When it comes to employee benefits, PMI, according to the CBI, is still rated one of the most popular, coming second only to sickness pay. Yet, according to the latest findings from Laing & Buisson’s Private Medical Insurance UK Market Sector Report 1998, growth in PMI sales has remained static since 1990.
Ian Hancock, marketing and communications manager at Royal & Sun Alliance, believes that if PMI is to succeed in the face of another recession, it needs to be extended beyond the traditional concept. Royal & Sun Alliance is taking a more holistic approach to healthcare and looking to offer an employee health package, which could include personal accident, employer’s liability, income protection and occupational health schemes.
Although quite a small player in the PMI market, Royal & Sun Alliance hopes to expand significantly in this area with the recent formation of a new healthcare and assistance division.
Hancock is optimistic about the future. Most of the company’s growth over the past 12 months has been through intermediaries, and he can foresee further opportunities for growth within this sector.
While agreeing that the market in 1997 was pretty flat, Naomi Saragoussi, senior analyst at Watson Wyatt, is one of many who has found that things have actually been looking up over the past six to nine months. And further faith in the future can be seen in the caseload of independent intermediary John Stevens, as it includes a significant amount of virgin business.
Stevens says many IFAs turn to him for expertise in a field that they find complex and time-consuming. But he adds: “Once they understand how to go about it, they can then approach their client companies and suggest PML” And he sees great potential for growth in large group PMI using IFAs as an untapped resource.
This could suggest that, after the decelerated growth experienced by the industry between 1990-1996, large group PMI is now on an upward trend. But other factors could impede this growth. With recent developments in the global economy spreading to Russia and South America, it seems inevitable that the UK economy will be affected.
It is difficult to predict how soon or how serious a future recession might be – although recent developments in the global economy suggest that it might be sooner and deeper than previously thought. But it is equally difficult to forecast its effect on large group PMI. If the economic environment has a negative impact on government spending, it will do little to improve the public’s already fragile perception of the NHS, and could make PMI even more popular among employees.
Saragoussi, for one, considers it unlikely that recession could have a negative effect on PMI sales. She points out that once corporate PMI is in place, it is very rare that it is taken away: “It is a valued and valuable employee benefit, and, even. in times of recession, it is seen as essential to keep employees covered for their health.”
She adds: “While a recession might have an effect on growth, I do not believe it would have a negative impact on already existing plans.”
Neither does Saragoussi see much value in providers bringing out ever cheaper products: “If a provider were to come in with a rate that we considered too low, we may advise a client that it need not be the best way forward for them.
“In a large corporate, where next year’s premiums are based on this year’s claims, they would probably experience a large rise in premiums the following year. We would recommend going in at a reasonable premium this year and controlling how the scheme is actually run.”
She adds: “Large organisations should also bear in mind the negative PR they would suffer if their employees did not receive proper care. Not to mention that best customer service would reflect against themselves, rather than against the insurer. We would not advise anyone to base their decision just on price because that doesn’t consider customer service.”
Customer service is also the area to which Rob Berry, marketing manager on the corporate side of Norwich Union Healthcare, attributes much of the success of the company’s PMI growth. Now the third largest provider in the UK, accounting for 9% of market, the insurer’s corporate PMI portfolio grew while the rest of the market remained static.
“We took a good look at the market, examined what products were required, and brought in some fresh thinking,” says Berry. “Since then we have consistently worked to deliver new, groundbreaking concepts across all our markets.” As an example he cites the GP helpline, which, he says, has become and industry norm since the company introduced it.
He also quotes claims management, now handled by telephone at Norwich Union, as a crucial area for PMI providers to be competitive. As the first in this particular field, Berry believes it is an advantage that the company still enjoys over most of the market. “The very reason that people want private medical insurance is speed of treatment and control over their care. Traditional claims handling procedures simply did not meet those requirements,” he says.
More effective claims management has done much to improve PMI profitability across the industry as a whole, according to the Laing & Buisson report. Aggregate PMI subscriptions reached £1,958 million, an increase of 6.8% over the previous year, in 1997. At the same time, claims incurred reached £1,551 million, an increase of 5.4%. And in real terms, claims grew at only half the rate of premium income.
The rolling out of preferred provider networks schemes by the larger PMI insurers is one factor in damping down cost inflation. So, although subscriptions income decelerated over the period, a more pronounced deceleration in claims resulted in improved margins for aggregate PMI.
But insurers could find that the market offers more opportunities than margin growth. Penetration of PMI is reported as 10.9% of the whole UK population, with regional variations ranging from 16% in London alone to a mere 4% in the entire north of England. But further polarisation occurs across the work force structure, with professionals and employers/managers accounting for 45% (22% and 23% respectively) against just 2% for semi-skilled/ manual and 1% for unskilled workers.
“There are very few firms employing 1,000 or more people who do not provide some form of PMI,” says Dudley Lusted, head of corporate healthcare development at PPP healthcare. “The fact is the penetration of cover within those companies is only about 9%. So although nearly every large group is providing some medical insurance for some employees, very few provide PMI for all their staff. It is exactly this issue of differentiation between white and blue collar workers that we are aiming to address with our new product proposition.”
Targeted at the lower paid end of the workforce, PPP’s Back to Health scheme provides medical insurance cover those not already covered by PMI, who are unable to work while waiting for NHS treatment. Costing considerably less than traditional PMI premiums, it is designed to help companies to save money and, when operated in conjunction with occupational health departments, add to their profitability by reducing working days lost and promoting better sickness/absenteeism management.
Lusted’s views are backed by the Laing & Buisson report which also emphasises the way market growth was polarised throughout the 1990-97 period. The report adds that last year saw a rise in company-paid subscribers (4.49%) matched by a fall of 3.5% in individual/employee subscribers, leading it to predict that “any future growth in demand is likely to be concentrated in the company paid sector, where there is greater potential to improve the level of penetration”. But additional factors need to be considered in predicting the future for large group PMI. Laing & Buisson warns that increased price discounting in the corporate sector as more players, such as Abbey National, enter the market, combined with increasing competition from non-PMI classified health insurance products, could threaten existing PMI market share.
But, conversely, if savings in claims costs to insurers continue, and are passed on to consumers in the form of lower premium increases, this could raise or at least retain current demand.
However, this market model is not based on recession. But Lusted points out: “The PMI market has been through recession before, and while it doesn’t do much to grow the market, it doesn’t do much to decline it either. Although companies may cut back on employees or implement additional cost management techniques, and although their medical insurance scheme might contract, it is very rare to see wholesale cutting out of PMI in order to save money.
“Because PMI is a highly valued employee benefit, I believe employers would get rid of it at their peril. It would be extremely difficult for any company to replace PMI with a comparable alternative.”