Few would disagree that the cover can offer the over-60s a pretty rum deal. Just when it starts to be needed most it becomes less and less affordable.
The irony can be felt particularly keenly by those leaving group schemes at retirement. To switch from their insurer they must normally undergo medical underwriting, which can lead to significant exclusions being imposed.
Susie Colley, principal at Torquay-based specialist intermediary West Country Health Care, says: “It is very rare for someone to have had no health problems at all by the age of 60 or 65, and I really think the Government should make a stand and take this situation by the scruff of the neck.
“It should certainly bring back tax relief for the over-60s and the ideal scenario would be for it also to introduce regulations which mean that as long as you have a certificate of insurance you can shop around without having to provide further medical evidence.”
Noble sentiments indeed. But under the present Government there is about as much chance of tax relief being reintroduced as there is of Tony Blair distancing himself from foreign policy. Attempts to ban underwriting at the switch stage would also meet with stiff resistance from insurers, who would insist that it is commercially impractical.
For the time being, the only supposed consolation for retiring group members is that they are often entitled to a continuation option. This enables them to take out an individual policy with their group insurer without any further medical evidence being required as long as they apply within a stated time period – typically a month from the date of leaving the scheme.
Nevertheless, the terms of this facility vary markedly between insurers and in some cases they are significantly less attractive than the same company’s standard individual terms.
What’s on offer?
Legal & General doesn’t even make a continuation option available, BCWA doesn’t offer one to leavers of schemes with over 50 members and WPA only provides one on the basis that policyholders accept 50/50 coinsurance on the first £2,500 per individual.
Clinicare technically doesn’t offer one either. It requires all its group leavers wishing to continue on individual terms to complete a shortened version of a medical history declaration and, although it will never actually decline anyone, it may decide to load premiums.
But it should be stressed that although Clinicare’s approach can prove prohibitively expensive for someone with serious health problems, feedback from intermediaries suggests that it can also prove exceptionally good value for those in good health – who receive a 15% discount over its standard terms.
Cigna Healthcare generally charges those who take its continuation option 20% to 30% more than if they were underwritten to take out its individual cover and it also imposes a £250 excess.
Axa PPP healthcare makes an additional charge of around 40%, but provides three months worth of free cover. Norwich Union Healthcare imposes a £250 excess for the over-50s.
On a more positive note Bupa, which restricts its continuation option to those with two years’ membership of one of its group schemes, provides cover at its standard individual terms and even gives a 5% discount to those who have never made a claim.
Standard Life Healthcare offers those who haven’t claimed in the last two years the standard 25% no claims discount that it applies to individual policies and normally also a further 5% discount in addition. Those who have claimed in the last two years will be charged at the standard individual rate minus the 25% discount.
Not just retirement age
Such a huge variety of terms and conditions demands that intermediaries bear the subject in mind when selecting and switching schemes. After all, these options apply to younger scheme members who are moving job as well as to those who are retiring. The impact on value can therefore be all the greater when a company has a high turnover of staff.
Furthermore, it is not generally realised that it is sometimes possible for intermediaries to persuade insurers to better their standard terms. For the entire 14 years he has been in business Paul Brantingham, managing director of specialist intermediary Integra Healthcare, has negotiated favourable terms on continuation options for schemes that he has taken over and even for individuals at the point of leaving.
He says: “One’s ability to succeed in negotiations invariably relates to the size of the group scheme. If it’s a FTSE 100 employer it [the insurer] is likely to be far more accommodating, but over the years I have still managed to obtain some good terms for schemes with only 20 or so members.
“If they can get a suitable deal clients often want to stay with their existing insurer because of its name. A large organisation like Bupa tends to make them feel safe and can make them reluctant to switch to a name they haven’t heard of.”
Taking a continuation option may well be attractive for those with very poor health records, although Clinicare, and to a lesser extent Bupa via its Heartbeat policy, are willing to consider covering pre-existing conditions for switchers.
Intermediaries must, on the other hand, weigh up a range of potentially more attractive alternatives when clients have perfect health records or stand to incur relatively minor exclusions.
In some cases the group scheme insurer will actually offer preferential terms on its individual policies to those who undergo medical underwriting. Bupa, for example, offers discounts of 20% and Norwich Union Healthcare of 15%.
But switching to an entirely new insurer may prove more advantageous.
Exeter Friendly Society’s no age increase guarantee has obvious appeal to those of retirement age, and the company estimates that over a quarter of its total new business comes from switchers from other insurers’ group schemes.
Since May 2002 Standard Life Healthcare’s Choices policy has allowed those leaving their own and other insurers’ group schemes to take out cover without providing detailed medical evidence as long as they can answer “no” to three questions. But it has to be said that these questions rule out most preexisting conditions likely to result in a serious claim.
WPA offers anyone aged up to 65 who was medically underwritten by a previous insurer during the last five years to take out cover without exclusions, unless they have a history of cancer, or a major heart or joint condition – all of which would require medical underwriting.
The switcher must, however, accept 25% co-insurance up to a maximum of either £1,000, £3,000 or £5,000 in return for a respective discount of 30%, 40% or 50% from standard individual terms.
Whichever group insurer is involved it should be remembered that the best solution may be for scheme leavers with health problems to take the continuation option but for others covered under family policies to switch elsewhere.
Matthew Kelvie, director of Private Medical, a specialist intermediary based in Hampshire, says: “If the member is claiming and the wife and children are healthy they should discuss with the intermediary the possibility of the member taking the continuation option and the wife and kids switching to a fully underwritten insurer with better terms.
“In cases where we have performed such a switch we have often managed to arrange two policies for substantially less than family cover on a continuation basis. If the wife and kids switch to a low-cost policy with limited outpatient cover the saving can be significant enough to enable them to build up a self-pay fund in addition.”
Insurers are unable to provide any official figures about take-up rates for continuation options because leavers are not always exiting named schemes. Nevertheless, estimates for take-up rates vary from between 20% to 50%.
Some of these will almost certainly be clients who do not consult an intermediary and fail to realise that they are allowed to look elsewhere.
Indeed, insurers commonly admit that they do not volunteer to scheme leavers that they have a right to switch insurer and Norwich Union Healthcare reports that it gets better take up rates when it approaches individual scheme members directly rather than through intermediaries.
While it may be fanciful to hope for the reintroduction of tax relief for the over-60s or for rules allowing underwriting-free switches at retirement age there does seem a case for making it compulsory for group scheme providers to inform leavers that they have a right to shop around.
The situation has similarities to the one in the pensions market. Since September 2002 it has been compulsory under Financial Services Authority rules for providers of individual and group personal pension plans to notify planholders shortly before retirement that they may purchase their annuity from another source.
Nevertheless, the fact that this practice has not yet even been made compulsory for group money purchase pension schemes suggests that group PMI providers need not live in too much fear for the immediate future.