Time to head upmarket

Incoming chairman of the Association of Medical Insurance Intermediaries (Amii) Wayne Pontin does not mince his words when talking about the performance of the organisation he has been elected to lead.

“Amii has lost its way in my opinion over the last two or three years. It did a lot of great work on regulation when there was the change from GISC to the FSA and since then has done some work on standards in terms of examinations, with the IF7.

“But it has lost its way – it has concentrated too much on one sector – the smaller broker. It has to recognise and be reflective of the whole of the industry. So the first thing to do is increase the membership, and that includes the corporate IFAs and EBCs”, says Pontin, whose day job is sales director (West) at Jelf Employee Benefits.

Pontin is prepared to confront head-on any perceptions those in the EBCs may have that Amii has not been the sort of organisation they would want to join.

“The image it has is that it exists to get discounts on PI for small brokers, and for study books. I totally agree with that, and that opinion was once held by my own organisation, Jelf. I am an acquisition for Jelf, so I have started from small beginnings and have seen both ends of the sector. Amii hasn’t represented the interests of EBCs,” he says.

Pontin wants to transform Amii from an organisation that arranges discounts for small brokers into a genuine lobbying force for the medical insurance industry. With such massive changes facing the industry, such as the changes to the NHS and the likelihood of an RDR-style solution for the protection industry, it is essential that a cogent and powerful intermediary voice is heard, he argues. He sees harnessing the support of the EBCs and providers as essential to that long-term goal.

“The image Amii has is that it exists to get discounts on PI for small brokers, and for study books. I totally agree with that. Amii hasn’t represented the interests of EBCs”

“I intend to invite providers to become corporate members, which will encourage the EBCs to see that we have a larger voice. I want to prove to the likes of Mercer, Aon and JLT that there is some merit in what we do, and that we have some ability to influence the way the market is going, for example in political lobbying. This could be done through aligning ourselves with the British Insurance Brokers’ Association (Biba), without becoming part of Biba, and piggybacking on their strengths. They have a voice with the Treasury,” says Pontin.

Pontin sees the need to bring providers into the fold as essential, so the organisation no longer has to rely just on its conference and subscription fees for revenue.
Without change, the future is grim, he argues.

“The Association would be dying without these changes. It will disappear. It is an organisation existing in a marketplace where membership is being picked off by consolidators, companies like my own, so the membership will continually keep diminishing,” he says.

Pontin sees a lack of cohesion in the industry as one of the reasons why no common voice has been heard, a vacuum he hopes the industry can fill.

“Insurers don’t talk to each other that often. Maybe Amii can become the vehicle where they do. The PMI industry is a duopoly, where we have two main providers and they don’t communicate that well together, Bupa and Axa PPP. Maybe they can use Amii going forward. But we have to have sufficient income to influence change. Because it is pointless otherwise,” he says.

Pontin also believes Amii can have a greater role in cleaning up some of the sharper practices in the PMI industry.

“There are dirty tricks out there – the way the distribution channel and the providers are performing at the present time is like a vortex going down. It is going to kill itself unless we are very careful.

“The clean-up process has already started, with the generic authority and appointment letters, done in association with Biba. But we need to expand upon that because, firstly we have to ensure 100 per cent take up of these letters,” he says. But further, more drastic action is needed, he argues.

“We need level commissions in my opinion, and Amii will champion that. It needs debate amongst the members, but I will be lobbying our membership to say ’let’s clean the lower end of the PMI market’. At the larger corporate end it is mostly fee income. But the commoditised end, the commission-driven end is very much driven by high initial, low renewal, and if we see a levelling of these commissions, that would take out some of these problems that we have got,” he says.

“I take on board the fact that the acquisition of new business comes at a cost. There is a greater need for providers to finance the acquisition cost and this is something we have to debate, but at the end of the day what is happening is that under the excuse of growth, we have created a market that is returning additional levels falsely in so much as it is not benefiting the client. Because it is not coming off actual premiums, it is commission kickbacks which are non sustainable. This means you are always going to have to churn to take the higher commission to carry on getting that initial kick-back. So if you give up 5 to 10 per cent of your commission to win some business, what happens at renewal when you don’t get that level of commission? If that client is to have a sustainable financial agreement with you, you have to keep on churning.
That can’t be good for the industry.

“We have to lobby the providers. I have spoken to providers about this in my capacity at Jelf – we have a model which is a level commission one. It is a question now of taking one hat off and putting another one on,” he says.

“There have been some examples of it – PruHealth understand the need to do it. And I think the consolidation of the providers makes it even more important that we do it,” he adds.

“I think we should act before the regulator acts. But always remember we are in a position where the RDR is coming and that has to escalate into all forms of protection. There is no doubt it will come,” he says.

Pontin believes providers need to be more open if the market is to thrive.

“It has got to be in the interests of providers to debate this because their margins are being squeezed. They have been squeezed with the poor economic situation, they have a model that simply throws premium against claims and there has been little innovation in terms of cost-containment. It is coming into the market now, with Bupa’s open referral, and you have got innovative wellbeing products like the Pru product, slowly it is coming in. But I think whilst the tactics of churning and high commissions persist, alongside the financial constraints on corporate UK, the margins that the providers are making are minimal. Perhaps perhaps part of the solutions is to agree on a level distribution pattern,” he says.

Pontin is concerned at the risk the regulator will crack the whip if the industry does not sort itself out. “I do not think we are more than five years away from a fee-based RDR type model within the protection industry. We should be planning for that now,” he says.

Claims disclosure is another priority for Amii.

“Every risk has a price. So what is different with medical insurance and every other form of insurance. How can you price something without knowing the exact risk? We have only one product out there at the present time that is a community-rated product, which is a WPA product. The rest of the PMI market has long since moved away from community rating or from individually rating risk. If you are going to individually rate risk, how on earth can you do that without claims disclosure? There must be electronic exchange of this, and this is again something we need to champion through Amii. It also helps in the current trading climate, because if we can ensure that it is a level playing field, that each provider is aware of the exact risk they are quoting for, which isn’t really the case at the moment, because in the SME market we cant obtain claims history in most cases, the insurer is just quoting on renewal price. This has to be a recipe for disaster because they don’t know what they are picking up,” he says.

“There are dirty tricks out there – the way the distribution channel and the providers are performing at the present time is like a vortex going down. It is going to kill itself unless we are very careful”

“At the present time, for risk above 50 lives there is total exchange of claims information. But you tell me what is the difference between 49 people and 50 people, or 45 people and 50 people. If doesn’t make sense to me that the risk should change for such a minimal difference in number of people,” he says.

But won’t there always be a cliff edge?

“Yes, but my suggestion is that why don’t we do it in stages? Lets perhaps come down to schemes of 20 lives covered. Is 20 the level, or maybe 10. Lets see if we can go there and see how the market reacts to that,” says Pontin.

Pontin’s vision for the medical insurance intermediary of the future is of a professional qualified to a similar level as that required of pension consultants and IFAs. The start of this process was the Amii/CII IF7 exam, which passed its 500th candidate back in February.

“That is a start, but I do believe because its voluntary and not mandatory, it is toothless,” says Pontin. “We need something that either an individual consumer or corporate buyer can pick up, like a Corgi registration, and know exactly what it means. That is the regulator, Amii. We have to work with CII, Biba and the new regulator on this. You are talking probably 5-10 years before we see that. But we have to start working on it now.”

And how should Amii be responding to the NHS changes? He fears the die may already be cast. “We should have a say. We know there is going to be reform, and we also have the OFT report coming out. But Amii should become a consultative organisation and voice in that. If you look at the political debate that says the coalition is moving towards privatisation of the NHS then the distribution channels that control 70 per cent of all PMI written in this country should be consulted on that. But it is difficult because we are at a standing start and we have come in at the latter end of it,” he says. “We do need to go down the private public route. There should be perhaps some thought towards differing levels of NI where it is done privately. But Amii does not yet have the strength to influence political debate. So we have got to work very quickly,” he says.

The less successful the NHS is, the easier it should be to sell private medical insurance. But Pontin takes a negative view of the changes the government is struggling to push through.

“The one message I would like to get out there is that the NHS is your friend and therefore please make sure you voice any concerns about the current reforms, whether that means through the ballot box, or through other means. I have concerns whether GPs are qualified to control budgets. Not only are they not qualified, but do they really want to do it? Is putting control of the nation’s healthcare spend in the hands of a body of people who are medically qualified but don’t really want to become management accountants the right way to do it?”

But whatever form the NHS reforms take, Pontin wants to see an intermediary body in place that can help shape a future market that will benefit employers, the public and those delivering PMI. Sport, family life, rugby – ’I am a passionate Welshman, overjoyed to see we won the Grand Slam, and glad to see a resurgent England, and looking forward to meeting them in the final in 2013.