SME healthcare has stood up well to the downturn, but Sam Barrett sees clouds starting to appear on the horizon
Economic turmoil has taken its toll on many sectors of the corporate healthcare market, with headcounts reducing and employers scaling back benefits. But, while there has been carnage across the broader economy, the SME sector has performed relatively well.
“The SME market is holding up surprisingly well,” says Peter Taylor, head of business solutions at Bluefin. “Employers are caught between needing to reduce their budgets but also wanting to offer employees a benefit, especially when it’s one that can help them return to work more quickly if they need medical treatment. It’s regarded as a false economy to remove the medical insurance.”
Across the SME sector a similar picture emerges. For instance at Groupama, although some groups have shrunk in size, removal of cover tends to occur only when a company goes out of business.
Iain McMillan, managing director of The Health Insurance Group, has also seen few SMEs dropping cover. “It is rare but, in the main, the shrinkage in the market is down to companies reducing the numbers on their medical insurance schemes. This could be due to reductions in headcount or, where they have replaced employees, they haven’t extended the medical insurance to them,” he says.
At Aviva UK Health, senior proposition development manager Kevin Murdoch even reports growth in the sector. “Employers know the economic environment is tough but also know it’s going to get better at some point. They don’t want to drop a benefit that is highly valued by employees, especially when its removal may be the determining factor that drives the employee to leave when the economy recovers,” he explains.
But, while there is little evidence of SMEs ditching cover altogether, steps are being taken to minimise costs.
For starters, advisers are reporting a renewed appetite for rebroking. “SMEs are looking to their brokers to find a better deal and there’s fierce competition among insurers for business,” says Mike Izzard, managing director of Premier Choice Group. “The insurers are taking a lot of the pain at the moment.”
Taylor has also experienced the battle to retain, or gain, business. He says that some insurers can be so keen to retain business they’ll go as low as they have to. “It’s a bit of a last rites approach,” he says. “With some insurers you only have to tell them there could be a risk they’ll lose the business and they’ll drop the premium. Because of this there isn’t much movement in the market at the moment.”
Not every player is keen to take part in this tussle though, with some advocating other ways to reduce costs. As an example, in response to the squeeze on budgets, WPA has put together a guide, Eight ways you can save money, to help SMEs reduce their health insurance premium. Bravely perhaps, it is sending this out to customers at renewal. “We want to engage with customers so they’re aware of their options. It’s much easier and cheaper to retain customers than to find new ones,” says Charlie McEwan, corporate communications director at WPA.
As well as touting the benefits of shared responsibility, WPA also runs through some options that are available across many insurers. These include paying annually, which can harness a discount; tailoring benefits and reviewing whether benefits for retirees and family members are paid for by the employer.
Adjusting benefits is a popular option to reduce expenditure, with some products such as Aviva’s menu-based Solutions offering an easy way to do this.
Available for companies with two to 249 employees, this offers core cover, which includes hospital charges, specialists’ fees, diagnostic tests and radiotherapy/chemotherapy with a further four optional upgrades including psychiatric cover, dental and optical and an extended hospital list.
On top of this premiums can be trimmed further by adding cost containment options such as a six week option, reduced out-patient cover or an excess.
“We have seen some customers flexing down. It’s not such a negative message to employees when you don’t need to change insurers. They understand belts need to be tightened and appreciate that cover could be flexed up in the future,” explains Murdoch.
Another common step that is being used by advisers and insurers to cut costs is an excess. “We’re finding that some sectors of the SME market, for instance we recently did this for a group of commercial property agents, are trying out excesses to ensure their premiums stay manageable,” says Izzard.
It’s not always the best route to take though. “Companies are playing with excesses but it can backfire. Employees see it as a charge on them to use a benefit, which isn’t popular,” explains Taylor.
Rather than simply chuck in an excess, the pain of having to pay towards treatment can be reduced by adding in a cash plan. This strategy is often cost-neutral, with the savings made by adding an excess covering the cash plan premium while potentially enabling the cost of the treatment that falls within the excess to be picked up by the cash plan.
This approach has proved successful at The Health Insurance Group, leading it to launching its own cash plan, underwritten by Simplyhealth, earlier this year.
“We’ve seen an increase in interest in cash plans from the SME sector,” says McMillan. “When you combine a cash plan with medical insurance with an excess it can help to reduce claims costs and stabilise premiums.”
As well as tweaking existing cover to suit budgets, some insurers have launched products especially to take some of the financial pressure off SMEs. For instance, Groupama launched Cover Break in 2009 to enable companies to put their PMI on hold but retain the underwriting terms until they decide to restart cover.
Other insurers have also adopted this approach, although on a less formal basis. For example, WPA will encourage employers to shift to a low cost top up policy for a year to protect underwriting. “Protecting underwriting is important. If you remove cover temporarily and someone is ill, the illness won’t be covered if you decide to take out cover again. This is a low cost option that gives you more flexibility,” says McEwan.
But while there’s clearly a rationale behind this approach, there’s little experience of companies taking advantage of it. McMillan says he hasn’t seen much evidence of these underwriting holidays being used.
It’s a bit of a last rites approach. With some insurers you only have to tell them there could be a risk they’ll lose the business and they’ll drop the premium
“It’s very useful to be able to offer this but I suspect it’s not something that will appeal to many SMEs. Removing cover altogether can send out very negative signals to employees,” he explains.
Izzard also gives the idea a thumbs up but finds that it doesn’t really translate to sales. “We’ve talked to clients about it but they’re not really prepared to pay a premium in case they decide to reinstate their medical insurance,” he says. “If they can’t afford cover, they can’t afford this either.”
Claire Ginnelly, head of business development for healthcare at Groupama isn’t surprised by this. “Cover Break is a niche product and although we’ve just had our first customer go back on to full PMI we never expected it to appeal to everyone. That wouldn’t be good for the industry,” she explains.
Although the SME market has stood up well in the recession, with only relatively straightforward steps such as rebroking and benefit tweaking required to keep premiums affordable, there are signs that strategies to maintain this market’s buoyancy might need to change.
Companies are playing with excesses but it can backfire. Employees see it as a charge on them to use a benefit, which isn’t popular
To a large extent, fierce competition between insurers is ensuring that premiums remain affordable but this can only be a short-term position as insurers seek to retain profitability.
They are also under pressure as a result of rising claims due to the current economic climate. Whenever’s there’s a whiff of redundancy, claims frequencies increase as employees look to take advantage of their cover before it, and their jobs, disappear.
On top of this, the number of insurers courting the SME market is in decline. Standard Life Healthcare was bought by Discovery, to become part of PruHealth, and Cigna Healthcare has stopped offering terms to SMEs. “There’s much less choice now,” says McMillan. “This isn’t good news for the market.”
Possibly as a result of this some brokers are already noting a change in the way insurers deal with them, with some reporting stricter terms being imposed on the poorer risks. This tougher stance suggests that a correction in pricing could be on the cards.
How damaging this might be for the SME market remains to be seen and many in the industry are already looking for ways to lessen the blow. One option that is gaining momentum is tax relief for companies providing their employees with healthcare benefits.
Izzard explains: “The industry has to open up a dialogue with the Treasury regarding the introduction of tax relief for SMEs providing medical insurance.
Apart from critical areas such as cancer, every aspect of the NHS service is set to worsen, with waiting lists increasing. It’s time to be more realistic about the future of healthcare funding.”