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“It’s lucrative business but it can be overlooked by some corporate intermediaries,” admits Stuart Scullion, sales and marketing director at healthcare specialists The Private Health Partnership. “We proactively follow up every employee that is leaving a scheme, whether they’re retiring, moving to another company or being made redundant, and we get a good conversion rate by doing this.”
Even when proactively targeted, conversion rates do vary between the different types of group leaver. Scullion says he has the best success with employees that are retiring. “If someone’s going to another company then it’s likely they’ll have medical insurance in their new benefits package,” he explains. “The same is true if they’re being made redundant but they’ll also be worried about their financial situation so might not want additional expense unless they’re already claiming or likely to make a claim.”
Special deals from the insurers also help to keep conversion rates high. Depending on the claims experience, insurers will usually offer group leavers no worse terms on an individual policy, disregarding any claims they might have made during the course of the policy. This means the person can continue their cover without the need for any further medical underwriting.
Discounts may also come into play, depending on the claims experience, with some insurers slashing 25 per cent or more off the standard premium. Julian Ross, head of marketing and communications at Standard Life Healthcare, explains what his company offers: “Our continuation option allows people to have pretty much the same plans as their corporate scheme but we add a no claims discount depending on their claims experience. People with a clean record could get a 40 per cent discount while those with claims will find themselves with a lower discount.”
Competition for this market has heated up among the insurers in the last few years too. Switch options are available from several insurers, including Standard Life Healthcare, allowing group leavers who don’t have too many claims under their belts to move to another insurer on no worse terms.
Courting group leavers can also strengthen your relationship with the employer. Mike Blake, group sales manager at the PMI Health Group, says his company offers it to all their corporate clients. He explains: “Take-up does depend on the client’s obligation to make something available to employees that are leaving but many employers regard it as a real service.”
He adds that retiring directors can often be among the leavers that can afford to continue cover. “They will often continue to influence company policy so it can be very beneficial to look after their insurance requirements,” he says.
It’s not all easy business though and there are some potential pitfalls. “They can drop off the books fairly quickly,” says Mike Izzard, managing director of Premier Choice Healthcare and chair elect of the Association of Medical Insurance Intermediaries. “This might be because they find another job and can join their employer’s scheme or because they find the premiums too high.”
Additionally, as some people take out a continuation option because they’re part way through a claim, or likely to make a claim, they may decide to cancel cover once treatment is completed.
This book of business can often have very poor claims experience, which can make it more tricky to place. “You tend to find that the people that want to continue their cover are the ones most likely to claim,” says Blake. This can restrict the options for the person as the insurer won’t necessarily want the bad risk on one of its newer books.
It can also mean they face much higher prices. Because of the corporate risk pool the price paid to cover each employee is lower than if they were individual customers anyway. Throw in a bad claims experience and a group leaver could be looking at a price hike of anything up to 100 per cent.
Izzard agrees. “You can’t blame the insurer for wanting to increase the cost for the walking wounded. Every risk has a price,” he explains, adding that because the continuation option isn’t always the most competitive he tends to place around 30 per cent of group leavers with other insurers.
Another problem is that sometimes it can be difficult to know that someone is leaving. Typically a continuation option will only be valid for a month from the employee leaving the scheme so it’s essential to have their details as early as possible. “Sometimes we don’t find out that someone has left a scheme until the annual renewal when membership details are updated,” says Nick Homer, senior propositions development manager at Norwich Union Healthcare. “This exacerbates the problem of picking up bad risk as the only people that will ask about continuation options are the ones likely to claim.”
The industry is getting better at pinpointing those exiting a scheme though. Electronic scheme management enables leavers to be picked up straightaway so they can be offered a continuation option. “Having this management information will help to increase the amount of group leaver business and reduce the risk inherent in the book. These leads are already warmer than the average client and getting them early will enhance this further,” adds Homer.
But targeting this class of business isn’t to everyone’s taste. From a regulatory perspective, individual clients require a very different service to corporate clients with demands and needs statements completed for each person. “Because a group leaver is a retail customer, some advisers don’t want this type of business,” says Izzard. “From an advice perspective, helping someone in their seventies keep their premium affordable is very different to advising an employer on his healthcare requirements.”
And, while the corporate scheme’s insurer might be offering a discount to the group leaver, this might not always represent the best deal. Healthy competition means that, if the person is prepared to be medically underwritten, they could reduce their premium further.
Alternatively, where a premium is high, a new plan might require the addition of an excess or a downgrade in cover to suit the person’s budget. “Someone at retirement might be happy to take a high excess type plan,” says Ross. “The premiums are significantly lower and they tend to have savings to cover the excess if required.”
It may also be prudent to transfer them to a different type of plan altogether, with some individual schemes offering premium reduction features that aren’t available in the corporate market (see box).
On top of this, due to the scale of the business being arranged, remuneration for individual business can seem unattractive. But, even if you don’t want to service these individual customers, it’s still possible to benefit from this market. “Some intermediaries specialise in this market and will accept business from other advisers, who’ll receive a share of the commission for any referral,” says Izzard.
The Private Health Partnership is a perfect example of this. It has relationships with 30 introducers who prefer not to touch medical insurance as they don’t have enough business in this area. “You do need the right set up to deal with group leavers,” adds Scullion. “But, by referring it to another specialist adviser, it’s still possible to offer the employer a valuable service as well as generating income from it.”
Individual medical insurance products
National Deposit Friendly Society’s Healthcare Deposit Account
By using half the premium for insurance and putting the remainder into a personal deposit account, policyholders can build up a fund alongside their insurance to help meet the cost of treatment. This helps keep costs down and the policyholder benefits from the return of the fund if it hasn’t been used to meet claims costs.
Patient Choice Hospital Treatment Plan
This provides up to £75,000 a year towards the cost of operations and procedures but leaves the policyholder to pick up the cost of small ticket items such as consultations and scans. By doing this, premiums are lower than on traditional policies. Additionally, because the policyholder can keep any surplus, it encourages them to seek out better deals than if the bill was settled directly by the insurer.
Age at entry schemes
These are particularly popular with older clients as the premium is set according to the age when the policy is taken out. The only increases they’ll get are based on medical inflation and claims experience. Starting premiums are higher than on traditional products but if the plan runs for several years it can work out more cost-effective. Providers include Exeter Friendly Society and National Deposit Friendly Society.
As well as these schemes cost containment features such as no claims discounts and large excesses, sometimes as high as £5,000, are much more common in the individual market.