The recent news that Simplyhealth has sold off its private medical insurance (PMI) and healthcare trust business – subject to regulatory approval – to AXA PPP healthcare and that PHC (The Permanent Health Company) is also due to become part of the giant international insurer is just the latest in a long-running saga of PMI provider mergers and acquisitions. Yet, some see the move as further evidence of unwelcome and potentially damaging consolidation.
Certainly, the loss of a major provider means less choice for brokers and, even more importantly, customers. But is it all bad news? Health Insurance Daily Technical Editor Andy Couchman looks at this and other key questions sparked by the recent news
What has driven the deals?
Consolidation is a fact of life. Whether high street retailers, IT, banks, car makers or airlines, many markets tend towards a handful of big providers supported by a larger number of specialist and niche organisations.
M&A activity is not evidence of a market in decline and health insurers continue to buy up organisations both to expand and to broaden their markets. On 22 June, BHSF announced its 12 occupational health acquisition since May 2012 when it acquired M3 Occupational Health. Earlier, Simplyhealth, especially under its previous CEO Des Benjamin, bought up a number of health-related organisations (including Denplan from AXA PPP), while fellow cash plan giant Westfield Health bought out the PatientChoice hospital treatment provider.
Meanwhile, broker consolidator Chase Templeton has reportedly spent £18m over the past three years buying up PMI brokers, Punter Southall has acquired both PHP and RedArc, among others, and Lorica Employee Benefits is now part of Aon Hewitt.
But focusing again on the provider sector, how many of these names do you remember as active players in the PMI world?
Abbey National; Allied Dunbar Healthcare; Barclays Bank; BCWA; Berkeley Alexander; Bluesure; Capitaltech; Clinicare; Criterion; FirstAssist; Groupama Healthcare; Guardian Healthcare; Healthcare 4 Life; HSBC; Iron Trades; Legal & General; Lloyds TSB; London & Edinburgh; OHRA; Orion Healthcare; Prime Health; Private Patients (Anglia); QBE; Royal & Sun Alliance; Strasbourgeoise; Sainsburys Bank; Standard Life Healthcare; Terrace Hill Group; YourHealth Plus. In addition, some simply changed name – so Norwich Union became Aviva, PPP became AXA PPP healthcare and, more recently, PruHealth became VitalityHealth.
That’s a long list and not all of them were small players. Some M&As reflected failure to seriously rival the two established giants Bupa (with an estimated 40% market share) and AXA PPP (now with 29% it says) who dominate today just as they did a generation ago. Achieving even a 5% market share has proved beyond the reach of most.
But there is still room for new arrivals. Broker and past Association of Medical Insurers & Intermediaries chairman Andrew Tripp’s Esmi organisation came about after his own health experiences led him to believe there was a better way to ensure more people had adequate protection if bad health hit. Discovery Life’s VitalityHealth (formerly PruHealth) has established itself in little more than a decade as a successful and innovative brand (helped by its acquisition of Standard Life Healthcare) and there is no shortage of others keen to break the – perceived – duopoly.
But Simplyhealth’s move to dispose of one of the larger PMI providers is perhaps also evidence of an unease in the market. Individual PMI is now beyond the price reach of many people – even in cut-down, budget form. Statistics from the Association of British Insurers and Laing & Buisson confirm the personal sector has been in decline for decades, while even the corporate market is struggling to stand still and has not really bounced back after the 2008 recession.
Simplyhealth CEO Romana Abdin’s well-publicised but lengthy 18 month strategic review clearly led to the view that PMI should not be part of its future. Announcing the sale on 13 May, she said: “This is a pivotal moment in our long history. We are going to focus on everyday healthcare, where we see numerous growth opportunities in services to address the everyday things that stop our customers from making the most of life. Problems like back pain, toothache, eyesight difficulty, mobility and independence. This is where demand is rising inexorably. The sale of our PMI business will provide us with funds to accelerate this strategy.”
That could mean it wants to focus on its core health cash and dental plans, where it is the clear market leader, and its newer vet businesses. But it also reflects the organisation’s larger ambition to be part of people’s everyday health planning. That requires sitting alongside the NHS and supplementing or topping up where it is perceived to fall short, and the presence of what is still perceived by many as an elitist product, where insurers cherry pick risks and price out ordinary people and the sick – is something that might have caused strategic and political problems going forward.
The NHS is one of the last bastions of them and us politics (many doctors’ health politics are left-of-centre regardless of their core political beliefs) and politicians of all flavours risk being seen as ‘privatisers’ of our beloved national institution if they embrace the private sector (even mutual organisations) too closely.
What do these latest deals mean for the market?
In the short run, very little. A bit less choice but also an opportunity for AXA to increase its buying power and so reduce costs could actually help customers (especially those of the smaller Simplyhealth PMI brand) and brokers. AXA might decide to use its new acquisitions to segment the market more. Certainly, we could see many major insurers use their big brand in the B2B and D2C sectors, and perhaps use smaller subsidiaries in the broker space or to target particular niches.
Organisations such as Punter Southall Health & Protection Consulting and Chase Templeton are busy consolidating in the adviser space, so sub brands could be used to provide bespoke products to these consolidators and the bigger employee benefits consultancies and PMI specialists. In areas such as international PMI and in general insurance more widely, it is common for brokers to offer white label insurer products, but the practice is rarer in PMI.
In the individual or personal market, brand names are arguably most important, but research across the years, including that carried out by the independent consortium The Syndicate, suggests consumers recognise few insurance brands and value them even less.
But the growing reduction in insurer choice is significant. Simplyhealth was the fifth largest PMI provider and AXA described its book as ‘well-balanced and stable’ and that it was a ‘rare opportunity’ to acquire a complementary business in the UK. AXA’s comments did not mention profitability so potential price rises and/or changes in cover will be a worry for brokers and customers until hard evidence emerges one way or the other.
What do brokers think?
For many brokers, these are troubling developments. Regency Health is a small PMI specialist and principal Brian Walters says: “Brokers will always be disappointed by news of provider consolidation. A diminishing pool of insurers limits consumer choice, which in turn diminishes the role of the broker. In the last five years we’ve lost Standard Life Healthcare and Groupama Healthcare in addition to Simplyhealth and PHC, while Health-on-line has been subsumed by AXA PPP.
“AXA PPP has a good track record with acquisitions so I think we can expect the Simplyhealth business, which had a strong identity, to be integrated with care. AXA PPP already has a strong proposition and brings a lot of value to the market, which will be enhanced by these acquisitions.”
Claire Ginnelly, meanwhile, is now managing director of major intermediary Premier Choice Group and no stranger to consolidation, having held senior roles in Standard Life Healthcare, Clinicare and Simplyhealth. She says: “Consolidation is not good for the client, regardless of whether they are personal or corporate. Less choice cannot be seen as a positive move. I understand the reasons Simplyhealth has given for selling and I can appreciate it is a positive move for AXA, but the market is now getting very small, in particular on the corporate side. However, brokers still have an important role to play. A good independent broker is still the best place to get advice on PMI products. The market may be smaller but insurers’ have different products with slightly different benefits, terms and conditions and different rules. It can still be a minefield for the customer and the advice of a specialist is essential.”
I also asked her if she feared we now had too few providers: “Yes, due to the customer not having as much choice. The big insurers are getting bigger, which could make it even harder for the smaller insurers. We don’t need to go back to the situation of 20 years ago when we had about 30 providers but we now only have about seven offering SME. Too much choice can be very confusing but too little makes it not much choice at all. However, if by consolidating, insurers can use their scale to work with intermediaries to help grow the market as opposed to just look at switching what is already there, then this could be a very positive move.”
Any discussion on M&A inevitably poses the question ‘who’s next?’ Certainly, we can expect to see more broker consolidation, not least as individuals near retirement or seek an exit strategy for other reasons. I’ve lost count too of the number of tip-offs of this or that provider supposedly ‘on the market’. If all true, the whole market is up for sale.
In reality, any provider is up for sale if either the price is right or if it feels its time and resources would be better spent elsewhere. We don’t know which reason lies behind Simplyhealth’s decision, but the fact AXA is buying not one but two providers and that consolidators are still actively buying suggests they see potential still in the sector, especially with its ongoing trail commissions. But the diminishing number of providers is a concern (as is the cost of PMI) and we must hope that smaller players can make a living but also that new providers are attracted to the market and succeed where so many others have failed. The challenges are big, but so too is the opportunity, especially as the NHS continually struggles to redefine its place and to secure the funding it needs.