemes, with blue chip companies paying full pay for six months and half pay for another six months. Says Gillam: “These perks just aren’t available to the self-employed. PMI and CI are policies for the self-employed. They may need a lump sum to settle their debts or see them through the period when they cannot work.”
Despite the logic of the argument, according to Gillam, the proportion of these policies that relate to the self-employed cannot be measured. However, given that reinsurers estimate that the total number of CI policies sold by the end of 1998 was just 2.28m, the potential for growth is significant.