Private medical insurers expect the role of independent financial advisers (IFAs) and intermediaries as a distribution channel to become increasingly important over the next five years, and it is a trend that they are keen to encourage. This represents a significant change in emphasis. Until recently, the role of advisers outside the company paid sector has been modest. But PMI sales through general brokers and IFAs have been gradually increasing in recent years, and specialist health insurance intermediaries have been gaining influence since they formed the Association of Medical Insurance Intermediaries (AMII).
Targeted help However, any improvement will still be from a relatively low base. Claire Ginnelly, national account manager, intermediary sales division at Standard Life Healthcare, says: “Traditionally, IFAs would sell around one or two PMI policies a year but this is changing – we are now speaking to IFAs a lot more.”
The relationship is obviously something that insurers are keen to encourage. This new found enthusiasm for IFAs is undoubtedly influenced by the fact that penetration of the large company market is probably as high as it is going to get. Much of the business which insurers receive is recycled.
In contrast, sales through intermediaries are more likely to be genuinely new business from small companies and individuals.
Standard Life Healthcare has been trying to develop its links with IFAs over the last four to five years and currently has 12 individuals dedicated to looking after the needs of IFAs. “Specialist intermediaries and IFAs are both more than capable but they have different needs,” says Ginnelly. “For example, IFAs are not fully aware of the PMI marketplace because it’s not usually their core product so they have different training and development needs.”
Most insurers will provide support facilities to assist IFAs and intermediaries. BCWA, for example, has no direct sales force so focuses its attention on supporting independent advisers. “We will provide on-site training for IFAs on the background to the PMI market,” says Howard Hughes, sales and marketing manager at BCWA.
Likewise, Groupama, a broker-only PMI insurer, provides a support facility that can assist IFAs by, for example, providing customer profiling and segmentation facilities. Bruce MacLellan, head of marketing at Groupama Healthcare, says: “IFAs have concentrated their efforts on stakeholder business, investment or life products: but, going forward, protection should be their focus as another product to talk to their clients about, especially where SMEs or the self employed are concerned. Customer relationships will be strengthened by this wider pitch.”
Working together However, many smaller IFAs may still feel that they lack the necessary expertise to be able to offer their clients the high level of service with PMI that they can provide on other types of products, such as pensions or investment plans.
Nye Jones, distribution development manager at PPP healthcare, says that IFAs tend to write PMI as accommodation business, when the client raises the issue, rather than as an active part of their business. The reasons for this are manifold, according to Jones. For a start PMI commission rates have not been as attractive as those on some other products. The PMI market also involves a certain degree of complexity and unless IFAs are making a strategic move into the healthcare business, it is questionable whether the cost/benefit ratio would add up.
“At present, PMI also sits outside the regulatory framework. It doesn’t fit with an IFA’s fact find so it is not a focal point of discussion. Other product areas have mature technology platforms, whereas healthcare products do not. There is also the perception among advisers that if they are selling protection products that is a financially driven consideration, but PMI is regarded as an emotionally driven consideration. But these reasons are all linked to perception. If PMI is out of mind then, as an adviser, you’re out of practice,” says Jones.
Realising this, many mid-size IFAs are now acquiring healthcare practices and using this as a cross selling opportunity. In addition, two of the major IFA networks – Bankhall and DBS – recently introduced non-regulated arms that include healthcare and protection.
“Any IFA who’s a proficient provider of income protection and critical illness will find that the stretch to healthcare isn’t really that big – the core skill sets are basically the same,” says Jones. “It would require IFAs to invest some training and time but if they want to look more seriously at the market, they should look at PMI as being a core area of their expertise rather than just dabbling in the healthcare arena.”
That said, many general IFAs still feel that they lack experience and may not want to embark on a programme of additional training, in which case it may make sense for them to link up with specialist health insurance intermediaries.
“If IFAs take the strategic view that it’s [PMI] not part of their core business it would make sense for them to work as close as possible with specialist intermediaries to actively manage and cross sell to existing databases rather than just referring clients. Some are doing this already and doing it very successfully,” says Jones. “Of course it works both ways in that the IFA may be able to cross sell on to the intermediary’s clients as well.”
Not surprisingly, this sentiment is echoed by the Association of Medical Insurance Intermediaries (AMII), which is currently trying to encourage IFAs who do not specialise in PMI to start relationships with members of the association. These deals can be mutually advantageous for both sides because it means that when AMII members are asked for advice on other financial matters they can pass their clients directly to the relevant adviser.
Specialist health insurance intermediaries are a relatively recent phenomenon. They started to become active in the first half of the 1990s. Many had previously been representatives of companies such as Bupa. When the AMII was formed in 1998, its primary aim was to obtain representation in discussions leading to the formation of the voluntary regulator, the General Insurance Standards Council (GISC). The association achieved some success with its submissions to the GISC, such as getting the minimum fee reduced from £300 to £200 pa.
One of the other aims of the association was to promote high standards within its membership and consequently it published the first terms of business for PMI specialist intermediaries. This included clauses requiring members to disclose their commission if requested, or agree a fee basis in advance; to give or confirm advice to clients in writing; to keep records of all policies for up to six years and to have professional indemnity insurance (before this was required by the GISC).
The AMII has also negotiated with BIBA to promote its training and arbitration services for members, who now receive advantageous membership terms.
Benefits of independence In addition, the association has sought to influence insurers on behalf of its members and increase public awareness of the benefits of independent advice when buying PMI. A freephone service has been set up which provides members of the public with the name of their nearest specialist intermediary.
To become a member of the association, advisers must specialise in PMI or have a specialist healthcare department, they need to be registered with the GISC and must be independent (they must have active agencies with at least four different insurers). Members pay an annual subscription fee of £100. Numbers have been increasing steadily since it was formed and according to Paula Aitken, membership secretary at the AMII, the association now covers just under half of all PMI specialists.
Top rated insurers Regular quarterly meetings are held which act as a forum for intermediaries and insurers to discuss matters of common interest. The AGM is due to be held on 12 September at the Crowne Plaza Hotel, London Heathrow.
The association also carries out annual surveys of members to find out how they view insurers’ efficiency in a variety of areas. The most recent survey results were published in April. Members were asked to rate 14 of the leading PMI insurers on questions ranging from responses to policyholders’ queries to prompt and accurate settlement of commission. Standard Life Healthcare was the top rated insurer, followed by BCWA Healthcare, Exeter Friendly Society and Clinicare.
In fact, in most categories it was smaller insurers, with the exception of Standard Life Healthcare, which got the best ratings, while large, established companies came low in the league tables. However, all providers showed that they had improved to varying degrees on last year’s results, with the exception of Royal & SunAlliance and Permanent Health – the overall results of these companies were shown to have marginally declined.
It is a measure of the insurers’ growing concern for their reputation among intermediaries that many had already started to implement new procedures to improve matters by the time the survey was published. AMII members stated that service levels of all the insurers in the survey were improving, with the exception of Royal & SunAlliance, Norwich Union and Permanent Health. A comparison of Health on Line and Groupama’s service levels could not be made, as the companies were not rated in last year’s survey. Both companies were rated highly overall this time but next year will be the real test.
Larry Bulmer, chairman of the AMII, sees the association continuing to grow in size and influence and he points to its representation on the ABI’s PMI panel dealing with the nuts and bolts of regulatory change. The panel worked to ensure a successful regulatory system under the GISC and now has to undertake much the same under the FSA.
Other intermediaries could also find the association a useful addition to their list of contacts.