Nearly 2.25m individuals choose to pay an average of £30 a month for private medical insurance on top of income tax and National Insurance contributions. But why do they do it?
Strangely, it isn’t because of gloomy statistics such as: “One person in four can expect to suffer from heart disease.” The truth is people are not so afraid of illness as of uncertainty. The biggest driver, according to specialist PMI intermediaries, is publicity about NHS waiting lists.
Jan Lawson, a partner in Otley-based intermediary, the Private Health Partnership, says: “It’s the convenience and avoiding delays that people are after, not the luxury aspect. They don’t want to be messed about with appointments chopped and changed, they want to have more say in the matter. They prefer to act more like a consumer than someone who is told what to do.”
This determination to be in control is a trait particularly evident among the self-employed. Nobody owes them a living. If they have a health problem affecting their ability to work, they need it fixed quickly. Otherwise someone else will get the job. And when they do eventually get fit again, it will take forever to re-establish themselves. Self-employed people see PMI as a way of preserving their way of life and standard of living. Unless they are able to work, the cash flow will dry up pretty quickly. Meanwhile, the overheads and the bills will continue – ruining both their business and their health.
As life revolves around their business, the self-employed often use PMI as a business tool. If they have to go into hospital, they will want a date to put in their diary. The operation can then be fitted in with the needs of the business, rather than the other way round. Every small businessman wants to be in charge of what is happening. That is why they became self-employed in the first place.
Yet the decision to take out PMI is more complex than it might at first appear. Many emotional factors come into play in choosing PMI, and few of them are selfish. Nor, necessarily, are they determined by the head of the household in isolation.
“Self-employed clients generally include their family,” notes George Connelly, principal of Dorset intermediary, Health Care Matters. “A number say they are doing it for the children, but it may not be their primary reason. Often the man is the purchaser but it’s the woman who makes the decision. She makes the enquiry in the majority of cases but he signs the direct debit. Women are the ones who have to look after the kids when they’re ill, and they talk about their health more between themselves than men.”
David Worth, proprietor of Leicester-based intermediary, Medical Fees Insurance Agency, says that if someone is just starting out self-employed, they may just insure themselves. This is because they are most at risk if something goes wrong. When the business is up and running, they become very good prospects for adding in the rest of the family.
In anticipating the type of cover that will eventually be chosen, generally, IFAs say, clients choose policies that reflect their outlook. “It’s a lifestyle thing,” observes Worth. “Overwhelmingly, they aspire to full cover, with both in-patient and outpatient treatment. When the cost gets unnecessarily high, older people will trade down to in-patient only. Personally we like to see a full choice of hospitals. With a local hospital or a restricted hospital list, it narrows down the choice of consultant.”
Lawson concurs: “Most people would like full cover and they’re often willing to have an excess.
“Older clients are sometimes attracted to in-patient only, perhaps because they regard it as an excess. They have a cash cushion which they are happy to use for out-patient costs.”
She adds: “We concentrate people’s attention on core benefits. Not many people who come to the market for the first time want a limited network or local hospital plan, but they may trade down to save money.”
Older customers are often those who have enjoyed PMI in their previous employment. They may well have claimed before and had a favourable experience. “It’s particularly those who retire early,” reckons Liz Hammond, a director of Private Medicine Intermediaries in Cheshire. “They want peace of mind. They’re worried about the NHS, especially waiting lists for non-urgent conditions, but they want to go off on their Saga holidays. They want hip replacements and cataract operations so they can get on with their lives.”
She also detects a certain snob value. When a person reaches a certain level of income, they want to provide benefits to their family. When they go to visit ailing relatives, they can see how much nicer conditions are in private hospitals. “Nurses are very busy in the NHS,” she says. “In private hospitals they have time to reassure. The consultant sees you every day. In the NHS you might never see the consultant. You also tend to get a better class of patient. You don’t want to sleep in the same room as someone you would never share your social life with.”
She continues: “It’s fine to see Frank Dobson on television in a flagship NHS hospital, but some are a long way from wonderful. Most people with elderly relatives would not want them cared for by the NHS. Some geriatric wards are appallingly understaffed. On the other hand, children are well looked after, and they would rather share a room with other children than be alone.”
Hammond has recent personal experience of private medical treatment and insists that it is the last benefit she would part with.
Scarcely a week passes without stories of NHS beds shortages, equipment shortages, wards being closed and patients being transferred from one hospital to another. The recent spat between the British Medical Association and the government is another cause for concern. Despite the headlines, most people still feel emotionally secure within the NHS, with few worried about the quality of treatment under the NHS. The professionalism of doctors and nurses is held in high regard.
At Norwich Union Healthcare (NUHC), marketing communications manager Heather Smith says: “People are still very loyal to the NHS, they have confidence in it. The problem is that the NHS simply can’t do the job in a timeframe that’s realistic. Few of our customers know what they are buying. They buy peace of mind and emotional security rather than knowing precisely what treatments they are buying.” NUHC gets 80 per cent of its individual PMI business from direct sales and direct marketing. The remainder is intermediated. But IFAs and specialist intermediaries are increasing their hold on this sector. Financial advisers’ growing familiarity with PMI is in itself one of the reasons why people buy. When clients discuss their protection needs during the IFA’s fact find, they discover, with a little prompting, that an important gap has been left unfilled. And the public may prove to be increasingly receptive to this type of thinking.
Ex-BUPA man, John Castagno, is now marketing director, protection, at Legal & General. Castagno has noticed a shift in attitudes favouring all health-related products. He argues, “I believe there’s been an introduction of feminine values into male circumstances and the male psyche. The values associated with care and protection are now relevant to all members of society.” Single women are more inclined to take out PMI than single men. But things change once the man takes on the caring role of family responsibility.
However, other factors are also at work. PMI is, of course, closely connected with affluence and social class. It has traditionally been an ABC 1 market, with particular attraction for professionals such as partners in solicitors and accountants. Self-employment has caused it to spread down the income and social scales, but manual occupations remain the least likely customers. There is also a north/south divide, with people in the south-east twice as likely to purchase as those in the north-west.
The drivers for purchasing PMI are quite clear – and there are 150 000 new customers doing so every year. But it seems increasingly positive attitudes to PMI still cannot maintain overall sales figures. At least the same number of policies are lapsing each year in the face of premium rises that do away with any feelgood effect. What other industry could get away with raising prices by 15 per cent each year?
Older customers face even steeper increases. As they claim most, they are extremely reluctant to give up their cover, but they are living on declining incomes, because of the collapse in interest rates. Something has to give. The other category who lapse their cover are younger customers who have not claimed.
The problem for providers is therefore not getting the punters in but keeping them in. And until premium increases are controlled, that is the way it will stay, with the public on message – but out of pocket.