Never volunteer, they used to say in the army. But for workers who want private medical cover, volunteering is a brilliant idea. By joining a voluntary scheme, they can get worthwhile reductions on the premiums they would pay as individuals.
Such a scheme is ideal for employers who do not want the expense of a company-paid PMI scheme. They can still put in a voluntary arrangement and come up smelling of roses. Only those employees who want the cover need participate and they can get a discount of at least 15%. And, as the employer has checked the scheme out, they can buy with confidence.
In many firms, only the top echelons get PMI as part of their employment package. However, the company will often be willing to put in a voluntary plan for the other ranks. This is the case at British Airways, and it is a system which many smaller firms have followed.
And even where PMI is a fringe benefit for the whole workforce, the employer will rarely want spouses and children included. Family members claim more than employees and this pushes up the price of a company paid scheme. Instead, the employer can have an experience-rated group scheme for the employees, and a voluntary arrangement for their families. Voluntary terms for spouses have a strong attraction, as all members of the family like to have equal access to private medicine.
There are many variations on the theme. It all depends on how much the employer wants to subsidise the workforce. One option is the assisted voluntary plan where the company pays a proportion of the cost, sometimes half, but sometimes 60%. The heyday of voluntary schemes was in the 1980s. Bodies such as county councils, police forces and fire brigades were very receptive to offering them to staff. But membership slumped in the recession as pressures increased on family budgets.
Now, there are signs that they are making a comeback. Where schemes are already in place, they are growing because of increased interest from the workforce. Even so, the potential is not being sufficiently exploited.
Andrew Green, of broker Green Denman, says: “Brokers don’t use the voluntary option to the full. The beauty of these schemes is that they can be set up in so many different situations. If the company promotes the scheme to the staff, you get one or two more members coming on board every year without any extra work.”
His view is shared by Peter Chamberlain, business development manager at BUPA. He notes: “We’re seeing increasing awareness and increasing demand. Yet it’s an area that a lot of intermediaries have still to realise. We’re very keen to help. Intermediaries already have the client relationship. They know the structure of the workforce and where the gaps in cover are.”
A voluntary group can be set up with three or more employees, or members of a professional or social organisation. Usually, a group secretary is appointed, who forwards applications to the insurer. The secretary also has to collect contributions from the members and remit them in bulk.
BUPA says this has led to a lot of work in the past for the group secretary. So it has developed ways to shoulder much of the burden. Members can now pay subscriptions in a variety of ways. Under a “group pay” arrangement, subscriptions can be deducted from salary, with the employer being invoiced monthly. Alternatively, members can pay direct – by credit card, direct debit, cheque, or even cash in the case of annual payments.
When asked to set up a voluntary scheme, BUPA looks for two ingredients: level of access to the workforce and level of endorsement by the employer. In those situations where it is given complete freedom to put the scheme in front of employees, BUPA will provide considerable support.
It will produce the literature and organise the distribution strategy, using a spectrum of communication tools such as direct mail, in-house publications, and intranet.
As market leader, BUPA numbers its voluntary schemes in thousands. Most of them sit alongside a company paid scheme for the same firm, though there are numerous standalones as well.
It is not unknown for a company to have voluntary and fully paid arrangements in place with different providers. However, this is administratively more cumbersome for the employer. From the broker’s standpoint, it is much better to place both schemes with the same provider, as it gives greater leverage in negotiations.
Whatever the arrangement, providers of voluntary schemes all have to guard against selection. Potential members who have never had a day’s illness in their lives will not feel they need insurance. Those who have health worries will jump at the chance. And providers are only too aware of this difference.
David Ashdown, marketing director at WPA, says: “Even with 200 lives you’ve still got selection against you, so we underwrite all voluntary schemes. Otherwise you get even more horrific claims experiences than in other sections of the market.”
He adds: “With a company paid scheme we have bulk rating for 50 or more lives. Everyone pays the same premium, which is related to the scheme’s claims experience. But voluntary schemes are more related to standard individual contracts. Premiums go into one large fund, and rate rises depend on the experience of the fund overall.”
BCWA uses community rating for all voluntary schemes. Applicants have to give information on hospital treatment and specialist consultations they have had in the last seven years, as well as any GP consultations in the last 12 months. However, marketing director Philip Fowles says it is unlikely that any terms would be applied, unless some major procedure had been undergone.
A number of other providers are very active in the voluntary sector, including Norwich Union Healthcare, PPP and Guardian Health. There is, however, a certain wariness over schemes which include retired staff as well as current employees, because of their worse claims record. Richard Halley, national sales manager at Norwich Union, remarks: “There are voluntaries out there that insurers wouldn’t touch if they didn’t have the main paid scheme.”
Norwich Union looks to impose a £250 excess for benefits which continue in retirement. If members with a medical history join, they are expected to disclose it.
And Norwich Union imposes a rolling moratorium under some of its schemes, whereby a two year claim-free period is required for pre-existing conditions.
Besides schemes run in conjunction with employers, brokers can also exploit affinity groups, starting with their own client base.
For example, brokerages whose main thrust is life and pensions may well feel that health cover forms part of best advice. And they can cross-sell PMI much better if they can offer a discounted rate. Also, a broker may handle the general insurances of a trade or professional body. Philip Fowles says: “We’re quite keen to do more affinity schemes. A lot of professional associations are looking for additional,– benefits they can get for their members. We provide a lot of support for brokers on this.”
Fowles discloses that BCWA’s affinity business is evenly split between broked and non-broked schemes. This shows there is still plenty of opportunity in the market. There is very little distinction between voluntary company schemes and affinity group schemes. Pricing is the same. It is only the marketing and administration which differ.
And this offers certain opportunities, some brokers have a sophisticated approach, branding the product and producing their own literature to win extra business. They also act as group secretary and issue claim forms.
Nick Petty, of broker Medical Insurance Agency, says: “It’s essential to get the endorsement of the chairperson or president to make the scheme work. Insurers have been stung in the past by voluntary schemes. So I make sure I can deliver what I promise.
“Some brokers have promised huge numbers, got huge discounts, and then produced only five registrations.”
He adds: “We sit down with the client and look at designing a bespoke scheme. It might include health club membership or discounted travel insurance. The scheme needs to offer something special that the member couldn’t just buy in the street.”
However, there is a point to watch. A broker affinity group with a poor claims record maybe charged more than some members could get as individuals. The converse is that if an individual has huge claims in one year, their premiums may go through the roof. So safety in numbers does apply.
Norwich Union’s Halley says: “If you get a request from an organisation that has a specific population and an acceptable claims history you can be far more creative.”
And of course, be more likely to get a good deal from the insurer, some of which will work to win extra business. And the deals are there to be had. At BUPA, the discount from individual rates starts at 10% for affinity groups, rising to 15% for annual subscriptions. And if the scheme is sponsored by the employer, 15% discount is available on groups of five to nine, with a 25% reduction on groups of 10.