With corporates increasingly looking to maximise their return on investment in all areas of employee benefits, the case for achieving a high degree of integration between group risk and group private medical insurance (PMI) certainly seems compelling enough in theory. Exploiting product synergies and combining different areas of expertise within the same individuals at insurers and intermediaries could create significant cost savings which could be passed onto clients.
There is, for example, a clear overlap between PMI and income protection in the area of early intervention and rehabilitation. Physiotherapy that is needed to help to get someone back to work can be paid for by the provider of either product, so if the same insurer is offering both it can potentially reduce its overall claims costs.
There is also a clear case for considering using group critical illness cover to fill gaps left by PMI providers who are not able to offer all-singing-all-dancing cancer cover and, in particular, to cover the new generation of high-cost cancer drugs.
The fact that both PMI and group risk insurers are becoming heavily involved in broader wellness and absence management programmes provides a further area of overlap that can be exploited. For example, both an income protection and PMI scheme may have an employee assistance programme (EAP) but only one is necessary and this could be shared as a trigger for early notification.
There are also potentially significant savings in administration to be realised in all these areas of integration and, although there are clearly some barriers that would need to be overcome, there is every reason to suppose that they could be.
Group risk and PMI schemes can have different renewal dates but the problem can be got around simply by running one policy for an extra few
months to bridge the gap. Data collection could be complicated by the fact that income protection is typically available to the entire workforce, whereas PMI is often restricted to senior personnel, but this could be overcome by taking special care to establish who is covered for what. Even systems issues could be successfully negotiated.
Lee Lovett, head of group reinsurance at Munich Re, says: “Insurers, and normally also intermediaries, have different systems for different
products but you could use a single system. It’s also quite feasible to have two administrative systems in the background with one customer front end. Integration between PMI and group risk could certainly work and I don’t think any of the barriers are insurmountable.
“The larger benefit consultants deal in both areas and, although this is usually through different teams, there is no reason why one individual in an intermediary shouldn’t do both as long as they have the knowledge. They are not doing so simply because of the way
the market has developed traditionally but it could start to happen if intermediaries had a business rationale to drive it forward, such as providing clients with better service, getting more of a client’s business or improving retention rates.”
Some benefit consultants have personnel with basic levels of competence in both areas sufficient to enable them to carry out case management but it is rare for anyone to be sufficiently qualified to give consultancy advice in overall group risk and PMI benefit design and delivery. Kevin Newman, senior consultant, healthcare and risk, at Watson Wyatt, is aware that he is most unusual in being able to do so and he is working on producing further multi-disciplinary expertise within his organisation.
He says: “We have an internal programme which we are trying to use to cross-fertilise the knowledge of PMI and group risk personnel because we recognise the need to have a broader skill set. Clients are going to want to have conversations on broader issues and some will want to outsource employee health per se. They will therefore be wanting to talk to one individual able to take a holistic approach.”
Amongst the providers, on the other hand, the biggest barrier to integration is simply that Bupa and Aviva are the only two insurers to offer both PMI and group risk, and the latter still doesn’t even offer group critical illness cover. But both players see no reason why effective integration between the two areas should not be achieved, and they already offer discounts to reflect cost savings when the same client buys
more than one product. Bupa offers companies who have both income protection and PMI a 10 per cent discount on the former and a 1 per cent discount on the latter whilst Aviva will offer them a 5 per cent discount on the income protection.
In the past Aviva has actually tried to train staff to service both areas and is intending to renew its efforts shortly. Bupa is also clearly eyeing up opportunities to introduce a similar tactic.
Fiona Harris, head of pricing strategy and development at Bupa, says: “The main barrier to integration is simply that it hasn’t been done. I think this is largely because different people have traditionally been buying and selling the different products, but the reality is that the products have a core synergy with each other. Both PMI and group risk are now in the same Bupa Membership business and both have the same directorship. We have an opportunity to look broadly across both areas and see where the synergies apply, so I think you will see more activity from us in this respect.”
However, other group risk insurers who don’t offer PMI and PMI providers who don’t offer group risk tend to express the view that whether products are offered by the same provider is not that important as long as you get the case management right.
Glenn Laming, group protection sales director at Legal & General, says: “It’s all about making informed decisions as opposed to worrying unduly about who the providers are. Where we are offering group income protection and critical illness cover, and another insurer is providing group PMI we work with the client to decide who manages the case to ensure best practice. If you have good processes to case manage each absentee you can ensure individuals are sent down the most appropriate path in most instances.”
But two different insurers are clearly not always going to agree on who is going to do the case management and, even if they do initially, one of them could end up making decisions geared towards the interests of their own company. Case management is therefore often carried out by an outsourced absence management or occupational health function or by an intermediary – which can have cost implications.
Group risk providers are clearly not falling over one another to acquire PMI providers in order to capitalise on opportunities to achieve synergies. Unum, for example, feels there is a greater business case for integrating income protection with pensions.
Wojciech Dochan, head of commercial marketing at Unum, says: “With employers having to consult over personal accounts there are obvious opportunities with pensions and, in my view, those insurers who offer both group risk and PMI have not made as much progress in breaking down the barriers between the two areas as they would like us to think they have.”
Nevertheless, the prevailing view amongst intermediaries and insurers involved in both group risk and PMI is that, although it remains a relatively minor issue in the scale of things, there is no reason why successful integration cannot be achieved. With the motivation to integrate clearly growing in certain quarters it is very much a question of “watch this space” for developments that could provide useful cost savings.
Insurer’s View: If at first you don’t succeed…
Mark Noble, director of group life and healthcare – distribution at Aviva UK Health, describes integrating PMI and group income protection as “probably the way to go in the longer term” and is hoping to have broker consultants and direct sales people who are qualified to deal in both areas in place by 2010.
This is despite the fact that Aviva (then Norwich Union Healthcare) unsuccessfully tried a similar initiative four years ago.
Noble says: “We tried getting our PMI guys to sell group risk and our group risk guys to sell PMI, both to brokers and direct to employers, but it didn’t work and we pulled it after nine months. Our intermediaries and clients wanted real expertise in each area and our sales people found this intimidating, so they fell back into old habits and stuck to the product they felt comfortable with.
“We didn’t invest enough time
Noble: “Someone needs to take ownership of the case”in bringing people up to the level of expertise that was required but we are planning to do so going forward. Most of our large corporate sales for group risk are intermediated, and the intermediaries talking to us want people who are experts in both areas.”
Noble agrees that first rate case management can compensate to a great extent for using products from different insurers but stresses that the case manager may still not get a fully co-ordinated view.
“They may not get a longer-term view of the pinch points unless someone takes ownership of the case” he continues, “and the insurers may argue.”