PMI market inches up – Laing and Buisson

Demand for health cover remained solid in 2012 as the number of private medical cover policies in the UK, insured and self insured, moved upwards by 1.1 per cent to reach 4.033m at the start of 2013, according to the latest research from healthcare intelligence provider Laing and Buisson.

This followed stable demand in 2011 when policies edged down by 0.1 per cent, but a sizeable contraction in policy numbers of nearly 8 per cent overall during 2009 and 2010.

Findings in Health Cover UK Market Report 2013 highlight that the small rise in policies during the year was driven by a shift towards self-insured medical expenses schemes which offer large companies Insurance Premium Tax (IPT) exemption, and scheme flexibilities. The 58,500 rise in company paid policies during 2012, equivalent to 2 per cent growth, was made up of 35,700 self-insured by employers and 22,800 insured.

The number of individual paid policies dropped by 1.5 per cent – or 15,500 policies, although the decline was much smaller than the falls of 31,800 in 2011 and 50,800 in 2010.

But overall penetration of the UK population by private medical cover remained at an estimated 10.8% at the start of 2013: the lowest rate in more than 20 years.

Spending on insured and self-insured private medical cover increased during 2012 by 0.3 per cent in real terms, taking into account economy inflation (RPI), to reach £4.4bn, as the average price paid for private medical cover, estimated at £1,100 in 2012, was little changed in real terms over the year. Claims paid on private medical cover policies increased by 0.7 per cent in real terms in 2012, driven upwards by a strong increase of 7.8 per cent in the value of claims paid by employers that self-insure their medical expenses. This pushed down insurer underwriting margins in 2012 to an average of 21.5 per cent, from 22 per cent a year earlier.

Author of the report, economist Philip Blackburn says: “At a time when the economy is struggling to grow at all, solid demand for private medical cover offers the industry a clear chink of light that growth is likely to move forwards when the economy wheels start to turn faster. The strength of employer funded private medical cover is a positive, and a more modest decrease in individual demand provides optimism that the ‘worm could be turned’ by insurers in this market area.

Certainly a recent spate of new products from insurers which strip down medical cover to suit a wider distribution of healthcare needs and healthcare budgets, with examples such stand alone diagnostics and therapy care, provide a raised platform for medical cover to penetrate further across all ages as more cracks in NHS performance are expected under its financial constraints.

However, upward pressure on claims costs continues to shadow prospects of wider penetration for the sector. Claims costs ran ahead of premiums in 2012 in a year when there was a cranking up of cost containment initiatives by leading insurers, such as open referral and direct insurer to specialist referral within primary care, and as such ongoing initiatives are expected to feature with similar puissance going forward. Results of the Competition Commission’s investigation into private healthcare next year may provide some further answers for insurers, though significant and sustainable efficiencies are likely to be a long term challenge.”