New regulation could leave consumers without adequate medical insurance cover and undermine the role of the intermediary, as Emily Perryman discovers
Intermediaries are imploring the Financial Conduct Authority (FCA) to exclude private medical insurance (PMI) from new rules that encourage clients to shop around at renewal, warning that consumer detriment and a focus on price over quality will ensue.
Under the rules, which brokers and insurers must comply with by 1 April 2017, firms must include text encouraging their clients to shop around for the best deal at each renewal. Clients who have renewed with the firm four consecutive times must be given an additional prescribed message telling them they may be able to get cover at a better price elsewhere. The rules apply to individual business only.
The entire broker community has reacted angrily to the rules. Stuart Scullion, chairman of the Association of Medical Insurers and Intermediaries (AMII), says he has had a greater response from AMII intermediary members regarding the regulation than any other event during his involvement with the AMII executive and as chairman. The trade body is meeting the regulator over the next couple of weeks to discuss its concerns.
The storm of outrage follows a recent column in Health Insurance Daily in which Brian Walters, of Gloucestershire-based PMI broker Regency Health, wrote that the rules could drive customers “into the arms of unscrupulous salespeople selling new moratorium policies without adequate explanation”.
Walters says the rules put a simplistic focus on price over value, undermine the role of the broker and could result in consumers losing cover for pre-existing conditions.
“Most PMI policyholders are inhibited about changing insurers due to concerns about losing cover for pre-existing conditions, which is healthy. A trusted source encouraging them to shop around could lull them into a false sense of security.
“All brokers will have come across clients who have been encouraged to relinquish long-term underwriting and enrol afresh on a new moratorium, losing cover for pre-existing conditions in the process. These new rules could be a boon to salespeople who engage in such practices,” Walters warns.
Price vs quality
Other PMI brokers agree that the regulator is putting too much focus on price at the expense of quality of cover. Colin Boxall, commercial director at ADVO Group, argues that health insurance is in a class of its own because when the wrong level of cover is purchased it can cause distress.
Boxall believes consumers are primed look at price but with some insurances this must be balanced with quality and usability.
“Cheap medical insurance is always available. With the complexities of understanding the full ramifications of moratoriums on claims and new exclusions, clients can be tempted to take the lower price. A medical insurance policy is only valuable if you can claim on what is needed,” he says.
In particular, customers could be drawn to policies which have large no claims discounts. Karen Woodley, head of sales at insurer The Exeter, says insurers all use different methods to limit claims exposure and control premiums, which might only become clear at claim.
“The use of no claims discounts is commonplace; discounts which can quickly erode once a claim is made – or even dissuade people from claiming in the beginning. These large no claims discounts could be made even more eye-catching with these rules, but can easily catch people out at claim,” she says.
The role of advice
Intermediaries are also concerned that the new rules undermine the broker’s role – which is to find the best deal for their client.
Brett Hill, managing director of The Health Insurance Group, says telling clients to shop around at renewal feels counter-intuitive because part of the reason why a consumer uses a broker is they want them to survey the market on their behalf and make suitable recommendations.
“Under the new rules that broker will need to suggest to their client that they check for themselves whether their cover meets their needs and do their own market survey as well. It’s hard to see how this won’t cause confusion in the mind of some customers about exactly what service their broker is providing, and what value they are adding,” he says.
Hill is also worried that a mandatory statement after four years could result in customers thinking they are not wanted by their broker anymore.
“This comes back to the difference between the role of an insurer and the role of a broker. Part of the role of a broker is to shop around on the client’s behalf; longstanding customers may not respond well to a message that tells them to go and do it for themselves,” he adds.
Pre-existing conditions
A major worry is that consumers who do decide to shop around may end up buying a policy that does not cover their pre-existing conditions.
Tim Smithers, branch manager at Aston Scott in Wimbledon, says brokers often have clients for a long period of time, during which they get to know their medical history and form a deep understanding of what policies they can have. One of his customers, a 91 year-old man, received persistent calls from a salesperson to switch and was told his new policy would cover all his pre-existing conditions with the same level of cover.
“At age 91 people have all sorts of pre-existing medical conditions. What he got was nothing like what the salesperson initially said,” Smithers says.
Debbie Jones, senior healthcare adviser – director at Anglia Healthcare, says people need to know what they are buying and be clear how switching to another insurer will affect them, especially when it comes to pre-existing conditions.
“Too frequently we have seen cases where a client (not ours of course) is switched on new medical underwriting terms, again beguiled by cheap pricing, and as a consequence incurs new personal medical exclusions. Sadly they find out later the damage has been done and the clock cannot be turned back, with those previously eligible conditions potentially excluded for good,” says Jones.
Poor sales practices
Some intermediaries are worried the rules will result in unprincipled brokers targeting consumers with inappropriate products just to earn the large upfront commission. Boxall says if his firm renews a client it could earn a 5% commission, whereas another broker could earn 10 times as much by encouraging them to switch.
“There is a strong argument for the FCA to look at high upfront commissions, but their encouragement for clients to shop around each year will put off those intermediaries who rely on longer-term relationships who would currently be happy with flat rates. All this approach does is encourage firms to actively seek competitors’ business to replace their losses when the focus should be on opening new markets,” he argues.
Claire Ginnelly, managing director at Premier Choice Group, suggests the rules could result in an increase in churning – something which has reduced in the SME space in recent years.
“It could be seen by certain intermediaries as a green light from the regulator to churn business,” she warns.
Ginnelly says brokers who churn are not usually concerned about the value of advice; they just want a higher commission.
“They are just looking for an easy sale – and the easiest way to sell is with a moratorium because you don’t need to complete a medical declaration. This already happens to some extent, but the new regulations will exacerbate the problem,” she adds.
Competition
All intermediaries agree that competition is good for the health insurance market – especially as it is not currently growing. However, Richard Holden, commercial director at Chase Templeton, says brokers need to compete on service and not simply on price.
“At the end of the day clients have and always have had the right to use the broker of their choosing. It’s up to us to convince them that Chase Templeton remains the right choice, based upon not just price, but the recommendation we make and the service we offer,” he adds.
Similarly, Brett Hill of The Health Insurance Group says his concern with the changes is not that a customer might swap one intermediary for another – if the customer is making a choice between two good quality intermediaries then whichever one they choose they will still receive good quality advice.
“What we don’t want to see is customers opening a renewal letter, reading a message encouraging them to shop around, doing a quick search for quotes online and then buying into a product with a cheap headline price without first taking advice about whether it’s suitable for them,” he explains.
Charlie MacEwan, spokesperson at insurer WPA, claims it is a good thing that customers shop around.
“Rules like this mean that we will all have to work harder to cement relationships with our customers, exceed their expectations and be valued enough for customers to stay with us each year and in the longer term,” he says.
Paul Moulton, intermediary distribution director at AXA PPP healthcare, says intermediaries who look after their customers well should continue to prosper. He suggests the risk of people not being covered for pre-existing conditions should not be an issue for intermediaries who clearly explain the value of maintaining cover for eligible treatment.
“Intermediaries who are scrupulous about regularly reviewing their customers’ satisfaction should be confident about retaining their business,” Moulton adds.