Latest statistics have shown a worrying contraction in the consumer PMI market – and cost, as usual, seems to be to blame. Harvey Jones explores some strategies aimed at making healthcare more affordable for the man on the street.
There are times when selling private medical insurance (PMI) to individuals has been a long and lonely slog. In fact, it has felt that way for the past couple of decades.
This is strange, when you consider how much people covet private health cover. If they have it, they do all they can to hang onto it. If they haven’t got it, they aspire to it.
The problem is, the average man on the street can’t afford it. Maybe he could once, when he was younger, and before medical inflation did its nasty work. But in these straitened times your average fella won’t shell out £1,527 a year, the typical cost of a policy, according to Laing & Buisson.
Private health insurance may be a great product, but it is a tough sell. Since 1990, the average premium has increased 60% in real terms. And prices continue to rise, up 5.2% in 2009 and 2010 combined.
This was too much for many people. Demand for individual cover fell by 4.7% in 2009 and 5.1% in 2010. The man on the street is drifting away.
Steve Cooper, a broker at Premier Choice Healthcare, only sells cover these days to people who already have health insurance.
“I’m too busy keeping my own clients in PMI and dealing with numerous referrals asking me to get their premiums down,” he says. “So I sell to the insured, preferably switch business, although this is becoming increasingly difficult.”
A question of cost
Brokers face three challenges: cost, cost and cost. Yet there is attractively-priced comprehensive cover on the market.
Cooper continues: “Like many brokers, I still favour Bupa Client Choice. Nobody has launched anything as cost-effective since. But it has stopped accepting switch business since May, which I think is a mistake, and I’m worried it might soon close it completely to new business. I also like AXA PPP Healthcare’s Health Cover, but it is behind Bupa on price.”
Cooper would like to see insurers raise the profile of individual PMI by targeting an advertising campaign at that elusive man on the street. The alternatives could be dire.
“The way things are going, only the wealthy will be able to afford cover, and the number of players on the market could shrink further,” he says.
It is a far cry from 1990, when brokers and insurers were brimming with optimism, says Michael Cooke, head of PMI business at Clear Insurance Management, the intermediary.
“One thing hasn’t changed since then,” he says. “PMI is still aspirational. People want it. Cost is the main obstacle. That hasn’t changed either.”
But one thing is set to change. At some point, we will witness the death of the comprehensive private medical insurance plan, for all but the fortunate few.
Cooke continues: “Comprehensive plans are great, but unaffordable for most people. How long can Bupa continue offering unlimited cancer care, when a single claim can cost as much as £130,000?”
The way forward is to create much closer co-operation between the NHS and private sector.
“I would like to see a policy that fits around the NHS, covering extras such as hip and knee replacements,” Cooke says. “This would help cut waiting lists and relieve the pressure on the NHS.”
The obstacles are mostly political. The NHS has been reluctant to help people who have already received some private medical treatment for their condition.
“WPA gave it a good go, by offering access to life-saving cancer drugs denied by the NHS, but this has proved tricky,” Cooke says.
Cooke singles out WPA as the most innovative insurer, notably its shared responsibility plan, where the client is responsible for 25% of claims costs, up to a set limit. He has also taken matters into his own hands.
“The blunt instrument I use to cut costs is the high excess,” he says. “I have used excesses of £3,000 or more. It means you are effectively setting up an inpatient only policy, but it can deliver big savings. Modular contracts are another alternative, I have used Aviva UK Health and PruHealth.”
Insurers have used a host of measures to nail down costs, including high excesses, six-week plans and choices of benefit levels, says Richard Norris, head of intermediary consulting at AXA PPP healthcare.
“A 35-year old would pay around £39 a month on one of our lower cost policies,” Norris points out. “The six-week option and a £200 excess would halve that to just £18 a month.”
Insurers have also been battling to manage claims costs by negotiating hard with hospitals for their services, Norris says.
Innovation is out there. Freedom Healthnet has won plaudits for its Your Choice Cashplan, a hybrid cash plan that gives customers a lump sum which they can use to pay for any necessary medical treatment. They can go private, seek treatment abroad, or even use the NHS, and keep any cash surplus for themselves.
The policy has successfully attracted new blood to the industry, rather than recycling existing business, says Andrew Sandilands, business development manager at Freedom Healthnet.
“We can offer a 30-year old inpatient cover for as little as just over £15 a month, which makes some form of cover available to a wide range of people,” he says.
In difficult times, you can expect a good deal of soul-searching. Where did we go wrong? What can we do better? The PMI industry has been searching its collective soul for a decade or more, and it isn’t finding any easy answers.
The relentless focus on reducing premiums has backfired, argues Nick Jones, brand and marketing manager at Exeter Family Friendly.
“We ended up with policies that set too many exclusions or complex limits on claims,” he says. “Large no-claims discounts and six-week waiting periods have attracted new customers, but many were disappointed when they made a claim. Trust, belief and sales have been lost and ultimately, the whole industry suffers.”
Jones has also been searching his own soul.
“Has Exeter Family struck the right balance in the past? In short, no. Health Cover for Me is a simple and comprehensive product that is selling well but we haven’t translated these attributes into a more affordable and flexible plan,” he says. “We tried to with Health & Stuff, but got it wrong. It wasn’t what advisers wanted.”
Jones says Exeter Family is working on a new modular plan that aims to take its core principles, and make them accessible to a wider range of needs and budgets. The search for innovation goes on.
The past, frustrating decade has seen both advisers and insurers plaintively cry that insurers need to be more innovative. But is this really true? Insurers such as Freedom Healthnet, National Friendly, PatientChoice and others have all tested the boundaries of what PMI can offer.
They have also worked hard on directional care models, which reduce premiums by directing treatment through the most cost-effective providers, says Howard Hughes, head of employer marketing at Simplyhealth, the insurer.
“Simply Private Health combines directional care with a flexible core cover for consultation and diagnosis, plus additional choices for heart and cancer treatment, complementary therapies and surgery,” Hughes says. This would cover a 39-year old non-smoker for consultations and diagnosis for as little as £27 a month.”
A gloomy forecast?
Brokers and insurers may be disappointed by the recent sales slide, but they should remember that private medicine isn’t the only industry in trouble right now.
“In 2008, just before the recession, there was a slight increase in individual customer numbers,” Hughes says. “This suggests customers were responding positively to the unprecedented range of choice and price points in the market.”
Three years later, the man on the street is feeling a bit sorry for himself. He hasn’t got as much money as he thought, he is worried about his job, and he knows the hard times are set to drag on.
If interest rates rise, he will become even more dejected, says Peter Lurie, director at Proactive Medical & Life, the specialist intermediary based in Hertfordshire.
“Those who have PMI will keep it, if they can,” he says. “Those who don’t will need more persuading than ever before.”
Lurie singles out Freedom Healthnet’s Your Choice Cashplan as an “excellent budget option”.
“The industry has been doing some very innovative things – we need to shout louder about if we are to grab the attention of the man on the street,” he says.
Lurie also admires CS Healthcare, available to current and former workers in the civil service and public sector.
“This is an exceptionally competitive policy that includes a co-payment option, where you can agree to pay 15% of each claim, up to a maximum of £1,500 a year,” he explains. “If you do this, you can cut your premiums by up to 40%.”
The man in the street isn’t the only one struggling for money. So is the NHS, with a botched reform and £20bn worth of cuts to cope with.
Lurie is mystified by the prevailing public attitude that the NHS is free.
“People are kidding themselves,” he argues. “It isn’t free, everybody has to pay for it. How can the country continue to afford paying for quality of treatment? It can’t. Something has to give.”
And when it does, Lurie hopes we can strike a better balance between NHS and private healthcare. “I would like to see people who take out PMI get a rebate on the share of their taxes that goes to the NHS. That would ease the pressure on the health service, and encourage many people to consider PMI for the very first time.”
All the innovation in the world probably won’t be enough while there is a serviceable NHS, free at point of use.
Insurers are caught between a rock and a hard place. If they offer a comprehensive private alternative to the NHS, the man on the street can’t afford it. If they offer him a budget policy, he might as well use the NHS anyway. It is a vicious circle.
The solution, worryingly, requires politicians to admit the NHS funding needs a dramatic rethink, and a greater measure of public and private cooperation. Unfortunately, as David Cameron has just discovered, they fiddle with the current system at their peril.
The long and lonely slog is far from over.