Complaints about the stagnant state of PMI are getting monotonous. It seems at all too often we are prone to lament the poor performers, missing the rising stars altogether. And, in terms of PMI, small group has to be today’s supermodel of the market. Not only has it proved a stable competitor in tough times, but the future of the market is set to soar. That is the unanimous message from providers and intermediaries alike. “It is a becoming a very important benefit,” confirms John Stafford, managing director of Permanent Health Company. “This often happens. A benefit starts off in the large groups and then filters down to the smaller ones.”
A survey of all new business conducted by OHRA in 1998 revealed that almost a quarter of new business came from the small group market.
One explanation for the rise of small group PMI is logical: there is an impressive number of small groups operating in the UK. According to research carried out by the Department of Trade and Industry, in 1997 of an estimated 3.7m UK businesses, only 32,000 had more than 50 employees.
The survey also indicates that these small companies dominate the construction, computing and sales production industries.
The findings of this research were a factor contributing to Prime Health’s focus on the market. “There is massive interest for small group PMI at the moment,” says national sales manager lain McMillan. “It is very buoyant market.”
Intermediaries and providers are reporting that the success is not only a result of renewals, but also fresh business. “In recent times we have seen more new business,” says intermediary Phil Taylor of Preferred Medical. “More and more people are asking for small group PMI who used to insure themselves individually.”
Intermediary Glen Smith, managing director of Healthcare Partners, reinforces this view. “Speaking for our own business, it has grown at a healthy rate” he says. “It is now 60% of our business.”
Providers have also noticed the surge of new business and only have optimistic reports – including some suggestions about where the increases are coming from. “Small group PMI is a best seller and it is doing particularly well in virgin groups,” enthuses Philip Fowles, marketing director at BCWA. “Where we are seeing the most growth is with companies that haven’t had PMI before, especially in the high-tech sector.”
Many of the smaller providers in particular have experienced growth recently and it has been suggested that they are picking up business from larger companies whose rising premiums have lost them customers.
It is interesting to note that a shift in attitude seems to have occurred: employers are now viewing PMI as a two pronged benefit. Not only does it act as an incentive for staff, but also as a protection mechanism for business. “Employers want to both protect and attract key employees,” explains David Ashdown, marketing director for WPA.
“Many potential employees ask if they will be provided with the benefit, especially if their previous employment offered it.”
Because small groups employ fewer members, these staff are all the more imperative for business. “Employers want their key employees insured so that, should anything go wrong, they can look after them and get them back to work as soon as possible.” This view is echoed by Hazel Berill, head of marketing at OHRA. “Over the past two years we have seen a lot of business in the small group market,” she says. “It is because people see it as increasingly important to protect their key employees.”
Naturally, the length of NHS waiting lists are an added incentive for employers to buy policies for their staff. According to Debbie Titley, underwriter for Cornhill: “NHS waiting lists are a problem that motivates more and more interest in small group PMI.” Clearly, employers would prefer their staff to be treated conveniently and efficiently than lose them to the drawn-out waiting periods that plague the State system.
The potential this sector now offers has not been missed by providers, with many launches, re-launches and new entrants in the market place. Earlier this year BCWA launched a new discount package relating to its Preferential and Vital Private Health Cover. Customers who had not bought PMI before are entitled to discounts of 20% in the first year, 10% in the second and 5% in the third year of continuous cover. “We have been asked to quote more and more for new business, especially with the Preferential product,” says Fowles. “During the year we installed a new quotation service and extended our web quotation service. Both have been very active.”
And rumour has it that Cornhill is also poised to introduce a new scheme to the small group arena. “We will be launching a new small group PMI product as a result of the purchase of Healthsave’s assets,” confirms Titley. “We are working to bring the two portfolios together.” With regard to ways in which Cornhill could improve its current product, Titley comments: “We are considering tweaking the hospital directory and are looking at costs. We will be negotiating with hospitals and hope to include more hospitals in the lower banding.”
WPA is another player capitalising on the small group market. Ashdown explains that the motivation behind its forthcoming launch comes from “the success of our Freelance and self-employed products”.
The new scheme will combine special premium rates with a mix and match feature.
Royal & Sun Alliance is also proving to be a major competitor in the small group market. According to Smith RSA is taking a lot of business.
This challenging atmosphere can only indicate a market brimming with potential. “There is a lot more competition,” confirms Stafford. “A number of new providers have entered the market, stimulating this competition which in turn has stimulated activity.”
So far so good; but small group PMI is not an entirely invincible area. Gordon Brown’s most recent budget did little to encourage neither the blossoming small group market nor the PMI market as a whole. First there was an increase in insurance premium tax to 5% from 1 July this year, and there is also the rather under-publicised levy of national insurance on company-paid PMI, that was suggested in the last budget.
These threats have not perceptibly perturbed the industry, with most players taking it in their stride and remaining optimistic. Some commentators feel that the amount is too insignificant to jeopardise sales in the sector.
As McMillan of Prime Health explains: “I don’t think small group PMI will be affected by national insurance as it amounts to so little,” he says. “Any good salesman should be able to convince the client that this is a worthwhile benefit.”
Another theory in circulation is that the levy will be a concern to particular areas of PMI but that the small group division will remain largely unaffected. This view is expressed by OHRA’s Berrill: “I think that the extra contribution may cause larger groups to think again,” she says. “But I don’t think that this is the case with small group PMI because employers see getting key staff back to work quickly as very important and medical insurance gives them the potential to do this.”
And it also allows intermediaries and providers to improve their own perfomance by meeting an increasingly vital business need.