Pressures on budgets is creating something of a price war in the corporate healthcare arena. But while some are prepared to take business at any price, there are warnings that this behaviour could ultimately lead to the demise of the medical insurance industry.
These warnings were voiced at the Association of Medical Insurance Intermediaries’ annual exhibition and conference in July when Bupa Health and Wellbeing UK’s managing director, Dr Natalie-Jane Macdonald shared her fears that the industry was heading towards ’commoditisation hell’. Her colleague, marketing and customer development director, Sue Moore, explains: “It is a tough economic climate, which is putting pressure on every element in the value chain from the insurers and healthcare providers through to the intermediary and the corporate client.
This, combined with the lack of innovation in the market, means that price is the only feature where differentiation can occur and unfortunately this is trending down while the cost of healthcare continues to trend up way, way above inflation. It’s a recipe for disaster.”
There is certainly evidence of cost-cutting in the corporate arena. More schemes are being rebroked as employers look to reduce their benefits
bill and this pressure can be seen in their willingness to play not only insurers but also intermediaries off against each other.
Insurers aren’t always responding well though. “Some insurers are seeing the downturn as an opportunity to build market share,” says Stephen
Hackett, head of employee benefits at Bluefin Group. “It used to be that brand was important but now many employers are prepared to move on price. These insurers are suffering though as they know that in this cutthroat market they can’t simply shift the price up a year on. Something has to give.”
The industry will selfdestruct. We must break out of seeing healthcare as a commodity
The situation is exacerbated by a change in the market dynamics. With the recent announcement that Discovery is acquiring Standard Life Healthcare to sit alongside PruHealth, choice has become much more restricted. Gary Smylie, consultancy manager at JLT, says there are now only seven main insurers active across the entire corporate market and many of these operate on a direct basis as well as through intermediaries. “With so little choice the value of the intermediary could be undermined. Some employers will consider doing the rebroking job themselves.
This has happened at the wrong point in the economic cycle,” he explains.
Product development hasn’t necessarily helped either. As well as a lack of innovation, Moore says that too many insurers have added in additional services without charging for them. As an example she points to managed care services. “These involve micro-management of the more expensive claims such as those for cancer and can deliver improved outcomes for the patient. But it takes a lot of expertise and this can be devalued when it’s provided free,” she says.
Employers’ drive to cut costs is adding to the problem too. With budgets squeezed it can be tempting to remove areas of cover. But this strategy can backfire as Howard Hughes, head of intermediary marketing at Simplyhealth, explains: “If an employer removes a benefit to save 20 per cent on the premium, he needs to be certain he hasn’t removed the cover employees value the most. He needs to understand the implications as this can result in reduced employee morale, which can affect productivity and profitability.”
Additionally, chopping cover in this way can often hasten the shift to commoditisation as it increases the risk of medical insurance becoming a ’pile it high, sell it cheap’ product.
Given this backdrop, Moore predicts that if the price war is allowed to continue, service standards, whether from the healthcare providers to the policyholders or from the insurers to the employers and intermediaries, will suffer. “The industry will self-destruct. We must break out of seeing healthcare as a commodity,” she adds.
This stance is supported by other insurers too. At WPA, corporate communications director Charlie MacEwan describes Bupa’s commoditisation hell as a ’real and present danger’.
“Medical insurance isn’t car insurance, one of the UK’s most commoditised products. While car insurance is compulsory, has fairly standard benefits and claims are made on the basis of a single incident, medical insurance is personal and, with the NHS being free, we must continuously demonstrate value and relevance,” he says.
Although the insurers must take some of the blame for helping to create a price war, many feel that the key to ending it lies predominately with the advisers. “Intermediaries have a very important role to play,” says Hughes.
“For medical insurance to offer value it requires a mix of price, benefits and service and the intermediary can help the employer work out the right equation.”
For medical insurance to offer value it requires a mix of price, benefits and service and the intermediary can help the employer work out the right equation
For many intermediaries this is already happening. Hackett says he always tries to avoid the price focus by including service standards as a key part of the client proposal. “We always include an assessment of service areas as well as factors such as the insurer’s financial strength and stability. The client may say it’s not bothered about this and just wants the lowest price but the service they receive is critical.”
But he also admits that faced with a client keen to make savings on their cover it can be a tricky conversation.
“We’ll usually be advising them on other employee benefits so we can’t simply turn them away if they want the cheapest price but we’ll always stress the importance of the other elements of the product too,” he adds.
Insurers also have a part to play in keeping the medical insurance market alive and healthy. “We need more product innovation,” says Smylie. “There’s little to differentiate products at the moment.”
In particular, he would like to see more innovation to address the increase in insurance premium tax (IPT) as well as more options for the lower cost end of the market. “WPA recently launched its Corporate Deductible plan to minimise the impact of IPT but with this tax likely to rise further it would be good to see other insurers explore this area,” he adds.
Paul Moulton, director of sales and client relationships at Axa PPP healthcare, admits that innovation has been lacking in the market.
“Providers haven’t been that innovative and we do need to find products and solutions that better match employers’ needs and budgets,” he says.
He expects this will lead to further moves to tie in medical insurance with other health and wellbeing benefits to create more rounded healthcare strategies.
This will help to raise awareness of the benefit, delivering a greater return to the employer. “On the average medical insurance scheme, only one in five employees make a claim.
They’re the only ones that see the value so you need to have a range of health benefits that has broader appeal,” says Tal Gilbert, head of research and development at PruHealth.
But in the current tough economic climate, asking for this additional spend is difficult. To make it easier, there is a growing body of evidence showing the return on investment for workplace healthcare. For instance, several examples are included in Bupa’s report
Healthy Work: Evidence into Action.
These include Centrica, which reduced back pain related absence by 43 per cent in a year by introducing back care workshops and generated a return on investment of £31 for every £1 spent, and Hewitt Associates, where, in 18 months, the health management strategy reduced the cost of ill health from £2,850 to £2,500 per employee, generating a total saving of £700,000.
Another factor that may help to damp down the price war is a change to the quotation process. The haggle instinct is alive and well in the medical insurance industry and many insurers will drop their initial quotation if it isn’t competitive enough and they want to win the business. Hackett says this must stop. “Clients have got used to this now but it’s softening the market. If they stuck with their first price then it would remove a lot of the problems we’re currently experiencing,” he says.
There’s also some belief that this may simply be a short-term phase reflecting the economic upheaval.
Hackett has started to observe a change in client thinking. “Cost is certainly the primary focus of all clients but as we come out of recession employers are also concerned about protecting their talent,” he says. “If they dilute the benefits it could contribute to an employee exodus.”
But whether a short-term blip or a more permanent influence, Moore would like to see more collaboration within the industry to prevent longterm damage. This, she says would bring in not just the insurer, the intermediary and the employer, but also the healthcare providers.
As an example she points to Apple, which has successfully worked in partnership with many of its suppliers to increase the value of its footprint. For instance, as well as working with audio speaker companies to design compatible products, it has also worked with car manufacturers to change dashboards so they can accommodate iPhones and iPods. “The medical insurance industry needs to follow this example and already some of the big corporates are working with us to explore how this can be developed,” says Moore. “This partnership approach will safeguard the industry and over time will help to create a bigger profit pot for all to share.”