What do Guardian Health, First Assist, Clinicare, Standard Life Healthcare, and Groupama Healthcare all have in common? No, it’s not that at some stage they have been every healthcare intermediary’s favourite insurer, it’s that they no longer exist. Add to that Cornhill, Legal & General Healthcare, Allied Dunbar and you can see the extent of the consolidation and contraction in the UK private medical insurance (PMI) market in little over a decade.
Quite simply, they have been unable to achieve the critical mass needed to enable them to purchase treatment at a sustainable price whilst continuing to offer premiums that are attractive enough to both intermediaries and consumers.
The financial analysts have been unable to make a case with an attractive enough return on investment, when you consider the substantially improved returns that can be achieved by investing in Asia. Gross margins for PMI are in the region of 22.5 per cent before taking into account any intermediary commissions.
According to healthcare market analyst Laing and Buisson, in its Health Cover – UK Market Report 2012, the top five insurers, Bupa, Axa PPP, Aviva, Pru Health and Simplyhealth now control more than 90 per cent of the UK private medical insurance market by annual premium income.
Each of those organisations is of a size and scale which would enable them to sustain underwriting losses in the bad times, and to drive provider cost control measures in the purchase of treatment. For too long the providers have had no real control over the provision of treatment and the cost incurred, other than to confirm whether the treatment is eligible for benefit and in line with their terms and conditions. The emergence by the top five of an “open referral“ managed healthcare approach, which is hated by some and loved by others, is their attempt to give them some means of controlling their costs.
In a market which could at best be described as stagnant by premium income, and in decline at around 3 per cent by subscribers, it is difficult to see how insurers can expect double-digit growth in premiums for 2013 and beyond.
To achieve real growth in the market we need to do something radically different. The current approach of PMI still having elitist connotations has to be removed and replaced by a private medical insurance industry which is complementary to the National Health Service, with top up cover for some treatments being provided by the insurers and paid for by the companies or individuals, much as happens elsewhere throughout Europe.
Without a change in approach there is no reason why we should expect to see an increase in subscriber numbers, which may see the current system as being sustainable. PMI will become a luxury for those fortunate few who can financially afford those premiums, or as part of an executive employment perk.
The industry’s challenges are not just restricted to controlling costs and offering affordable premiums.
There has also been significant consolidation and contraction in the intermediary sector. Coupled with provider consolidation this brings into question the subject of consumer choice and whether there are enough players for anyone to describe themselves as being independent and impartial.
Changes to the regulatory landscape, and the introduction of further European legislation via the Insurance Mediation Directive and an extension of the Retail Distribution Review (RDR) has seen many experienced long-term advisers choose to sell.
PMI sales are not currently directly affected by the changes to a fee-based model under RDR, currently impacting the wider insurance industry, but it is only a matter of time before they will be. Personal customers are not going to be prepared to pay a £300 fee for professional advice before buying their PMI policy, to ensure they have an understanding of the myriad of options that are available to them.
Instead they are going to transact their business directly with one of a few remaining insurers, or an online portal and take their chance they have made the right choice, or deal with one of a small number of emerging “super brokers” who will have huge influence over distribution.
There has never been a better or more important time for intermediaries to explain the virtues of independent and impartial advice delivered by professionally qualified individuals who put the interests of the consumer at the very heart of their business.