Insurance Post

Product Developments - Healthy, wealthy and wise

The private medical insurance market is in an interesting period of development and, as Stephanie Denton reports, products in the sector are ripening into individually tailored packages suitable for health-conscious consumers

The role of the health insurance market is a much-debated subject and people are constantly trying to second-guess how the market will develop in the future. According to one research firm, an integrated health management proposition encompassing the key facets of critical illness cover, income protection insurance and private medical insurance is inevitable.

"Critical illness, income protection and PMI are three different products. I would be sceptical about offering them together for two reasons," says Charlie McEwan, head of communications at WPA. "Firstly, customers must understand what they are buying and secondly, I would be concerned about combining critical illness with PMI as they are totally different."

Developments and innovations

According to Julian Ross, head of marketing communications at Standard Life Healthcare, rumours of the three products merging have been happening for some time. "People might try to put the three products together but this has been predicted for a long time and it never seems to emerge. Whether this is because it is too complex or too expensive, I'm not sure," he says.

However, this does not mean that developments and innovations do not exist in the PMI market at the moment.

Russ Piper, director of sales at Healthsure, says: "What we are seeing is providers starting to unbundle products and take a more modular approach."

Howard Hughes, head of marketing at BCWA, agrees: "The PMI market is in an interesting period of product development and this may be something that is overdue. Modular products and flexibility are being introduced in terms of benefits for customers and there is the realisation that 'one size fits all' is not the way to grow the market."

This is something Cigna International is doing, explains its group product manager, Kirsty Jagielko: "We start with comprehensive cover and then remove the areas that aren't needed - like mental health - or we cap cover in certain areas. In the individual market, the focus has moved to wellness and keeping people healthy, and products are being developed to respond to this."

According to Mr Hughes, however, as well as the content of policies, "there is the age-old problem of developing benefits that people can afford" - so providers are tackling this with product development.

Fiona Harris, head of personal markets at Bupa, agrees that affordability is key: "Health is coming to the top of peoples' agendas and they are looking for comprehensive but affordable cover. Insurers, therefore, need to look at ways of maintaining cover and making products more affordable. We have seen specialist networks as a way of doing this (see p17)."

Being able to budget is also important, and providers are currently offering fixed prices for five or 10 years where there is no increase at all, which can help retired people set their budget.

Premium capping

Stephen Walker, chairman of the Association of Medical Insurance Intermediaries, says there are many of these policies available: "As people get older, there is likely to be more claims and premiums increases, so there is an age capping policy where premiums are set at the age you join and then only increase with inflation rather than in age jumps.

"Other policies have savings elements where part of the premium goes into savings, and this can be used to pay for part of the treatment or can be taken out if the policy is cancelled."

Another way of making products more affordable are through excesses, and providers are offering more choice within this as well. Mr McEwan says: "Co-payment is a system that is working well for us. Customers pays towards their claims in this case. This is about shared responsibility and the insured pays 25% of a claim up to an agreed limit."

As well as developing products to meet customers' growing demands, providers are also trying to retain customers and one way the market is targeting customers is through loyalty rewards.

Mr Piper explains: "In the new products, we are seeing no-claims discounts as this makes insurance products more attractive and works towards customers getting the best price."

A blunt instrument

Mr Hughes adds: "NCDs are a bit of a blunt instrument and so we do low claims - if people have claimed less than a third of their entitlement then they get a discount and if they have claimed between 30% and 60% then their premiums don't rise. The issue is retention, and if people don't use a product they ask if it is worthwhile."

However, Mr McEwan warns that these discounts may discourage people from claiming when they need to. "Loyally measures such as NCDs encourage people not to claim and this is not to the benefit of medical insurance," he warns.

Although Mr Ross argues that this is not true for the health market: "If you see a consultant and find there is nothing wrong, then you might find people will pay for this themselves. However, if something is seriously wrong they are unlikely to worry about their NCD.

"Personal excess has the same affect, in fact more so, as people have to fork out at the time of the claim but with NCDs, the only difference is that premiums may rise when they come to renew and customers can always move to another insurer if they are not happy."

Policies that reward customers for healthy lifestyles are now commonplace and many providers have deals with gyms or offer discounts for non-smokers. PMI products are continually developing to meet market needs but according to recent research 87% of people without PMI are not interested in taking it out. So what else can insurers do?

According to Mr Hughes, this problem might be one of apathy rather than lack of interest: "We have carried out research with self-employed people and about 50% had PMI. Of those that didn't, 18% said it was because they hadn't got around to buying it yet. People don't tend to get up one day and decide to buy it, as it is a product that largely has to be sold."

Ann Dougan, marketing director at Cigna, believes that it is mainly the individual market that is suffering: "In the corporate market, there is not the same apathy for buying PMI. Price remains a concern here as companies want to know what they get for their investment but it is more about price stability and companies don't want fear of price increases."

Mr Ross supports this: "The individual market has been static for a while but the company market is buoyant. It is reasonable to infer that the company market has made up for the static individual market."

So are the products too complicated for the individual market?

Alan Osborne, head of product development at HSA, says: "We have carried out lots of market research and the main themes are that customers want companies to show a level of expertise and make information as simple as possible, as well as have a level of choice."

Mr Ross says that the problem could be the market rather than the products: "The number of insurers complicates the market and this is where independent financial advisers and brokers have a place because they can offer advice. Medicine is complicated and the ground shifts all the time, things that were previously treated as in-patients are now treated as day-patients and day-patients as out-patients."

Mr Walker agrees: "The range of products is a minefield and people need professional advice, especially as many of the products are now modular but in their own way and there are no standards to compare to. However, this is no different from some other markets, for example, you also need advisers in pensions and mortgages."

One change that is likely to impact on the PMI market in the future is the Age Discrimination Act, which is due to be enforced this year and will mean that the UK's ageing population will not be discriminated against if they want to work to a later age.

Mr McEwan explains how this will affect PMI: "If the average retirement age goes up then there will be a larger proportion of people in corporate schemes, and the older the average population the more claims. This could mean that schemes become more expensive."

Mr Osborne agrees and says insurers are already beginning to develop products to tackle this changing demographic. "HSA used to have all products covering up to 65 years of age," he says. "We have now increased that to 70 years as we are likely to see a change in demographic in the workplace. It has already started changing, and in the retail sector we are seeing older people working on a part-time basis."

He believes that there will also be changes in the way people pay for health care in the future. "People are likely to sell their houses and rent properties instead, using the excess money for health care."

A missed opportunity

Mr Hughes supports this and adds: "At the moment, people who retire have a good pot of money and they might consider putting a chunk of money into a long-term medical plan. This could be a missed opportunity for the market. No one has a plan designed to cover this at the moment."

Another development that the market might see in the next few years is large companies beginning to self-insure. Mr McEwan explains: "We believe in large corporate schemes if they have more than 400 employees, they shouldn't be buying insurance because as the group gets larger the lower the risk. Therefore, companies of this size should be self-insuring. We have seen no failures from people who have converted to self-insurance and this is now the fastest growing sector."

The PMI market is far from completely evolved and the next few years are likely to see more changes in products and benefits. However, one thing is clear, there is plenty of room for brokers and insurers to grow in this market and a lot of companies and individuals to target.


Andrew Apps, director of global sales and business development at Good Health Worldwide, says: "The international private medical insurance market is growing at a phenomenal rate, which is great, but it has increased customer demands. International customers are more sophisticated and informed than domestic customers."

"Companies don't want to have to re-educate their members of staff so they ask providers to match the product they have," Mr Apps explains. "This won't happen for every group but for the larger companies insurers with sophisticated technology are happy to do this."

In addition, he says there has also been some changes in claims reporting. "Medium-sized companies want to know more about where their money is going, which parts of the world have higher claims and whether it is the employers or their dependants that are making the claims."

These changes are impacting on the providers themselves. "In the past six to 12 months, customers have started to get sick of dealing with providers that are over the other side of the world, and so we are seeing more players setting up points of contacts around the globe," Mr Apps concludes.

"The days of providers being in an ivory tower and making customers come to them are over - providers are now going to the market."

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