I whiled away an hour in a Cheltenham pub last week with Andrew Sandilands, business development manager at Freedom Healthnet and a veteran of the PMI industry. Andrew was keen to talk to me about Freedom’s new ‘Elite’ plan, which is PMI in the traditional sense and therefore marks a departure from the approach that the insurer is known for, which it describes as ‘hybrid cashplan health insurance’. 

The Elite plan is a modular product, comprised of a core component and six optional modules. The plan design is sound and the product is reasonably competitive; it strikes me as the sort of policy that will be recommended when a client has very specific circumstances or requirements. In particular, it may be suitable for large families because any number of children are charged at a fixed percentage of their parents’ premium.

Modular plans are becoming more popular as insurers look to offer choice to consumers and flexibility to brokers. PruHealth opted for modularity when it restructured its product range last month and at least one other insurer will be bringing a modular plan to market this year. Market leaders Bupa and AXA PPP have yet to embrace the concept in the individual market, although the latter distribute a modular product through Health-on-line. Aviva offer what is essentially a modular product but conceptually more sophisticated, in my view.

I am largely indifferent to modularity: a policy will meet with my recommendation if it is contractually sound and best meets the client’s requirements, regardless of how it is structured. Modular plans nearly always resolve into something resembling a fixed product anyway, so it makes little practical difference.

My one reservation with modular plans is that the ‘Key Facts’ documents are often confusing for consumers, because they simply list all of the available options. This is less of an issue with an intermediated sale, because it is incumbent upon the broker to draw the client’s attention to the main benefits and limitations of the plan. Nonetheless, the policy summary should still provide an overview of the plan benefits without the client having to refer to supplementary material.

Insurers could solve this problem by producing Key Facts documents with check-boxes next to the various modules so that the broker or direct salesperson can indicate more clearly to the client how the policy has been configured. Policy summaries are often sent by email or self-printed by the broker house, so they could be provided in editable PDF format for this purpose. Expect to see more modular plans as insurers refresh their product ranges.

In a not entirely unexpected development, National Friendly (formerly National Deposit) has announced that it will be pulling out of the PMI market as of five o’clock this evening. This follows some unpalatable changes to existing policies that I wrote about here back in January and affects both National Friendly’s own-branded products and policies marketed under the Healthguard name.

National Friendly has indicated that all existing plans will continue on the same terms, which should provide some reassurance to existing policyholders. However, given recent developments and the contractual scope for further changes, those concerned should seek advice from a suitably qualified independent broker.

I was not a proponent of National Friendly’s PMI products but, nonetheless, I consider its withdrawal to represent a loss to the market. This further narrowing of the field weakens the individual PMI market, in particular, which is already suffering from a paucity of good products. I shall elaborate on this concern in a future post.

Regency Health clients will be unaffected by this development.

Last week, Bupa announced that it would no longer sell plans that imposed limits on cancer treatment. This headline caused some consternation among Bupa policyholders, many of whom were told when they took out their plans that Bupa provided industry-leading cancer cover without financial or time limits on treatment.

To clarify, the limits that have now been removed only applied to corporate plans, not SME or individual policies. The key point that seems to have been missed in most of the reporting on this story is that the benefit limits applied to all treatment, not just treatment for cancer (props to Health Insurance magazine for noting this).

In December 2009, Bupa introduced an option whereby corporates could control cost by specifying an annual limit for their employees, typically £25k or £50k. The insurer soon found, though, that these limits were often insufficient for members being treated for cancer, which was at odds with Bupa’s long-standing ethos of covering cancer in full at every stage of the illness.

Effectively, Bupa has taken the decision that it would rather not compromise its principles on cancer care for the sake of competing in a cost-conscious area of the market. Cancer is an emotive topic and insurers can tarnish their reputations by withdrawing cover for cancer at a critical stage of the illness, even where contractual limitations have been pre-agreed.

This development re-unifies Bupa’s cancer offering and marks the provider out as the only insurer to offer full cover for cancer (including palliative care) across its entire product range. This says much about Bupa’s philosophy and would, with better PR, have made for a powerful marketing message. Instead, it appeared as though the market leader was playing catch-up with its competitors.

The wires are buzzing this morning with news that the European Court of Justice has, as anticipated, outlawed the use of gender as a variable for actuaries to set insurance premiums.

The ruling will not apply immediately (or retrospectively) as had been feared, but from 21 December 2012, giving insurers adequate time to update their pricing and systems.

Some PMI insurers will be required to equalise their prices, but the overall effect on the market will be slight, because most insurers do not price on gender. Financial protection products such as life and income protection insurance will be more significantly affected.

Lest anyone think that this development will actually benefit consumers, insurers will have to increase their premiums to comply with the legislation, pricing some people out of the market.

Update: PruHealth, one of the two PMI insurers to price on gender, has announced that it will be equalising its prices from 1 April 2011.

Article in the March 2011 edition of Moneywise magazine, to which we contributed a case study. I’ve not provided a copy of the article for copyright reasons, but the gist of the piece is that no-claims discounts on PMI policies are bad news and should be avoided.

I am not opposed in principle to no-claims discounts on PMI policies: where used sensibly, they can help to keep premiums competitive. What concerns me is that the discounts are often stacked in favour of the insurer, which can obfuscate the true cost of a policy.

In my June 2010 article for Health Insurance magazine, I argued for a more progressive approach to the no-claims discount, with a proportionate loss of discount that would more directly reflect the value of the claim(s). The mechanism used by most insurers, where a £100 claim results in the same loss of discount as a £100,000 claim, is a blunt instrument.

Clients are generally accepting of higher-than-normal increases following a year of high claims, and do not expect to pay the same as those who have not claimed. The problem is that the financial penalty for claiming is often so severe that it can render the policy unaffordable at a time when the cover is most needed.

This has the potential to undermine the value of PMI for consumers, something that I’ll address more comprehensively in a future post.

We were recently approached by a client of Aviva who had moved his wife to another insurer at last renewal but forgotten to remove her from his policy. Thus, without realising, the client had been paying two lots of premium for his wife over the past year, amounting to an over-payment of more than £3,000.

We made a case to Aviva, supported by the membership certificate from the new insurer. Extraordinarily, Aviva have agreed to refund the wife’s premiums for the year, despite being under no obligation to do so, and despite the husband having made a claim against the policy.

Insurance companies get a bad rap and sometimes with justification, but credit where credit’s due—well done Aviva.

The insurer National Friendly (formerly National Deposit) has announced some changes to its original ‘Healthcare Deposit Account’ plan, which will take effect from 14 March 2011.

Previously, individual policyholders under 65 were expected to contribute 10 per cent toward their treatment costs, while those aged 65 and over were expected to contribute 25 per cent. These contributions, dubbed ‘Own Share’, have now been increased to 25 and 40 per cent respectively. Contributions for couples and families have also been significantly increased.

The Own Share contributions are intended to be funded from the policyholder’s deposit account, into which 50 per cent of the premium is paid. Members who need to claim may now find that the balance of their deposit account is insufficient and needs topping-up. Affected policies are those taken out prior to February 2010 with membership numbers prefixed HC2.

National Friendly is offering a transfer to its new plan, which maintains the previous Own Share percentages. The new product is markedly different, however: only 25 per cent of the premium is paid into the deposit account and premiums are fixed for five years, rather than for life—a key selling point of the original plan. Dental and optical benefits have also been removed.

In National Friendly’s favour, the policy wording does clearly state that the Own Share percentages ‘are not fixed forever’ and that they may be changed in exceptional circumstances. Those exceptional circumstances would have been foreseeable, though, so barely two months’ notice is less than ideal—especially for those in the midst of a claim. Affected policyholders should discuss the changes with their adviser.

For the record, we always felt that the original product was unsustainable and therefore declined to recommend it.

As part of a raft of product changes, PruHealth has announced today that it will be withdrawing its fixed moratorium from 28 February 2011. From 1 March, the insurer will be moving to a standard ‘rolling’ moratorium (see my earlier post for definitions), leaving Exeter Family Friendly as the only insurer to offer the fixed variant.

This is significant for the individual PMI market because a fixed moratorium is the only way that an adviser can ultimately guarantee cover for pre-existing conditions. PruHealth’s moratorium was therefore a very useful tool in the adviser’s armoury and its withdrawal will make it more difficult to place clients with adverse medical histories.

In other developments, PruHealth has also announced that its new range of policies will not be subject to ‘fee maxima’ (where the insurer will only pay what is customary and reasonable for any given procedure). Most PMI policies are subject to fee maxima, which can lead to shortfalls where the consultant and/or anaesthetist charge outside of guidelines.

The issue of fee guidelines is something that’s attracting a fair bit of attention at the moment, so I’ll address it in more detail in a future post. For now, suffice it to say that PruHealth’s abandonment of fee maxima is a welcome development.

Press release:

Cheltenham-based medical insurance specialist Regency Health took one of the top prizes at last Thursday’s prestigious Health Insurance Awards. The company won the award for Best Individual Medical Insurance Intermediary, presented by television personality Patrick Kielty.

The panel of eight judges acknowledged the quality of advice provided by Regency Health, the company’s extensive knowledge of the market and a commitment to working in the best interests of its clients.

Brian Walters, principal of Regency Health, commented, “I’m delighted that we’ve been recognised for our expertise and integrity; the award provides us with another quality benchmark. This is a real achievement for a small independent brokerage—the roll-call of past winners sets a very high bar.”

Regency Health advises individuals and small businesses on new and existing medical insurance policies. Now in their 13th year, the Health Insurance Awards are the most coveted in the sector. The awards ceremony, attended by over 800 guests, was held on 21 October at the Grosvenor House Hotel in Mayfair.

Brian Walters (left) collecting the award from Patrick Kielty

In part 1, I outlined the differences between these two forms of underwriting; here, I discuss the merits and drawbacks of each approach.

The advantage of moratorium underwriting is that it provides the opportunity for pre-existing conditions to regain eligibility for benefit. It also expedites the application process, because the applicant does not need to declare their medical history and because there is no requirement for an underwriter to review the application. Instead, the member is underwritten at the point of claim: to verify that the condition is eligible for benefit, the insurer will request the claimant’s medical records. This presents a further benefit to both parties in that there is no possibility of non-disclosure.

The Office of Fair Trading has been critical of moratorium underwriting; back in 1996, it even went so far as to recommend that it be banned. The moratorium approach has drawn criticism for a number of reasons. First, it is a reasonably complex clause that demands engagement from the consumer and a careful and precise explanation from the salesperson or adviser. Second, any medical exclusions are not made explicit on the certificate of insurance, as they would be with full medical underwriting (FMU). Third, there is a danger that policyholders might forego medical treatment in order to gain cover for their pre-existing conditions, and this should always be cautioned against.

Some advisers default to the moratorium because it is quicker and easier, but the correct approach is to use FMU as a starting point and utilise the moratorium only where it affords an underwriting advantage. An FMU enrolment has the advantage that the client will not be inconvenienced at the point of claim and can also serve the useful purpose of capturing medical information that the client might not otherwise have disclosed during the adviser’s Fact Find. There is also scope for underwriting discretion with an FMU application: some insurers will take a view on certain conditions—controlled high blood pressure, for example—that would likely be excluded in perpetuity under a moratorium.