Figures show that as the UK economy continues to distance itself from the recession, more small companies are surviving, and are beginning to look to consolidate their staff benefits.
As a result, insurers who have long been associated with the bulk end of the market are now competing harder for this growing small group business.
But what exactly are brokers and insurers doing to increase opportunities? And are their strategies working?
BUPA believes the small company area has seen growth and is likely to grow further. And its own research suggests it should be getting closer to the smaller IFAs to make this happen. Until recently it only paid commission to members of its Health Select and Corporate Communications Networks, but it is now trying to reach all regulated intermediaries with an interest in healthcare.
Its approach has been to offer IFAs support with marketing material, as well as making intermediary development managers available to help with the training needed to understand the health care market and its opportunities.
“We aim to visit IFAs, assess their needs, offer them the services that we have within the organisation, and try to establish the best way for the two organisations to work together for mutual benefit,” says spokesman, John Stubbington.
But, as far as commission levels are concerned, BUPA is keeping to its standard rates of 14% for new business and 5% for renewal for the time being. As a provident provider, it is keen that any financial output is seen to be adding value which can be put back into its customer base, which is also of long term benefit to brokers.
For Clinicare, which entered the market as a virtual unknown and has since built up a healthy portfolio, the small company market has been the bedrock of its success.
When first starting out, Clinicare had to argue its case with brokers far more convincingly than by commission rates alone. It did this by encouraging brokers to try out the company with a small scheme in the first instance, with the promise of meeting and exceeding expectations in service.
“We set ourselves very high standards, and have worked incredibly hard to meet our own challenge,” says general manager Les Curson.
The process continues. Clinicare’s latest brochure sets out its service commitments: the phone will be answered within five rings, letters will be replied to within 24 hours, and fully supported claims will be paid within seven working days.
While no one denies commission rates are important – and Curson is confident that Clinicare’s 10% across the board is competitive – the service and support approach is now paying dividends, with bigger and higher profile schemes, and more of them. Prime Health has been particularly successful in the small company sector and makes continuing efforts to encourage all intermediaries to sell more PMI.
But when it comes to offering direct incentives, it takes a pragmatic view. “A sweetener will always lose its sweetness over time,” says national sales manager for intermediaries, Philip Wright. “We feel it is more important to build long term relationships where we offer good products and manage prices. We try and work towards a partnership far more because in the long term we feel that this is what an intermediary will want to do with their own clients.
“Obviously, while commission is critical, as are ongoing earnings, I would hope that the intermediaries are more interested in the fact our product is good and sound.”
Healthsave also specialises in small company business and, with no direct salesforce, sells only through IFAs. But it sees the market changing in the future. Chief executive, David Megginson believes a number of factors are having a decisive effect on current trends.
The first is the price-sensitivity of the marketplace, with people tending to shop around for the cheapest deal. But perhaps more important is the rising number of claims, combined with premium increases.
Megginson says that PMI companies are having to work out strategies to contain or reduce these costs in order to remain competitive – without compromising on care quality.
And he believes the NHS has contributed to premium hikes, as many GPs, who may never previously have bothered to enquire whether a patient has PMI, are now asking as a matter of routine.
With all this “incident inflation” and cost shifting to the private sector, Megginson believes something is going to have to give. Either companies are going to have to pay more, or the insurers will have to lose more.
At the moment he suspects it is the latter, but, as he points out, the insurers are not going to put up with that for very long.
And there are other issues affecting intermediaries selling into the small group market. As Glen Smith of Healthcare Partners, Hertfordshire, explains, it takes the same level of input to get business from a company of two or three members as it does for a group of 30 or more. So in terms of effort to profit ratio, the very small groups can be quite frustrating.
Smith also believes the usage pattern can be quite high: “Generally, when you get a group where it is basically the proprietors of the business and their families who are insured, they treat it in the same way that individuals do.”
That said, Smith does acknowledge the advantages of small group business: “With three-man companies, I always take the view that they may expand.
You often find that initially you are selling the benefit to the directors themselves. Once they buy into the concept of healthcare, it will ultimately cascade down to key employees.”
As a specialist working primarily in the small company market, Keith Stephenson of Private Health Associates in Kent, finds the growth in the small company business is huge. He believes that brokers who prefer to target the bigger businesses ultimately find themselves competing against other brokers with preferred terms.
He explains: “If you go after the sprats and mackerels, it may involve more work initially, but there is also more likelihood of keeping your clients in the long term.
“The renewal business is what we work for. And I would rather have lots of small clients who stay with us for years than larger ones that can disappear after their first review.”
Ensuring renewal business is not the only problem for intermediaries. Whether they are selling large and small group PMI, breaking new ground is extremely difficult, and many find that virgin business among larger companies is almost non- existent. And this can hardly be due to saturation – only 11% of the population is covered by PMI.
At Healthcare Partners, Smith puts it down to the fact companies are put off by rising premiums. In the last year alone, there has been an average increase of 18% which is potentially damaging for the industry.
This situation seems unlikely to improve: if insurers cannot expand on new uptakes, they can not reduce their premiums.
BCWA Healthcare believes it has gone some way to solving this problem. The company has developed a structure whereby a small company will get a 20% discount in the first year of its policy, 10% in the second year and 5% in the third. This discount scale, together with an increase in commission, is aimed at assisting the broker in finding previously uninsured groups.
“This scheme has been in operation for four or five months, and seems to be working well in introducing virgin business,” says marketing director, Philip Fowles. “We are now finding that some of the companies that have not insured before have around 45 staff. This is predominantly broked business, coming from the smaller end of the IFA market.”
As with BUPA, BCWA has also developed marketing and exhibition materials designed to augment the smaller IFA’s knowledge of PMI. And it offers a consultant support service which aims to boost the confidence of non-specialists in entering a market that is often considered to be complicated.
This type of provision is popular, not least because it seems the providers are wary of relying on commission alone to attract intermediaries; whether it be in a bid to keep costs down, in recognition of brokers’ responsibility in recommending the best for their clients; or because not all brokers necessarily want the extra money for its own sake.
And while it would be naive to suggest financial incentives do not play at least some part in the decision making process, most responsible brokers look to service levels first. Private Health Associates’ response to insurers’ inducements is to ignore them, preferring instead to be on standard terms rather then be tied to any particular company.
“I would rather keep an independent status because that way we can not be seen to be biased towards any insurer because we happen to earn more money,” says Stephenson.
In both their own interests and their clients’, many intermediaries would rather know they are dealing with a provider who is reliable and supportive throughout the claims procedure and get less up front, than take a bigger cut but have more hassle later on.
It all come down to short term interest versus long term gain, and the indicators are that good service from reliable providers must compete on an equal footing with high commission rates.