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In Focus: Individual PMI - All change or business as usual?

Insurer consolidation, product development and administrative headaches. It’s business as usual in the individual private medical insurance market, as Edmund Tirbutt reports

July 2010 News

This May’s announcement of Discovery’s £138m acquisition of Standard Life Healthcare has certainly raised a few eyebrows in the industry. Surely an acquisition by Aviva would have made more strategic sense? Furthermore, as Discovery has poured millions into positioning PruHealth as providing an innovative new approach to private medical insurance (PMI), why should it want to acquire a bog-standard provider to sit alongside it?

PruHealth’s “I told you so” critics have inevitably seized on the move as evidence that the sums involved with the Vitality approach have failed to add up. After all, the introduction of a new flat-rate system last September had seen the maximum gym discount reduce to 25% in order to prevent premium increases. Explanations from the acquiring party do little to dampen such speculation.

Tal Gilbert, head of research and development at PruHealth, says: “From Discovery’s perspective, it sees the UK as a very positive opportunity for PMI because of the trend towards wellness and lifestyle and the financial pressure on the NHS. We see Standard Life Healthcare’s product range as quite complementary as it has a similar customer base and has recently come out with a flexible modular product. We also value its service reputation and, as both companies bring a lot of things to the table, the sum of the parts should be greater than the whole. The move will help us compete with some of the largest players in the PMI market.”

The acquisition, which will result in the transfer of 562 staff, is still subject to the approval of the Financial Services Authority (FSA) but this step is stressed to be a formality, and completion is expected to have occurred by July 31st 2010. That landmark will, however, only represent the beginning.

Mike Izzard, managing director of national specialist intermediary Premier Choice Healthcare, says: “I think the integration might be quite painful for a while as they are two quite complex and completely different product ranges. They are like chalk and cheese and you are probably looking at nine to 12 months before anything concrete really emerges with regard to how the books are going to integrate or sit alongside each other.

“I didn’t see this acquisition coming and, although I think PruHealth is a great company, as a broker I am anti any consolidation of insurers because it limits our choice and the advice we can give to clients. I hope there is no more consolidation but it wouldn’t surprise me if there was and I have heard rumours of another PMI provider looking for an exit route.”

“Having lost one of the major players is a significant problem because Standard Life was particularly big in the individual market,” continues Izzard. “You need more than four major providers to do a good job for a client, and that’s effectively all we’ve got because all the others are fringe players. They can be good in their own way but clients can be highly brand aware and often prefer to stick with a well known name.”

COMPETITIVE MARKET

But further consolidation could possibly contribute towards a hardening of rates, which would be quite welcome in some quarters of a market that has become obsessed with price.

Ben Heffer, insight analyst, life and protection, at Defaqto, says: “It’s a very competitive market and I can tell you from my own experience of doing mystery shopping that most companies are always chasing up those who’ve applied for quotes online. I’ve also noticed that they often have an initial free offer on the first three months’ premium and this makes it difficult to compare policies. It encourages people to shop around and, whilst on the face of it that sounds a good thing, it must mean the acquisition costs are enormous. So I think insurers should be focusing more on getting sustainable business in the long run.”

Increasing use of comparison sites also means that the trend towards shopping around isn’t necessarily always good news for intermediaries, although the problem is clearly not insurmountable for those really able to add value.

Graeme Godfrey, director of Best Go Private, a specialist intermediary based in Stanmore in Middlesex, says: “I’ve had people phoning me asking me whether I can beat quotes from comparison sites but the comparison site gives no indication as to the extent of the policies’ hospital lists. So when I explain that they don’t have access to the Central London hospitals they often prefer to go through me because they are so pleased to get good advice. They are sometimes prepared to pay 10% to 20% more to get the right hospitals and often choose to fund the extra by taking a £100 or a £200 excess.”

AXA PPP healthcare acknowledges that its new business dropped by more than 10% during 2009 and that its lapse rates worsened “by a few percentage points” to 15%. But it also reports that lapse rates have stabilised during the first six months of this year and feels that, although it expects the next two or three years to prove “a bit of a grind”, it is “past the worse point.” Bupa, which reports its Individual new PMI business to have neither increased nor decreased during 2009, also refers to deteriorating lapse rates during the period followed by an improvement during the opening months of 2010.

Standard Life Healthcare, which offers the sensitivity of its recent acquisition as being a reason for being unable to reveal whether new business increased or decreased last year, nevertheless observes that there has definitely been much more switching going on – both towards its individual products and away from them.

Ronjit Bose, head of product at Standard Life Healthcare, says: “It will be very interesting to see whether the individual market has actually shrunk when the next Laing & Buisson [the industry analyst] figures are released later this summer. My guess would be that it has shrunk but I don’t know by how much. I think every insurer’s retention is under pressure because there is so much more movement. Industry-wide I think that is quite dangerous because those who leave the industry may not come back again, and in the short term I don’t think they will.”

HALFWAY-HOUSE PROVIDERS

One of the major beneficiaries of the trend towards switching has clearly been PatientChoice, which reports growth of around 50% during 2009 – albeit from a small base – together with similar progress this year. The company, which has recently brought in new capital and a new board to facilitate future growth, reports that the bulk of its sales have been coming from the over 50’s switching from standard PMI towards the half-way house approach it offers between PMI and cash plans in order to slash costs.

But the bandwagon in the direction of National Friendly, which offers one of the other main alternatives to standard PMI via its Individual Healthcare Deposit Account, has slowed somewhat due to significant product modifications announced last December and implemented this February.

The top-up feature has been expanded to allow customers access to £60,000 of cover instantly and, having originally been available only for 10 years, it has been extended to offer customers the chance to take a second top-up. Significantly, however, premiums are now only fixed for five years as opposed to for life and the proportion of the monthly premium that goes towards the deposit account has reduced from 50% to 25%. Additionally, cover for dental and optical treatments has been removed and contributions towards overnight stays are no longer dependent on the level of premium – all adult customers are now entitled to £150 a night for up to 10 nights a year.

Ian Talbot, head of commercial distribution for National Friendly, admits that the original proposition had been a little too generous to stack up commercially but is proud of the transparency his company demonstrated in providing significant notice of the changes. He feels this goes a long way towards explaining why sales of the Individual Healthcare Deposit Account have only reduced by 15% since this February and why it is actually writing more new business for it now than it did in March and April of 2009.

Talbot says: “We probably did too much with the product launch four years ago because when you launch into the specialist broker market you really need to create a stir. We may have overcompensated for the fact that the policy had a capped benefit and put in ‘nice to have’ things like optical and dental that weren’t actually essential but resulted in a tremendous amount of usage. But I don’t feel that sacrificing these has fundamentally altered the proposition.

“The reason people like the Individual Healthcare Deposit Account is that you get something back, and you still get something back now but not as much. Five years is also still a long time in which to have a fixed premium because people tend to review cover with a broker regularly between once every one and three years. A couple of brokers had said that the changes would badly affect new business but they were wrong as the vast majority of brokers have said that the new format still represents good value.”

National Friendly is currently thinking about launching a more standard PMI product to sit alongside its Individual Healthcare Deposit Account and its innovative new cash plan. With PruHealth – via its Standard Life Healthcare range – and Freedom Healthnet also making similar moves, there could be the beginnings of something of a trend here to combine the novel with the tried and trusted. But Freedom Healthnet’s new standard PMI plan, which is intended to be launched this August to sit alongside its surgical cash plan, will also include a most innovative new option that will allow pet dogs and cats to be added (albeit underwritten by a separate underwriter.)

Andrew Sandilands, business development manager at Freedom Healthnet, says: “My feedback from intermediaries has been that our cash payment type approach is not suitable for some high net worth clients as they are concerned they might exceed the cover limit, although in practice they are highly unlikely to unless they go into one of the top London hospitals. Intermediaries are also more familiar with the standard approach, so we will be launching a competitively priced modular plan for individuals with a number of options based on more orthodox PMI. The option to include pets results from the realisation that a lot of people regard cats and dogs as members of the family.”

OTHER NEW PRODUCTS

Aviva UK Health has also proved innovative with the launch this April of Speedy Diagnostics, which enables you to cover diagnostics but not actual treatment. Costing 60% to 70% less than standard PMI, it has no overall maximum benefit limit and provides cover for specialist consultations and diagnostic tests, including CT and MRI scans, X-rays, pathology and physiological tests such as ECGs. It also covers hospital costs commonly associated with diagnostics as an inpatient or day-patient and gives customers access to 24 hour GP and stress counselling helplines and up to 40% discounts off leisure club and gym membership.

Exeter Friendly’s Health & Stuff, launched this February represents another interesting new option, allowing customers to choose the amount of cover they require from annual “pots” of £2,500, £5,000, £10,000 or £20,000. The approach is commendably straightforward with no hidden limits or small print and applicants can get up to 20% off their premiums in lifestyle discounts together with up to 26% off by way of regional discounts.

Nevertheless Stephen Walker, director of Brighton-based specialist intermediary Medical Insurance Services, has been none too impressed with Exeter’s brainchild after comparing its terms for a single 42 year-old male with those offered by the new modified version of National Friendly’s Individual Healthcare Deposit Account. He found that the latter proved far superior value.

Walker says: “Anyone who recommends Health & Stuff compared to National Friendly for someone of that age group would not be doing their clients a good service. I can’t believe that Exeter consulted the specialist PMI intermediaries at the coalface during the product design period and, if they did, I would certainly like to know who they were. It would appear that I have not received any information from Exeter on the subject and it hasn’t even told me that it has such a product, so I’m basing my judgement simply on reviews I’ve read in the press.

“My feeling is that Exeter is just producing products for non-specialist IFAs with a connection with its sister company Pioneer as opposed to aiming at specialist PMI intermediaries. I am not recommending quite as much of National Friendly’s Individual Healthcare Deposit Account as I used to before the revamp but it’ still a very good cost-effective compromise. It was quite a shock to the system when the news of the cover changes first came out but, when you sit down and look at it, it’s still an attractive proposition.”

This August the British Insurance Brokers’ Association (BIBA) will be providing a valuable new option for generalist intermediaries by launching a competitive individual PMI scheme underwritten by AXA PPP healthcare. Features include 35% starter no-claims discounts for BIBA members, a guaranteed 7.5% discount from the holding insurer’s renewal premium, a possible second year pricing guarantee and additional group leaver discounts. Regional brokers, regardless of where they are situated, have full access even if they only place one case a year.

Things have also been changing at Simplyhealth following a product review in the aftermath of the group’s restructuring. This June the company’s Personal Health plan was withdrawn from the intermediary channel and replaced with Simply Private Health. This is very similar to Personal Health but does away with the no-claims discount that reduced rather than disappeared after a claim – a concept that proved better in theory than in practice. The new product has also been designed so that intermediaries can buy it directly for their clients online, filling out application forms on clients’ behalf whilst on the phone to them.

This June PatientChoice launched its Premier Hospital Treatment Plan offering improved outpatient cover and combined this with its existing two plans under a single banner entitled Hospital Treatment Plans, which offers three grades of cover: Essential, Access and Premier.

WPA was also intending to tweak its individual product range this June and, although plans haven’t been finalised at the time of writing, corporate communications director Charlie MacEwan is envisaging having a less confusing range of three products: XS Health, for those starting out in life; Flexible Health, offering various levels of cover aimed at busy people; and Active Health, a high excess policy aimed at the over 55’s.

OTHER INDUSTRY INITIATIVES

News that the number of PMI complaints received by the Financial Ombudsman Service (FOS) increased by 27% to 652 cases during the year to the end of March 2010 is an obvious source of concern but hopefully the new PMI exam unveiled by the Association of Medical Insurance Intermediaries (AMII) at its AGM this April should reduce the chances of disputes occurring in the future. The exam, a multiple-choice format that can be sat online at City & Guilds centres, is also available to non-AMII members.

AMII chairman Andrew Tripp has made it clear that all 22 consultants at his own firm Perfect Health, a specialist intermediary based in Hatfield in Hertfordshire, will have to complete the exams by the end of next April, and if they don’t they’re out. Such compulsion will also in due course extend to AMII membership.

Tripp says: “My view is that this professional qualification is long overdue. After all you wouldn’t get a guy in to fix your boiler unless he was CORGI-registered. I would hope that after 18 months to two years we will start saying to members that if they haven’t passed the exam they can’t renew their membership.”

Further progress is resulting from the BIBA Healthcare Focus Group, which sees 12 brokers of varying sizes meeting on a quarterly basis. Having considered the thorny issue of letters of review and letters of appointment – which are constantly getting confused – it has put together draft formats which make it clear which is which together with protocols it would like the market to adhere to. The wordings for both the letters and the protocols, which have already been bounced off AMII, are expected to be finalised by the end of this July.

The group has also been looking at introducing electronic transfers of the certificates insurers provide to switchers detailing what cover and exclusions they have and at the whole issue of claims transparency.

Peter Staddon, head of technical services at BIBA, says: “Some insurers are quicker at issuing certificates than others, so if we can get it done electronically then it’s got to be good for everyone. I’ve met with the vast majority of major insurers and the market is behind it. We also see no reason why insurers shouldn’t issue claims information.

“My understanding is that there isn’t necessarily a problem with the Data Protection Act, which a lot of them tend to hide behind, and what you really need to know is the actual volumes of claims insurers pay. They just say it’s confidential but if the claims information was out there it would give transparency in the same way as it does in general insurance and would help stop irresponsible underwriting.”

BIBA’s involvement is undoubtedly welcome but there also seems a slight danger of too many cooks spoiling the broth. For example, AMII has also been producing its own draft letters of review and appointment. Staddon acknowledges these are different from BIBA’s and says that at the end of the day everyone will decide on which set to use. But let’s hope BIBA doesn’t also come out with its own PMI exam. Life is too short for intermediaries to have to worry about which one to sit or to feel they have to sit both.