When I wrote in this column several months ago I painted a picture of the difficulties facing the PMI sector, with increasing premiums, insurers not making sufficient returns and a trend towards less people taking up health insurance. The situation is now becoming even more challenging.
One indication of this is the Office of Fair Trading review of private healthcare, aimed mainly at the healthcare providers but also including the PMI sector. This was because of alleged inefficiencies within private hospital chains and the lack of apparent competition in the PMI sector and the difficulty of new entrants getting a foothold in the market.
Primarily this was because established insurers have national contracts with private hospitals, which included restrictions on those hospital chains accepting any new entrants. The OFT has provisionally decided to refer the market to the Competition Commission for a market investigation. Obviously the CC will report in due course but I am not sure its findings will ultimately benefit the man in the street that pays his premiums every month.
We are already seeing the effects of this with Bupa de-selecting a number of hospitals within the BMI chain, stating that they are unable to come to a satisfactory financial agreement that suits both parties. This took effect from January 2012 and not from the customer’s next renewal date. This is not an ideal situation, but anything that stops the inexorable rise in PMI premiums has to get the support of a fair minded broker. What many readers will not know is that many private hospital chains are ultimately owned by financial organisations or venture capitalists that took control of these institutions at the top of the market, and as a consequence are highly geared and exposed to the current financial difficulties faced throughout Europe.
Bupa is also tackling head-on the rise in premiums by introducing an “Open Referral” initiative to give it more control on the direction of a claim and any ensuing costs. The effect of this is to give the insurer more control of cost containment whilst not affecting clinical standards and has the support of many in the industry.
After all, the insurer is not spending its own money but rather that of its policyholders and it has a duty of care to offer them good value for money.
This drive to cost containment is taking many forms such as the introduction of level commissions to brokers and innovation on product development and design.
Smaller insurers who are finding it hard to compete are looking to the major insurers to underwrite their products to try and get some cost savings into their products. This must be a factor for the OFT Report to consider because in UK PMI we are finding the pool of options is ever decreasing.
Unfortunately the one issue the OFT will not be looking at is the issue currently affecting distribution, where many brokers are purporting to be independent and whole of market, but for commercial reasons are driving the majority of their business down a certain channel.
Among the big insurers, PruHealth appears to have run out of patience with this and has terminated the agencies of some brokers who have dedicated, or ’solus’ arrangements with another insurer. This is hardly a basis for establishing a professional industry, as it is quite clear that some intermediaries are doing what is best for them, at the expense of independent best advice.
One has to consider the impact going forward on all parties connected with our industry – the private hospital providers, the PMI Insurers and the broking fraternity.
If they do not start working effectively and in the true spirit of competition, where will that leave us all going forward? One cannot help compare it with the international PMI sector, which has more than twice the number of insurers, with a new one added in 2011, growing demand and more competition. We all know that the wealth of the world is moving East at a rapid rate of knots, and the way the international sector is competing in such a highly competitive environment is one that the UK sector could do well to emulate
In conclusion, I hope the OFT and the CC report back as speedily as possible and take into consideration all aspects of the private healthcare sector including charges by healthcare practitioners, and that this results in a more efficient, cost effective and harmonious industry. 2012 could be the start of placing our sector of the industry on a better footing for all.