Cutting out the middleman is generally a route to lower costs and improved service. But, when it comes to corporate healthcare, the presence of an intermediary can deliver a number of real benefits.
So with employers able to access group PMI either through advisers or direct, how much competition is
there between the two channels for business?
Mike Izzard, managing director of Premier Choice Group, not surprisingly champions the advised route.
“There’s no real advantage to going direct,” he says. “It’s never cheaper to go direct and, if an employer uses an adviser they’ll have the protection of Financial Services Authority regulation if something does go wrong. Go direct and the only person they can blame is themselves.”
But, while employers can definitely benefit from using an adviser, the fact that there are advantages to
insurers in doing business direct can make for some discomfort in the market.
For the insurer, going direct can mean higher profit margins as there’s no commission to pay. Additionally, without an adviser between the insurer and employer, it’s much easier to cross sell other products. For example, the emergence of complementary healthcare benefits means that insurers may have a range of cross selling opportunities.
But, in spite of these advantages, few insurers actively court the corporate market and some of the
smaller players such as Groupama and SimplyHealth will only sell through advisers.
The role of the adviser is evolving in the large corporate market. These clients generally have a full risk and procurement function, which means they want a very different service to those in the SME market.
Although PruHealth is set up for direct as well as intermediated business, its director of sales, Dave Priestley, says that almost all its corporate business is sold through advisers. “A very small number of our schemes are direct and there has to be explicit request to do this,” he explains.
This may be because the company has a corporate policy that dictates how it buys insurance or because it has a strong enough procurement
department to research and source benefits itself. “It is the exception rather than the rule and these customers won’t receive a different level
of service from us compared with those that come through advisers,” he adds.
A similar picture can be seen at Axa PPP healthcare where intermediated sales make up the bulk of sales. Paul Moulton, director of sales and
client relationships at Axa PPP healthcare, says that the decision to go direct or intermediated is often determined by market segmentation. While the SME market is split between advised and direct business, with each party holding roughly the same share, most large corporate
clients will benefit from an advised sale.
Moulton explains: “The role of the adviser is evolving in the large corporate market. These clients generally have a full risk and procurement function, which means they want a very different service to those in the SME market. As a result almost every large corporate client will use an
employee benefits consultant, often to advise on areas outside their expertise, but they will still want a strong relationship with the provider.
“This allows the provider to pick up the service areas while the adviser is freed up to demonstrate the additional service they bring,” he says,
adding that the current economic climate has made procurement departments become much more actively involved in the purchase of healthcare benefits.
Although advisers say there have been instances where insurers have looked to take business from them, with financial incentives such as discount vouchers or the unethical practice of dual pricing cited as enticements to go direct, both Moulton and Priestley say they value the role of the adviser in the corporate arena.
Priestley particularly appreciates the adviser’s role as client advocate. He explains: “It keeps us on our toes. A good adviser will point both the client and the insurer in the right direction. This gives the employer better value, especially as the market is so fast moving, but can also help to
strengthen the value of our product.”
He adds that advisers can also be invaluable because of the relatively high claims incidence on medical insurance. “If an employer doesn’t
have an adviser on hand they could get sucked into a load of administration issues that will take them away from their business,” he explains.
For Moulton, the role of the adviser is especially important in the SME market. “The traditional role of the whole of market adviser is very
relevant in this market. A financial or managing director would much rather see one adviser than lots of providers to determine the cover they
need,” he explains. “The high percentage of clients that use advisers shows the value they add to the service.”
As an example of how employers can benefit from using an adviser, Izzard points to a recent renewal he undertook for a client. “The employer
was offered a renewal of just under £200,000 but we were able to recommend a product with better cover with the same insurer for £135,000,”
he explains.
If an employer doesn’t have an adviser on hand they could get sucked into a load of administration issues that will take them away from their business
As well as being able to negotiate better terms, advisers will also review the market on a regular basis to ensure the product is the most appropriate and the most keenly priced. For instance, Glen Smith, managing director of Healthcare Partners, says that he conducts an annual review on all his corporate business, checking terms, obtaining quotes and then revisiting insurers to negotiate better deals. “The market changes a lot and, as part of Treating Customers Fairly we have to understand what’s available and how it might be appropriate for our clients,” he adds.
“A client could do this themselves but staying on top of the market is a serious undertaking.”
An adviser will also be able to structure a scheme to the client’s advantage. As an example, Smith says he recently reduced the cost of a
scheme for a family run business. He explains: “The company was run by a husband and wife team, with the husband aged 60 and the wife 57. The scheme had been written with the wife dependent on the husband but by turning this around the scheme was priced on the wife, which gave a smaller premium as she’s in a lower age band.”
This service extends to matching the benefits to the company, taking into account details such as the claims experience and age profile to
ensure that benefits are suitable. For example, over the last few years there’s been a lot of movement on hospital lists, meaning that some
schemes could drop down to a cheaper option without affecting employees’ choice of hospital. “Dropping down a hospital list can halve a group’s premium but it’s not something a direct customer would necessarily understand,” adds Smith.
A financial or managing director would much rather see one adviser than lots of providers to determine the cover they need
Likewise, advisers can recommend additional products that might improve the effectiveness of the medical insurance. A good example of this is where a cash plan is used to provide a younger workforce with access to everyday healthcare benefits such as dental, optical and physiotherapy. These will be used more than the medical insurance scheme, which can be made more cost-effective with a higher excess, which can instantly take 10 to 20 per cent off the premium, or by reducing the benefit.
The fact that the adviser represents the employer rather than the insurer further strengthens the case for taking the intermediated route.
Andrew Tripp, chief executive of Perfect Health and chairman of the Association of Medical Insurance Intermediaries, says this is a major
selling point for using an adviser rather than going direct, especially for companies in the SME market. He explains: “It’s not always a black and
white case when it comes to claims but if a direct client rings the insurer’s 0800 number to get redress they’ll usually come up against a fairly junior member of staff who’ll only be able to give them the company line. Advisers have dedicated account managers, which enables us to access senior decision makers.”
Izzard agrees. He says that his company will intercede on an employer’s behalf if the insurer has let it down. “Sometimes a claim will be declined or they will be a shortfall and we’ll be able to argue their case for them,” he says.
Although insurers’ may feel the pinch as the economy comes out of recession, few expect the adviser’s market share to be threatened by their desire for more direct business. Some even expect to see it increase in the coming years. Tripp says: “About half of the SME market is direct, simply because they saw an insurer sales pitch a few years back and, being too busy with their own business to shop around, have accepted the renewal terms year after year.”
The market changes a lot and we have to understand what’s available and how it might be appropriate for our clients
Because of this, 98 per cent of the new business his company receives has previously been insured, with 85 per cent of this with the same insurer for the last five years. Subsequently, many are able to access a much cheaper deal when their cover is rebroked. As an example, he recently moved a 53 member scheme from Standard Life to PruHealth for a saving of 42 per cent and improved terms including better outpatient cover, cancer cover and an excess charged per policy rather than per claim. Ironically, the two are now one.
“Tapping this direct business is a tremendous opportunity for advisers,” Tripp adds. “Using an independent adviser brings so many benefits to a company, not least a better deal on its medical insurance.”