Guest blogger, Ian Youngman, believes that it is time for change in the private medical insurance sector and innovation is desperately needed. The private medical insurance sector is in a critical state; numbers of policies bought by individuals and the percentage of the adult working population covered by PMI have fallen year on year for over a decade. Many insurers have exited the business. Numbers are actually even worse when you take out of the individual numbers those bought for small businesses. Finally, the PMI industry has realised it is in crisis, after years of optimistically hoping things would improve.
Somewhere in the world a butterfly flaps it wings and across the oceans, a massive storm erupts. PMI has been through storms...of changes to product, new ideas, re-pricing, lots of add-ons and loads of extras, and the effect - one dead butterfly - worse than no effect at all. Running to stand still is normal for modern business, but PMI is running backwards.
Our economic policy is based on the principle that if you keep going in the same direction, and each year do more of the same, then sooner or later the right effect will happen. This is of course, the triumph of hope over experience. And like the search for fool's gold. PMI has been following this idea for years with loads of extra cover more help lines and enough extras to sink the average battleship. The answer from some insurers to the crisis is "add more cover", or "add more services."
Have you ever tried to find the basic PMI cover in the typical policy? It is hidden by so many extras and add-ons that the average consumer is so confused that they give up. The biggest extra is cancer cover, the most costly extra of all. Your business is losing sales and losing money; so the obvious answer is to add, for no extra price, a cover that in a few years time will hammer your claims ratio. This is exactly like austerity economic policy. It does not solve the problem but just kicks the can down the road a few years, by which time the marketing guru who promoted the idea has retired or gone to another business.
Yes, it make sense to try to contain costs, but when you promote PMI as "giving you more choice of when and where you get treated than the NHS" how exactly does restricting the choice of a customer by pathways, work with this?
The average PMI insurer's answer to cost control is to add yet more cover and help lines and free services, free to the customer but not to the insurer! So how does saddling more costs help control costs?
Over the years there have been many innovations, many from new companies. Existing PMI insurers gobble up most of these. The biggest barrier to innovation is the conservatism of intermediaries; most of whom, to put it politely, are not in the first flush of youth; they were brought up in the days of wide affordable package cover so are terrified of selling anything that is not wider than a bendy bus doing a u-turn.
Also, for the low price innovations, there is simply not enough commission in the business for intermediaries to sell them, they think. But as health cash and dental cover have proved, simple low price products can sell if you get your sales coats down, your volume up and provide slick servicing.
A recent conference warned health and life insurers that most of them would be out of business within five years if they failed to see that people are moving from buying via computer to buying via mobile devices.
Some have suggested that PMI can be saved if you sell via large employers. But for the next 30 years, the growth of business and of employment is not coming from large or even medium sized employers, but from the self-employed and very small companies. These companies buy everything online, even professional services, so the only way to get to these people is direct and via a simplified buying, servicing and claims process. Many medium and large companies have a mobile, contract or self-employed workforce. The days of a job for life, or even for a few years have long gone.
There is no point selling direct, if you cannot service and offer claims the same way, preferably all via mobile devices on a 24/7 instant response basis.
One businessman (nothing to do with insurance) I was talking to says that he changes something every day and expects to re-invent and re-engineer his business every 3 years. The pace of change is so fast that however fast you go forward in the same direction, you soon run out of breath and cash.
So tinkering with the product will not be enough for major PMI insurers. In five years time, or less, I expect one insurer to have abandoned PMI and gone to self-pay, with three others only dealing direct with medium and large companies where they can offer a wide range of insurance and non-insurance products, with PMI being a tiny element in the mix. Of the rest, one will have been sold; another will quit PMI and the rest will be left with a bag of niche products.
If you know how the bicycle replaced the horse, and the cars replaced the bicycle, you will know that most businesses stayed in the wrong sector for too long. But the smart ones moved on before the new gadget was fully popular. So what happens to PMI insurers, is not necessarily the same as what will happen to PMI.
I have been studying various aspects of tourism. You may be surprised to know that in one major Asian country food tourism is now the third largest tourism niche. Tourism has survived and prospered by continual reinvention in a myriad of new market segments to provide novel services to satiate changing consumer demand. The key to growth is the use of the latest technology at all points of the distribution and sales process.
PMI does a little segmentation, but not much more than the equivalent of offering you a colour choice on your new car.
The product solution may come from insurers or from brokers. The problem with most PMI products is that they are designed to be as all-inclusive as possible, with a wide market. PMI insurers have panicked by trying to make it all-inclusive and all-covering, trying to sell an Audi not just to those who can afford one, but also to those who can only afford a Lada, Smart car or van...or who want a McLaren.
In my broking days, I produced many products from a blank page to a product selling in very large numbers that made decent profits for broker and insurer for a decade. The key to success is to produce products on a binary basis - Yes/No all the way down the line. The customer either fits or they do not. There is no attempt to shoehorn them in with extra price or limited cover etc. Price must be very, very simple. As little choice as possible should be given to the customer within a product.
You cater for differing niches not by altering one basic product, but by having a specific product for that niche. On PMI this could mean unique products for students, the retired, the young family, the solo, cancer, the professional, the self-employed, the small business, cosmetic surgery etc.
You make buying easy and instant. You make cover instant, and preferably on a rolling monthly basis so you do not need renewals.
PMI is often obsessed with finding a home for the ill, people with a poor health record, with a risky profession etc. For two decades personal and small business insurance has solved this problem by not trying to write these within the main portfolio, or even by the main insurers. It all goes to specialists in the London market. So when offering stripped down PMI, you do not just tell a non-fitting customer to go away. You offer them a route to specialist cover.
Products have become too confusing, too big and with too many help lines and extras. In private, many insurers will admit that only a few of these extras ever get used in any real numbers and that the only reason they are included is that brokers have pressurised them to match cover, often goaded by the ludicrous extra stars for extra cover service offered by a certain analyst. This "more is better" philosophy beloved by insurers, brokers and commentators is a key reason that PMI could die.
When did you last buy "private motor" or "private household" insurance? Or go on a "private holiday"? The word' private' is defunct and the word "medical" has a negative, worrying and anti-consumer feel.
Health insurance is better...but new names should be looked at, as long as it is not given the ABI committee "kiss of death".
Health cash and dental plans are doing well as they sell stuff that customers can understand. You pay £x and you get back £y, if you claim. On PMI it is not clear what you get back, what extras you may have to pay and what the cost is.
Media experts say you have three seconds to grab the customer's interest. But by now that may have gone down to two. So grabbing their attention is vital. Too many websites are like a truck decked out for Christmas; lots of flashing lights and colour but impossible to see what the product or price is easily.
You do NOT get time for a customer to plough through a dozen or so pages of product explanation with more "no buts" than a stroppy teenager. The only way to solve this is to simplify price, product and sale process.
I suspect that some will, by leaving PMI, and others will plough on until they run out of cash or the boss needs to sell to retire.
With the inevitability that the NHS will retrench to core services, there is a need for private healthcare, and it is a challenge for insurers to be part of that change.
They will not do it by "more of the same".
The choice is to innovate and simplify and seek new younger customers, or die out as your customers get older and either die or decide they can no longer afford PMI.
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