Private health insurance is a very small business in Scandinavia – where culture and lifestyle seem impervious to any benefits it may have to offer – but this is changing.
Bjorn Dickson, editor of Swedish insurance magazine Risk and Forsakring
, explains: “We pay the highest taxes in the free world and we let the State take care of things. At least, that could be a crude way to describe the situation until now.”
Moving from this position of dependence on the State health systems to one of private funding is never easy. But while Scandinavia faces the same issues of an ageing population which are common to the rest of Europe, there are other problems which could make the introduction of private provision even harder.
There is a strong socialist ethos in Scandinavia. This is typified by Sweden. Lynda Cox, health brand manager at Skandia Life, describes her experiences of the Swedes: “A fundamental part of their culture is something called `Lag om’
. This means a fair share for all. This concept has permeated throughout the culture – many Swedish companies would consider it extremely unfair to pay a top salesperson more than one who was underperforming.”
This way of thinking does not bode well for the insurance market. The public is generally hostile to the concept of a person with, say, a critical illness policy, receiving payment when they are diagnosed with cancer while someone else, who maybe more ill, gets nothing.
These cultural and political beliefs have had a profound effect on the experiences of health insurance companies which have tried to break into this market. One Swedish company, Trygg Hansa, introduced a critical illness product in the early 1990s. Perhaps the timing of the launch was wrong, but rumours suggest that it proved extremely unsuccessful, with sales failing to break into double figures.
Jonathan Bowyer, business development manager at Swiss Re Life and Health, believes that the conservative approach to insurance has deterred many companies from launching health products. He explains: “Many are concerned that if they enter the market with an aggressive product it will backfire.”
Critical illness cover
Because of traditional views of private health insurance, critical illness is still a relatively new product in Scandinavia. For example, according to ERC Frankona, in Denmark only 200,000 policies have been written, most of which are under group schemes. However, because of the novelty of the product, there is little if any claims experience so the amount of money collected in premiums far exceeds that paid in claims.
Additionally, the nature of the market, with State benefits being so generous, has led to a different pattern of purchase. It is difficult for the Scandinavians to see why they should need any privately funded critical illness cover. And their heavy reliance on the State can, Bowyer believes, be seen in the type of cover which is being purchased, typically with very low sums assured.
Similarly, with so little claims experience behind them, insurers have not been prepared to take a gamble on the cost of critical illness cover. In Sweden, premiums can be as much as six times those on life assurance. This, Bowyer adds, could be making the product too expensive to sell.
But cost is not the only issue. To change the public’s perception of health insurance, insurers must design a product which will be attractive and, subsequently, saleable. And, to do this, they must consider the Scandinavian lifestyle.
For example, the main area for sales of critical illness in the UK, as an add-on to a mortgage arrangement, would be inappropriate to the Scandinavians. Bowyer explains: “The Scandinavians have a totally different outlook to home ownership. Generally the pattern is that people first live in a flat. Then, when they start a family, they buy a house, which they sell when the children leave, moving back into rented accommodation.”
The more traditional approach to financial planning in the Scandinavian countries is to build a variety of additional products around a core savings policy. This is already the case for life assurance, personal accident cover, pensions and income protection. However, at Skandia Cox believes this is not always appropriate. She explains: “It is important not to cloud the issues. By bundling critical illness up with a savings product people are confused about what they are paying for.”
For this reason, Skandia launched a pure critical illness product into the Swedish market in March 1998. By keeping it as a stand alone product, not only are the uses of it easy to understand, but the premiums can also be lower. Skandia hopes this will be well received by the Swedes.
The company has also been careful not to make the same mistakes as some of the non-Scandinavian companies which have tried to break into these markets. Cox explains: “Some of the other companies have failed to translate all the connected literature into the relevant language. Critical illness cover is not well understood in these countries, let alone in a foreign language. Countering this Skandia has established a dedicated help desk in Southampton, manned by Swedes to deal with queries from this market.
This is a far better understood product in Scandinavia. Generally it is included within employee benefits packages so almost 100% coverage can be assumed. However, in Sweden there is a shortfall between what is provided through State benefits and the employer’s cover. This has lead to people taking out additional cover, although this is often only a very small amount, to make up the difference.
Another difference in the market is that claimants are not faced with the difficulties of proving their inability to work that can occur in the UK. Bowyer explains: “The insurance companies work much closer with the State. Therefore, if someone is receiving State disability benefit then it is extremely likely that the insurance company will also pay.”
Private medical insurance
With a high standard of healthcare provision from the State, the concept of private medical insurance has been something of a non-starter. However, signs of decline are evident. Although the standards in operation in the Scandinavian countries are significantly higher than in the UK, they are also significantly lower than they were just a few years ago.
In Norway, a couple of companies have considered launching PMI products, but they face problems. Most significantly, the infrastructure to provide the care is not yet instituted as very few private hospitals exist. There is also much political and social resistance to moving away from State healthcare and hospitals.
This has yet to be introduced to the Scandinavian markets, although the wait is unlikely to be long. ERC Frankona believes there are a couple of insurance companies on the verge of launching products in Denmark. How these will be structured is uncertain. The popular belief is that an employer-sponsored product, as in Germany, would be most acceptable.
Nevertheless, the present system is proving increasingly unworkable. For example, in Sweden, the cost of long term care is picked up by the municipalities rather than through a countrywide system. Bowyer explains the implications: “The work force has become more mobile and the young in particular are moving away from the countryside to live in the cities. This has left some of the municipalities with a high proportion of elderly people, and therefore a more acute long-term care funding problem.”
In the long term, however, many commentators actually believe that as the Scandinavians travel and gain experience beyond their own culture, the concept of private health insurance will become more acceptable.
Cox explains: “As the youngsters go abroad and see that people do get paid according to merit this will make them want the same for themselves.”
The first signs of this are already visible. Dickson comments: “People with good incomes are beginning to buy healthcare insurance more often. Or even more common, companies buy insurance for important employees.” And, as trade barriers continue to be removed throughout the world, effectively killing distance and cultural differences, there could even be substantial, and fast, change among the Scandinavians.