The economic turmoil of the past year has ensured that the SME private medical insurance (PMI) community has only one word on its mind: “price”. Even employers who have been loyal to insurers for many years have been tempted to switch to achieve 5% premium savings.
Kevin Amphlett, chief executive of national specialist intermediary Chase Templeton, says: “Price is the number one driver in the decision-making process as long as cover is comparable, and our rate of rebroke has risen by at least half during the last year. Some of our larger clients have been involved not just in asking us to shop around providers but also in requiring us to participate in beauty parades to reappraise our services.”
The ultra-competitive environment has led to insurers receiving a marked increase in quotation requests. Groupama Healthcare, for example, reports that it has been getting between 20% and 30% more requests from the same number of companies. There have also inevitably been accusations that some of the more competitive insurers have been indulging in loss-leader pricing.
Mike Blake, compliance director at national specialist intermediary PMI Health Group, says: “I struggle to see how quotes from some of these players can prove sustainable, so I wouldn’t be surprised if they hardened rates once they’ve got the business on board. It is therefore important that intermediaries make clients aware of this possibility.”
Most accusing fingers point at Aviva Health UK, which has achieved new business growth of 5% during 2009 on SME business – in terms of the number of lives covered – when most competitors have experienced new business decreases(see box on page 24). Nevertheless, the company refutes any suggestion that its pricing is irresponsible or unsustainable.
Nick Reynolds, head of intermediary sales at Aviva Health UK, says: “We wouldn’t be allowed to indulge in pricing that didn’t make a profit. We are delivering profitable growth and expect to produce higher profits for the whole of our PMI book during 2009 than we did during 2008. We used to have two price increases a year but we now have only one, in April. In 2009 this saw our premiums rise by only 5%.”
But the grouse of the year award undoubtedly goes to the markedly increased practice of employers using more than one intermediary to shop around for the same PMI scheme. Some intermediaries report that as many as a third of their renewal cases now involve having to compete with other intermediaries.
There is general agreement that the practice is something the field could do without as it rarely benefits the client. Most insurers quote the same prices to all intermediaries – although there are the odd cases where intermediaries are able to obtain advantageous terms through special distribution deals with some insurers.
With the majority of insurers now offering modular policies which enable employers to pick and mix elements of cover there is inevitably a temptation for intermediaries in competition with one another to cut back on the actual level of cover they are offering in order come up with seemingly the most competitive quote.
Claire Sharman, head of business development at CIGNA HealthCare, says: “Employers who use more than one broker are probably trying to aim for a greater level of service efficiency but it becomes counter-productive if they focus entirely on price and lose sight of the benefits of consultancy.
“If we have letters of authority from clients for more than one broker we can’t really do anything other than quote but, while we all understand the economic pressures out there, we need to be careful as an industry. Let’s tackle the issue and not the symptom by encouraging good consultancy and advice as opposed to merely price comparisons.”
Perhaps other insurers should take a leaf out of WPA’s book? The company has decided only to deal with a very select number of intermediaries for SME business, which should give it a high degree of immunity from the practice of shopping around by more than one intermediary. Having formerly dealt with 9,000 intermediaries, it has narrowed the number down to a mere 20 and wants to reduce it further to around 10 by the end of 2010. C
Adrian Humphreys, managing director of corporate clients at WPA, says: “We only want to deal with intermediaries who are serious about having long-term relationships and are prepared to work in partnership with us and to discuss what is best for the employer rather than for the broker. Doing thousands of quotes and getting no business gets up our noses and is not cost-effective or of any real benefit to anyone, so we want to know why an intermediary feels a group should move to us, and it should not just be because we are giving the keenest quote.”
Alternatively, Wayne Pontin, business development director at Jelf Group, proposes that insurers should try to avoid the problem of using multiple brokers by agreeing to pay the same levels of commission at outset and renewal and by using generic industry-wide standard letters of appointment and letters of authority – which are becoming confused in the minds of clients.
He says: “It’s currently like swimming with piranhas out there and I’ve never known the SME market to be so cut-throat during my entire 33 years in the business. If you have level commissions and standard wordings it will prevent churning of business and will stop multiple letters of authority being issued. Employers shouldn’t really be issuing letters of authority to other brokers once they have issued a letter of appointment saying that they will deal exclusively with one firm.”
An interesting example set by Chartis (formerly AIG) with the launch of its HealthChoice product for SMEs in April 2009 at least represents a step in the direction of level commissions. Although the company will not reveal the exact rates involved, it has significantly reduced the differential between its initial and renewal commission.
Work being carried out by the British Insurance Brokers Association (BIBA) PMI Focus Group could also help with the generic wordings issue. Group chairman Glen Smith reports that it is working with some insurers to achieve standardised wordings for letters of authority, letters of appointment and cooling-off periods.
An attempt by Healthcode to produce a pan-industry quotation system for SME PMI business (see Health Insurance December 2009) could also potentially help to combat the costs of increased quotation requests. The idea is that intermediaries will eventually be able to obtain quotes from all players in the market simply by keying in or copying and pasting data from their own systems, but it is understood that only a handful of insurers have so far signed up to the scheme and, significantly, these do not include Bupa.
Healthcode is currently unwilling to comment on its exact launch plans but Mike Izzard, chairman of the Association of Medical Insurance Intermediaries (AMII), reports that the system will be tested during the first quarter of 2010 through a select panel of intermediaries. He feels that the fact that Healthcode is already well know to insurers as a PMI claims platform gives it “possibly our best ever chance of succeeding”.
Other commentators tend to be a little more sceptical, pointing put that AMII has already spent several years trying to facilitate discussions between insurers to try and develop such a system.
Mark Martin, managing director of Health-on-Line, says: “I wish Healthcode luck but the problem you have in trying to introduce this type of solution is that some insurers present product descriptions in a more favourable light than others. The bigger insurers have always fought to stop commoditisation of products and without them in the engine it’s a bit meaningless.”
Most product news reflects the current market obsession with price, and Bupa’s launch of its flexible modular Select product in December 2009 is no exception. Aimed at businesses covering more than 50 employees, it is particularly notable for offering the ability to exclude cancer cover. A comprehensive core product can be complemented by a wide range of outpatient benefit options, add-on cash packages and underwriting and excess options. Companies can also choose to exclude psychiatric cover, have a rolling excess or add an annual benefit maximum.
A range of product tweaks introduced in January 2010 by PruHealth puts more emphasis on health outcomes as opposed to merely activities engaged in. Those changes resulted directly from feedback from intermediaries and customers indicating that price had now become so critical that it was important to modify the product to improve headline pricing without significantly reducing the benefits.
The changes to PruHealth’s SME proposition include: introducing a cashback for the employer to give it an incentive to help encourage Vitality engagement; the renegotiation of hospital lists with a smaller number of hospital groups; and the simplification of the renewal pricing mechanism. Profit share has been removed, a new sophisticated risk-based pricing model introduced and renewal increases have been capped at 25% of last year’s premium.
There have also been changes to the way that gym discounts operate, with discounts that varied according to Vitality status being replaced with flat discounts of 25% off the retail rate, and Vitality points are no longer awarded for attendance but for having a variety of clinical indicators measured and then for achieving a “healthy” status or improving a previously unhealthy result (see page 17 for more).
CIGNA HealthCare, which feels that it began to attain critical mass during the first quarter of 2009, has been a little different in focusing on improving product quality as opposed to price reduction. In January 2009 it introduced GP referral for diagnostic testing, and in December 2009 it introduced a new selfreferral physiotherapy benefit. In April 2009 it also introduced oral cancer cover on the dental plans that can be bolted onto its SME PMI, and it reports that its ability to add value by combining dental cover with PMI is helping it to stand out from the crowd in a very pricecompetitive marketplace.
Groupama Healthcare proved innovative with the May 2009 launch of its CoverBreak contract, which enables SMEs to put PMI schemes on hold for 12 months and maintain the same underwriting terms – albeit at a cost of 15% of the normal premium. The company reports a “reasonable take-up” and that it has actually done more business through switches from other insurers than via its own book. But a similar idea piloted by AXA PPP healthcare to its direct SME book in August 2009 met with “very little interest”.
IN THE PIPELINE
There are also plenty of product changes lying in store for 2010. Simplyhealth (formerly BCWA), for example, is soft-launching a new SME product with half a dozen intermediaries in the first quarter with a view to going whole of market in April 2010. Simply Healthworks is a modular product which aims at groups with at least 15 scheme members. The core cover module, which costs a 29 year old £29.14 a month and contains a mandatory Service+ (guided option) facility, can itself arguably be considered an adequate PMI offering and costs within it can be reduced via four excess options.
Jack Briggs, sales and marketing director at Simplyhealth, stresses that changing BCWA’s name in May 2009 has counted positive and that a move to a new operating platform should now bode well for service standards. The platform, which started in 2005 with cash plans and extended to PMI in November 2008, will connect to all Simplyhealth business by mid 2010.
Briggs says: “Probably the only criticism of the BCWA name was that the client often hadn’t heard of it, and organisations clearly like to buy from companies they know and recognise. There has been no negative or detrimental comment about the rebrand but the implementation of the new platform across PMI was certainly difficult and affected service standards for a small proportion of the SME customer base in 2009. We’ve spent the last year ironing out some of the gremlins causing these difficulties and are very confident of our ability to deliver a first class service during 2010.”
PatientChoice is also intending to launch a product specifically for the SME market in the first half of 2010. At the moment its individual product is being used by some SMEs but it is not yet attracting the type of wide-scale switching from standard PMI schemes that the company would like to experience.
Dominic Higham, chief executive of PatientChoice, says: “We are getting quite a lot of enquiries from companies looking to save money but there is very little actual switching activity because our outpatient cover is still too limited for us to qualify as a replacement for PMI.”
Aviva Health UK will be giving its Health Solutions product a refresh in the third quarter of 2010 to reflect the fact that there have been a lot of modular launches from competitors during the last couple of years. Additionally, it will be offering its MyHealthCounts health management service to SMEs in the second quarter of 2010, and this will involve some slight variations from the corporate version.
Health-on-Line is also intending to become more active in the SME market in the first quarter of 2010 to promote a new product after having waited for a bottoming out in scheme reductions. It stresses that the problem of job losses tends to have a more adverse effect on claims in the SME market than in the large corporate market as lay-offs can be less sudden and families and friends of employers can often be tipped off, therefore causing operations which could otherwise have waited to be brought forward.
At least the stream of new launches and product revamps will enable intermediaries to continue to demonstrate their worth in a market that must seem highly confusing to the average small business. Indeed, by the time the economy picks up, intermediaries will hopefully be able to look back and feel that the economic downturn at least provided a brilliant advert for the art of broking.
A TOUGH OLD YEAR
PruHealth, which is still benefiting from its initial expansion phase, is notable for having achieved solid growth during 2009. Its PMI book as a whole grew by 16% in the first nine months of 2009 in comparison to the corresponding period in 2008. Although it has no exact figures for its SME book, it estimates that it achieved an even higher growth rate as SME is still its fastest growing area.
But, with the exception of Aviva Health UK, none of the other major players claim that 2009 has proved anything other than a long hard struggle. AXA PPP healthcare does report that its SME intermediary new business actually marginally increased over 2008 but it is unable to provide a percentage rate of improvement. Bupa and Standard Life Healthcare acknowledge that they experienced decreases in SME business but, once again, have no percentages to volunteer.
Ronjit Bose, head of product at Standard Life Healthcare, says: “There’s no question that it’s been a tough year. We have had to be flexible and intermediaries have had to be more creative in doing market reviews, asking how they can use flexible products to bring cover costs down. Retention is under pressure as there is more switching to better deals but there is still fresh virgin business to be had, although less of it. Insolvencies are also not really a major problem and hard-up employers are loathed to cancel schemes because they know that surveys consistently show PMI to be the second most popular employee benefit after pensions.”
Groupama Healthcare is unusual in volunteering figures, estimating that its overall SME account shrank by between 4% and 6% during 2009 over 2008, despite the fact that its new SME business during the period actually increased by around 20%. The main problem has been reductions in headcounts resulting from job losses but the company has also lost a few schemes from firms becoming insolvent and from switches to other insurers. Most of the latter have been poorer performing schemes it felt it had to let go.
Most insurer spokespeople are not expecting 2010 to prove any easier as they fear that the recession will last longer than generally forecast and that many struggling SMEs could belatedly go under. Uncertainty in the build up to the general election will not help business confidence but, on the positive side, by 2011 SME PMI is expected to be able to start capitalising on a poor public sector funding situation.
HUNTING A WINNING FORMULA
Any intermediaries who are beginning to despair at their prospects for surviving the downturn could do worse than take a few tips from national specialist intermediary the Private Health Partnership (PHP), which subdivides its sales personnel into “hunters”, who focus entirely on trying to win new business, and “farmers”, who are concerned solely with retaining existing business at renewal.
Stuart Scullion, sales and marketing director at PHP, says: “Our new SME business is quite buoyant as our hunters are doing a good job but our farmers are up against the equivalent of our own hunters, so we are having to work much harder to retain clients because of the competition. We have had clients asking for 40% reductions in premium, so we must look to see what we can do for them, and this might involve having to switch providers. The crucial thing is not to be concerned about reductions in commission but to focus on retaining the client because we know that we will eventually flourish when they start doing so again.”
Scullion maintains that the keys to retention are better and more frequent customer contact, getting out early on renewal terms and demonstrating extreme thoroughness. After all, if you do not consider all the options there is always the danger that another intermediary will put the one you omitted on the table.
He continues: “Actually ask them in advance whether they are looking to reduce costs and suggest methods of cost-cutting like switching hospital lists and introducing excesses. Other intermediaries are obviously failing to do this as our hunters are not experiencing the same kind of proactive approach from the holding brokers.”
NATIONAL FRIENDLY RINGS THE CHANGES
Specialist health insurer National Friendly has seen quote requests triple in the past three months, writes David Sawers.
According to Ian Talbot, head of intermediary distribution, the provider’s ability to offer fixed premiums is appealing to SME customers who are experiencing volatile changes in prices from rival providers.
Changes being announced by National Friendly this month include increases to its “top-up facility”, giving customers access to up to £60,000 of healthcare cover instantly, while customers wait for their deposit “pot” to build up.
The second major change is a top-up review. Originally, the top-up feature was only available for a period of 10 years. This has now been extended to offer customers the chance to take a second top up. After the 10 year period, there will now be the option for customers to purchase the top-up cover at the levels and premiums which apply at the time. Talbot says this means that after the 10 year period customers to not have to worry about solely relying on their deposit “pot” dictating how much healthcare cover they are entitled to and have a second fund providing private cover.
Third, while the provider’s fixed premium facility is continuing, it will be subject to reviews every five years. “This allows for secretarial underwriting of policies on behalf of employees, greatly reducing the process length of the policy set up,” Talbot says.
The final change being introduced by National Friendly will see a difference in the deposit account split. Twenty five per cent of each monthly premium will now go into a customer’s deposit account, with this share always being returned to the employer if they should choose to leave the scheme and 75% will go into running the scheme.