Sharing claims information for small group schemes is not common practice, nor is it mandatory, in the private medical insurance industry. Ahead of an important meeting between insurers and intermediaries on the subject early next year, Health Insurance asked the major insurers in the market for their thoughts. AXA PPP healthcare, the second largest provider in the market, declined to comment on the issue other than to say the information is “commercially sensitive”. However, several other leading providers outline their position here.
ALISTAIR SCLARE, HEAD OF HEALTHCARE UNDERWRITING, GROUPAMA HEALTHCARE
The insurance industry will have good cause to remember 2008. As if the credit squeeze and burgeoning recession were not enough, the industry has grappled with the ongoing Retail Distribution Review (RDR) and the final implementation of the Treating Customers Fairly (TCF) regime. In the health insurance arena, one of the key issues has been whether holding insurers should release claims information in the commercial SME arena.
These matters are inextricably linked. Structural weaknesses in the finances of the insurance sector, coupled with an economic downturn, translate into tough market conditions. Markets under stress react poorly to increased regulation. And businesses struggling through a recession look askance at moves that might be seen to weaken their competitiveness – as those content with the status quo describe calls for claims information to be released.
But during 2008 the momentum behind the drive to improve claims sharing has grown substantially. The depressed economy cannot be used as an excuse to resist change. And the fresh regulatory context can only provide added impetus towards market evolution.
Some in the general insurance market still think of regulation as primarily a concern for the life, pensions and investment sector. After all, they say, this is historically where most of the past problems have arisen. They probably see little in the way of “read across” from the RDR, and they might even be less than serious about the all-embracing impact of TCF. If so though, they will certainly be in for a very rude awakening in 2009 and beyond as the Financial Services Authority determines to what extent firms are embedding TCF into their corporate culture, as it requires them to do.
WHY THE ISSUE NEEDS TO BE ADDRESSED
The lack of transparency in claims information is without doubt a major TCF issue, and here is the simple, irrefutable argument as to why: without it, brokers are unable to advise their clients effectively because they do not have sight of the full risk data and competing insurers are unable to provide accurate, bespoke quotations for the same reason. The result: policyholders are denied access to a competitive market.
Put it another way. An insurer who refuses to release claims information is in danger of withholding information that is essential if a broker is to advise their client in a meaningful fashion. Slice and dice the facts any way you want but there would appear to be an obvious breach of the rules surrounding TCF.
Such a failure in terms of a lack of claims-sharing also means that health insurance lags behind other classes of commercial insurance business. Colleagues from other markets often shake their heads and whistle softly when they see what passes for normal practice in our discipline. Not important, you might think, so long as health insurance is efficient and works to the best advantage of its customers. But clearly it does not.
Insurers are unable to deploy their full range of skills and experience to price a typical risk. Claims are an underwriting factor that is naturally taken into account at renewal, so an insurer quoting on a piece of new business should be in possession of the same information. If not, the scheme could be over or under-priced. Either way, this is unfair as a policyholder could either be paying too much from inception or expect an uncomfortable hike in premiums at renewal. Thus the lack of claims sharing has the potential to destabilise market pricing.
Furthermore, such inefficiency is exacerbated by the health insurance sector’s lack of ecommerce activity. Attempts to introduce a market-wide ecommerce platform are stymied by the reluctance of certain insurers to provide the raw material it requires to operate – claims information. The imarket/Polaris initiative and the Healthcode quotation portal have each come across the same problem.
If we had a viable and widely-used ecommerce facility, we could increase basic efficiency (bringing it to a par with other classes) and we could begin to get costs under greater control. This would feed through to the quality of terms offered to policyholders and it would enable insurers and brokers to grow as profitable businesses.
There is no technological barrier to ecommerce in health insurance – it is proven in other classes, where the benefits are many and varied for all concerned. It is purely a matter of will on the part of certain providers who fear for their commercial wellbeing.
REASONS AGAINST SHARING INFORMATION
One of the arguments such firms have used in defence of not releasing claims information is that SME business in particular is “community rated”, with claims histories having little impact on underwriting calculations. But the clear evidence proves that the market does now differentially price SME business, making a policyholder’s claims record a direct and weighty influence on their premium.
This makes it even more of a TCF issue if this information is withheld by the holding carrier.
So we have to ask: just what are those who oppose the release of claims information so worried about, and what are they trying to hide by refusing to release this information? Some argue that building a book of business takes time, effort and expense, and that this work would be undermined by the release of confidential data. But that implies that they are afraid of going toe-to-toe with market rivals. Why? Do they know they are charging more than a competitor would charge?
If 2008 has been the year when claims sharing has become a dominant issue in health insurance circles, 2009 may be the year when genuine progress is made in tackling it. Leading figures will meet in January to discuss the issue. We should resolve now to make the New Year one of regulatory compliance and constructive competition.
LAURENT POCHAT-COTTILLOUX, COMMERCIAL DIRECTOR, STANDARD LIFE HEALTHCARE
As an industry, private medical insurance (PMI) providers and intermediaries have long worked closely together to put in place our own standards for ensuring that customers are treated fairly, even before Financial Services Authority regulation came along. So it comes as something of a shock to find that one topic – the sharing of claims information on SME schemes – seems suddenly to threaten that mutual co-operation and trust.
I’d like to share with you our views on this issue because we happen to believe that there is a very different perspective to consider. Moreover, one that stems not from the position of protecting commercial interests but rather that of protecting the interests of your very own customers.
It’s worth pointing out that around 70% of SMEs have less than 10 employees (most have less than five) and that’s reflected in our own SME book. So this issue is much more closely aligned to the individual end of the spectrum than it is to the large corporate end.
BUT TRANSPARENCY IS ALWAYS BEST
There’s often a presumption that transparency is always a good thing. Insurers have long argued that customers should disclose everything we need to know about a risk in order to provide the right terms at the right price.
Except that right now there’s a moratorium operating in relation to the disclosure of genetic tests that insurers themselves put in place (and recently extended to 2014). And nobody could argue that this is anything other than in the very best interests of consumers and certainly not in the best interests of insurers.
So why the genetic moratorium point? Because I want to dispel this myth that disclosing information is always appropriate and always to the advantage of customers, no matter the circumstances.
BUT DATA PROTECTION IS IRRELEVANT
Let’s start with this old chestnut. If insurers are going to use “data protection” as some kind of catch-all excuse when all else fails, then I’d agree it is irrelevant. But if some of the claims data being sought moves into “medical confidentiality” territory, one of the key components of the Data Protection Act, then it is most certainly relevant.
Take the position with an individual policy. People tend to assume that the policyholder has a right to know everything that happens under their policy; after all they’re the ones paying the premium. But neither partner under a joint policy has any right whatsoever to know what the other is claiming for, no matter who is paying the premium. That right to confidentiality also extends to employees of SME schemes and, just as importantly, their family members. In this respect, SMEs are far closer in nature to individual business than they are to corporate.
In fact, comparing what insurers divulge under corporate schemes with that of SME schemes isn’t appropriate. Given the size of a corporate scheme, insurers can provide detailed claims information in a way that is totally anonymous and thus protects medical confidentiality. And, of course, there is one other key difference; the claims performance of a corporate scheme has a direct impact on its premium.
BUT PMI IS JUST THE SAME AS ANY OTHER TYPE OF GENERAL INSURANCE
I’ve always considered the very fact that so many intermediaries specialise in it rather implies the opposite. In fact, PMI sits slightly uncomfortably between that of general insurance and long-term products. It is an annually renewable contract but claims and underwriting terms can run from one year to the next in a way that’s manifestly different from most other general insurance products.
And perhaps nothing differentiates PMI more clearly from other products than what constitutes a claimable event. In motor vehicle insurance the event is an accident. It happens at a single point in time and its cost is quickly quantifiable. In PMI the event is private medical treatment, and it can start in one year and continue into another and even another, depending on the illness and cover. So, quantifying the cost can be much more difficult and, by definition, associated claims data can be much more open to interpretation and potential misuse.
Plus, of course, we come back to my earlier point about medical confidentiality; not something that’s relevant for most other general insurance products.
BUT WHAT ABOUT PRICING?
Actually, that’s simply not the case and nor would you and your clients wish it to be. The concept of “accurately pricing” a scheme of, say, 10 members just doesn’t stack up.
BUT DISCOUNTING OR LOADING SCHEMES CHANGES ALL THAT
I don’t believe it does; the principle of community rating (or pooling risks) still holds true for the SME market. Whether good, bad or indifferent, schemes still benefit from being part of a large pool of like business and are still community rated as a consequence. The only real difference is that, whereas a few years ago insurers might have charged the same price to all similar schemes irrespective of their individual claims experience, now they overlay their pricing by rewarding well-performing schemes or loading poor-performing schemes.
But the key point is that discounting or loading still remains a very small factor in any scheme’s overall price. If it didn’t then you’d simply end up with schemes at polar opposites; well-performing schemes paying less and less, and poor-performing schemes being loaded to the point where they practically pay for their own claims. That’s not insurance and it’s certainly not Treating Customers Fairly.
This is why insurers still rely primarily on community rating for this type of business.
And that protects customers because it also means that the link between a scheme’s own claims experience and its end price is, in the vast majority of cases, distant to say the least.
BUT YOU NEED TO SHARE CLAIMS DATA FOR A HEALTHY, COMPETITIVE MARKET
Not so. Right now there’s a thriving switch market where the majority of insurers are perfectly content to quote based on past premium/membership information only.
In fact, insist on full claims disclosure and we run the risk of completely changing the way in which this market operates. That’s because that information could be used inappropriately to target seemingly well-performing schemes with prices that are not sustainable or, conversely, to over-price apparently poor-performing schemes. And this would undermine all the advantages of community rating and would certainly not be in the long-term interests of your customers.
SO, INSURERS NEED NEVER GIVE OUT CLAIMS EXPERIENCE
No, I’m not saying that. In fact, we are happy to disclose certain claims information in circumstances where a customer has had a premium loading. We fully understand the need for you as advisers to be able to explain to your customer why their premium is higher than expected. But that’s the only justification for disclosing this information.
Ultimately, there are few other instances where disclosing claims experience would be either meaningful or relevant but lots of reasons why disclosing it might be open to misinterpretation and misused, ultimately to the detriment of customers.
DAVE PRIESTLEY, SALES DIRECTOR, PRUHEALTH
This is an issue which the industry has been debating for many years. As a relative newcomer to the market, our take on the issue may be slightly different. The lack of progress appears to be the result of differing positions and motives on the part of leading insurers. It’s understandable why larger insurers would be concerned about exposing themselves to the potential loss of low-claiming business which is vital to balance their portfolios. On the other hand, there is no doubt that sharing claims information would support more accurate and consistent pricing at a scheme level, while reducing the risk of misinformation and the dependence on confusing switch underwriting declarations.
It seems that there are two key strands to the debate: first, the impact on pricing; and second, the impact on the customer. In a market where price has become such a dominant criteria in the switching of business, pricing strategies will always differ as part of the competitive landscape. Ultimately those insurers that deliver against the customer and adviser needs will succeed. We all know that what customers and advisers want is for pricing to be fair.
All kinds of other insurance products take client claims into account when setting pricing, and it is something that we have come to expect. That’s why this issue is not simply about providing or sharing claims information – which in itself does not satisfy the customer need – but about the impact that claims information has on what the customer pays.
Product features like profit shares for small group PMI clients (PruHealth offers a profit share of 25% of the difference between the premium paid and the claims made in every policy year, for example) provide the customer and their adviser with the confidence that their premiums will more fairly reflect their claims. With PruHealth, the profit share is applied to the renewal premium and, in 2008, this resulted in PruHealth’s small group clients reducing their premium increases by around 6% (on average), resulting in an average premium inflation (after the application of profit share) of less than 2%. With this kind of approach, customers who have low claims benefit from lower premiums, feel that their premium more fairly reflects their claims and as a result are much more likely to continue to renew their PMI scheme each year. In the current economic climate, anything that helps to encourage small businesses to continue to purchase their PMI plan will be invaluable.
MYLES RIX, FINANCE DIRECTOR, NORWICH UNION HEALTHCARE
Norwich Union Healthcare has traditionally priced SME schemes using a number of factors including: age profile, membership, underwriting and location. We generally only use claims experience for pricing new business when assessing risks covering 100+ lives. On average, the larger group size the greater relevance of the claims experience. Due to the small premium associated with smaller SME schemes, and the impact one large claim could have on the scheme’s loss-ratio, there would be considerable pricing volatility if the scheme’s individual claims experience were used as the main mechanism to price the risk.
Therefore, Norwich Union Healthcare customers with less than 100 lives will generally receive a premium increase based on: membership and age profile changes; medical inflation; and the performance of Norwich Union Healthcare’s total SME portfolio.
While some cross-subsidy may exist, this approach, coupled with our expert claims management, has enabled us to control our premium increases, and maintain consistently high customer retention rates.
Norwich Union Healthcare does not generally share SME claims information with its competitors as in our experience the current situation (with some insurers sharing claims experience and others not) has led to competitors “cherry-picking” the best risks which, if it continued over time, could have an adverse effect on our whole SME customer base. This situation gives insurers with large in-force portfolios little incentive to share data. Without the full picture, it’s impossible to assess whether a scheme’s claims experience has changed as a result of a reduction in claims, or increased membership profile for example.
In order to facilitate this, the information shared would need to be formalised to include details such as the nature of each claim, the membership profile and the amount of claims paid over the past three to five years – all contributing to the intermediary’s already heavy administration burden.
Norwich Union Healthcare is committed to offering our SME customers flexible solutions that meet their changing needs, and welcomes any market changes that directly benefit the customer.
However, in the case of sharing SME claims experience, we believe that any benefit would only be truly realised if every insurer adopted the same approach.
ANN GREENWOOD, DIRECTOR OF BUSINESS MARKETS, BUPA UK HEALTH INSURANCE
At Bupa, we are committed to giving our members the best possible cover and delivering value for money.
Bupa prioritises client confidentiality and always endeavours to spend our members’ money in a responsible and beneficial way. For smaller businesses, community rating is our chosen approach for pricing as this means risk is shared by all SME customers, resulting in a fairer and more appropriate system of moderated subscription increases and decreases.
The moderated increase means those customers who have experienced large claims within their membership period will not be heavily penalised with a large increase to their renewal subscription, whilst companies who have made limited or no claims will also gain from a decrease in their subscription. All Bupa customers are notified of the community rated pricing scheme at the time of quotation for virgin and renewal customers, and it is typical of any kind of insurance pricing policy (including car and home).
Bupa’s pricing policy is influenced by our customer’s loss ratio value, not just their claims history, therefore disclosing our customer’s detailed claims information would not be appropriate.
Like all insurers, Bupa needs to protect its low risk business to create a better, more sustainable long-term business that benefits its customers by reducing price fluctuations. This is why we currently don’t disclose claims information for community rated schemes.