The large group PMI market is variously seen as flat or buoyant – it depends who you ask. Providers are happy to talk up sales and hail the new breed of caring employer who can afford PMI for everyone from the managing director to the doorman. Intermediaries are less bullish, seeing few opportunities in a fiercely competitive market.
BCWA sales and marketing director Philip Fowles is in the happy camp. “Large group PMI has become an easier sell, not a more difficult one. We have taken on switch business, but have also seen the market grow,” he says.
With unemployment at 3.9 per cent, the lowest for 20 years, he says company benefits are becoming more important.
“Many companies are struggling to attract and retain staff and health insurance is one of the key benefits they can offer. Staff increasingly expect PMI as a company perk, it is becoming the accepted norm,” he says.
The recent rapid growth in technology companies has also spelled good news for PMI providers. Fowles says: “Competition for staff is particularly fierce in this sector and many companies simply have to provide health benefits.”
Another factor is the recent bout of company mergers and acquisitions, which has brought new employers into the large group fold. “Two or three companies merging often consider taking out a special bulk-rated scheme. As they get larger it becomes increasingly viable to offer them a bespoke product,” he says.
Bupa head of corporate and voluntary consulting Ann Greenwood shares Fowles’ positive outlook. She believes business optimism remains high generally, and company benefits are becoming more democratic.
“In the last 18 months many companies have moved from covering their senior people to buying cover for the majority of their staff. Schemes that had a few hundred members may now have 1,000,” she says.
Although PMI has always been a popular benefit among staff, employers have traditionally been more wary. Greenwood says: “Many big companies have questioned insurers’ ability to control and contain costs. They do not want to buy cover for 10,000 staff only to find their premium double from £4m to £8m within five years. Now they have more confidence that increases can be contained.”
Greenwood says managed care and network strategies to reduce the choice of hospitals have both helped insurers limit their costs. “BUPA has also improved the quality of its buying power to strike some good deals,” she says.
Employers increasingly appreciate that PMI can improve sickness absence management. “There is a cost to PMI, but, in the long term, it should save you money. It is better for staff to be treated and recover quickly than sit on an NHS waiting list for months,” says Greenwood.
In 1999, workplace absence cost British business £10.5bn, an average of £438 per worker, according to a survey published in May by the CBI and PPP healthcare. This is a slight rise on the £10.2bn lost in 1998. A total of 187m working days were lost in 1999 – an average of 7.8 days per employee. The best-performing companies manage 5.3 days.
PPP healthcare director of corporate healthcare development Dudley Lusted says long term absence and stress-related problems are major causes of lost days and medical insurers can provide solutions to both problems. “Managing these causes of absence requires, among other things, early access to professional medical and psychological support,” he says.
So, while insurance companies may believe that everything is set fair for large group PMI, do the statistics back them up?
According to Laing & Buisson, the number of people covered by all company schemes – large and small – stood at 4.47m in December 1998, compared to 3.98m in 1996. This equals a rise of 12.5 per cent over two years, compared to a fall of nine per cent in the individual market.
This looks promising, until you remember that 4.21m people were covered in 1990, a figure that fell dramatically in the recession that followed. This means the rise over eight years is just 6.2 per cent.
The picture is equally mixed in monetary terms. Subscription income rose 14.3 per cent in the two years to December 1998. But claims costs showed similar growth – 15.2 per cent – to remain at 86 per cent of subscription costs.
Abbey National Benefits Consultants healthcare manager Hugh Fawcett confirms this dichotomy. “The market is growing, but nowhere near as fast as everyone working in the industry would like,” he says.
Sales have been hit by recent tax changes. From April, employers offering medical insurance paid an extra 12.2 per cent in National Insurance contributions. Insurance premium tax increased from four per cent to five per cent in July 1999.
Fawcett says: “These have thumped prices up even before the insurers have added their own increases, which are typically more than 10 per cent.”
With businesses putting cost-cutting at the top of their agenda, premium increases have to be justified. “PMI has had to fight its corner along with everyone else,” says Fawcett.
Insurers have met with some success in the drive to reduce their own costs. “Hospitals are certainly under better control. The days are long gone when Bupa would ask `How much would you like to charge?”’ says Fawcett.
“In the past insurers never seriously questioned what might be charged or even looked at the quality of people carrying out the work. They do now, and that can only be good for private medicine.”
And that is not the only change in the group market. Employers increasingly offer `cafeteria’ benefit schemes, allowing staff to choose from a range of company-paid benefits, and `voluntary’ schemes, where they pay themselves but benefit from the company’s bulk buying rates.
Fawcett says: “Cafeteria is talked about more and more but I’m not sure how comfortably PMI fits into the package.
“Unless it is a core benefit, it tends not to work. When offered a choice, young and healthy people would rather take more holiday than health cover. But you need to bring in younger risks as premiums get too expensive if you only cover older employees.”
He has seen no real growth in voluntary schemes. “The industry needs to concentrate on company purchasing. This is much more satisfactory. Many employers buy PMI for middle management and above, while those who earn the least are offered it on a voluntary basis. It doesn’t really make sense.”
Product development in large group PMI is rare. Large employers set their own demands, and insurance companies respond with tailored packages. “Products are not vastly different from 10 years ago. The requirement is much the same – staff get ill and need hospital and specialist treatment,” says Fawcett. Churning still goes on, but less than in the small group market, which is much more price sensitive. “With smaller companies a few hundred pounds matters, it could represent quite a high percentage of the total cost. They are more likely to go for the lowest quote,” he says. “We always try to keep a client with their current insurer. We only suggest moving if the customer is dissatisfied with the service or is being asked to pay a silly price.”
As a result, Fawcett says the large group market is highly competitive and difficult for intermediaries to break into. “There are a lot of brokers chasing every piece of business. Companies are inundated with health insurers and intermediaries at renewal time. You have to do battle with a lot of people.”
Health Care Plus partner Bill Poynton says intermediaries will find more opportunities in the small group market. He says: “There is not an awful lot of virgin large group business out there. You don’t walk into a company that says, `We have 500 people not covered, can you put them on straight away?’ It would be nice if that happened, but it doesn’t.”
Poynton says he has just three large PMI groups, all of which started with a handful of members before growing in size. “If we came across a large group scheme we would go for it, but the opportunities are rare,” he says. Some insurance companies also steer clear of the large group market. Legal & General prefers to focus on smaller groups and individuals. “We don’t think large group is the most profitable end of the market as rates are very keen. It is of most interest to insurers chasing market share,” says John Castagno, managing director of general insurance and healthcare at L&G.
Individual PMI also offers greater customer loyalty and the benefit to sell `added value services’ at a premium.
All this means that, perhaps fittingly, large group PMI remains the province of the larger intermediaries. NIMIS principal Zig Malendewicz says the returns do not justify the work for smaller outfits. “Larger intermediaries have specialist departments that only negotiate on large contracts. If you can concentrate all your resources it can be worth doing – but not for the small organisation,” he says.
And while this may not be welcome news for all, at least it goes some way to explain how different sectors of the industry can hold conflicting views on the state of the market.