First, some definitions. Full medical underwriting (FMU) is the traditional form of underwriting for a medical insurance policy. The applicant declares their medical history at the outset, which gives the insurer the option of excluding any pre-existing conditions. In practice, most pre-existing conditions are excluded and the exclusions are usually—but not always—permanent.

With moratorium underwriting, no medical history is declared on the application form. Instead, the applicant simply signs off on their understanding that any condition that has presented symptoms or required advice, treatment or medication in the past five years will be excluded upon enrolment. Excluded conditions can regain eligibility for benefit, but only once they have remained symptom-, treatment-, advice- and medication-free for a continuous two-year period after enrolment (but not necessarily the first two years of the policy).

This is known as a ‘rolling’ moratorium; there also exists the less-common ‘fixed’ or ‘flat’ moratorium where pre-existing conditions are automatically covered after two years, even if they have required treatment. PruHealth are the main proponent of the fixed moratorium, although Exeter Friendly have recently followed suit—see my earlier post. Because a fixed moratorium carries considerably more risk for the insurer, applicants deemed to be too high a risk—someone with a history of cancer, for example—are usually barred.

I’ll discuss the merits and drawbacks of each approach in my next post.

I’m pleased to report that I’ve now completed my Certificate in Insurance, an objective first outlined in my post of 1 July. This is a fairly modest qualification and so my attaining it is unremarkable, but for the fact that it is unusual for a health insurance adviser to hold a full CII qualification. There is no legal requirement for those advising on PMI to hold a public qualification, so most firms choose to forego the expense in favour of an internal training and competence programme.

I came across the following quote in one of the course textbooks, which I thought noteworthy:

The hallmark of a professional is the ability to step back from issues of self-interest and provide competent independent advice in the best interests of a client.

– The Chartered Insurance Institute

Quite so. In the PMI broking sector, the ability to work in the best interests of one’s clients without exception distinguishes the adviser from the salesperson.

Most of the nationals picked up on NICE’s purported ‘banning’ of Avastin for secondary bowel cancer yesterday, despite the fact that the appraisal is still in the consultation stage.

I’ll sidestep the story itself, save to state the obvious that the NHS has finite resources and part of NICE’s remit is to evaluate the cost-effectiveness of some very expensive drugs.

I imagine that many people would have been surprised to learn that a course of Avastin typically costs over £20,000. This explains why NHS provision for advanced cancer drugs can be patchy, and also helps to explain why PMI can be so expensive.

Drugs like Avastin are routinely financed by private medical insurers and treatment for cancer in the private sector is one of the most compelling reasons to buy PMI. The extent of cancer coverage differs between insurers, though, and these differences are not always highlighted at the point of sale.

The key areas of difference are the length of time that an insurer will fund treatment with advanced cancer drugs like Avastin, and whether the policy will provide cover for palliative care once the condition has reached an incurable stage. Comprehensive cancer cover is the exception rather than the rule, with most insurers specifying some restrictions.

Some insurers now offer a cancer upgrade option for an additional premium, and I anticipate that this will eventually become the norm. This approach has merit, not least because it serves to highlight that, with most insurers, a ‘standard’ plan will be subject to restrictions in this regard, even if it is otherwise marketed as providing comprehensive cover.

Advisers should always draw attention to limitations on cancer coverage, especially when recommending a change of insurer. In my experience, clients are reluctant to compromise on cancer cover unless a significant premium saving is on offer.

Time to dispel another misconception about private medical insurance: that it’s not possible to move to a new insurer if you have pre-existing conditions. I’m prompted to address this issue having read the following statement in an otherwise sound article from the Daily Telegraph:

If you haven’t made a claim it might be worth shopping around for a better deal. But it’s a different story if you have had anything wrong with you since the policy started – such conditions will be “pre-existing” as far as the new insurer is concerned and will be excluded from cover.

There’s some truth in this, but it’s only half the story. As insurers vie for each other’s business in an increasingly competitive market, most are willing to take on clients with pre-existing conditions, provided the applicant meets certain criteria. This is generally known as a ‘switch’ or a ‘CPME transfer’. CPME stands for Continued Personal Medical Exclusions, and indicates that any existing medical exclusions will continue to apply, but that no further exclusions will be specified.

Switch terms vary greatly between insurers, but most require that the applicant has not seen a consultant in the last twelve months (privately or on the NHS) and is not awaiting any treatment or investigations at the time of enrolment. Some insurers go further still and bar applicants with a history of serious illness, such as heart, stroke and cancer conditions.

Switch candidates should give due consideration to the transfer terms, because a false declaration could invalidate the policy. Very often, a client’s medical circumstances will preclude a switch, and their interests will be best served by remaining with their current insurer. Great care needs to be taken when moving to a new insurer on a switch basis, lest a cheaper policy becomes a worthless policy.

Chartis (formerly AIG) has announced that it is to pull out of the UK private medical insurance market. Existing HealthChoice policyholders will be given notice that their policies will be cancelled at renewal and will therefore need to arrange alternative cover.

This is disappointing news that will present practical difficulties for some Chartis policyholders, especially those that are undergoing treatment or have treatment planned. Chartis members that can move to a new insurer with ongoing cover for pre-existing conditions should do so at the earliest opportunity, to avoid a scenario where a new medical condition arises before the renewal date, thus complicating a transfer.

This is a sobering reminder that private medical insurance policies are annual contracts, with no obligation for the insurer to offer renewal terms. Fortunately, this is a very rare occurrence, and should not dent consumer confidence in the UK health insurance market. Existing Chartis members should seek advice from a specialist PMI broker.

Read the article here

Article in Saturday’s FT about no-claims discounts on PMI policies, with comment from yours truly and the new AMII Chairman, Andrew Tripp.

I mentioned in my last post that a broker’s skill and experience is just as important as their integrity, and this is especially true when selecting a policy based on a no-claims discount. Again, advisers should be motivated to be diligent in this regard, because a client who suffers a disproportionate increase following a modest claim might reasonably consider that the broker didn’t do their job properly.

In reality, though, this is a key area of differentiation between brokers. Consumers will benefit most from an adviser who is focused on the bigger picture, rather than simply comparing benefits and premiums. Punitive discount structures are to be avoided, especially on comprehensive policies that provide cover for low-cost items such as out-patient consultations. Such policies have dubious value if said benefits cannot be realised without triggering a claims-related increase that will, in many cases, exceed the value of the claim itself.

I committed in my last post to tackling the issue of commission. Commission can be a problem; I’ll not pretend otherwise. It is a misconception, though, that commission is a problem merely because the broker receives it.

Let us be clear about a few things. First, the commission is not added to the client’s premium. Second, it is not possible for an individual to purchase a PMI policy direct from the insurer net of commission—the price is the same whether you go direct or through a broker. Third, as mentioned in my earlier post, some of the best products on the market are broker-only.

When consumers reason that they won’t go through a broker because the broker receives commission, they don’t take into account that insurers still incur costs when they sell direct—television advertising and direct mail campaigns, for example. The direct salesperson will also be salaried and/or on commission. Brokers are an important distribution channel for insurers: commission is only paid when a policy is sold, and clawed back if it is subsequently cancelled.

The problem with commission, then, is simply one of provider bias. If one insurer is offering significantly more commission than another—as is sometimes the case—how can you be sure that the broker’s head won’t be turned? You can’t, of course, although an accomplished broker will not bristle at being asked to justify his or her recommendation.

Regardless of integrity, insurance brokers should be motivated to work in their clients’ best interests to comply with FSA regulations, to ensure satisfied customers, and to benefit from client referrals. Product selection can be subjective, though, and the broker’s skill and experience is just as important as their integrity and commitment to providing their clients with best advice.

N.B. The points made in this post cannot be generalised to other forms of insurance, such as life insurance, for example, where it is possible for the adviser to retail the policy net of commission and work on a fee basis. 

The oft-cited reason for not using a broker when buying PMI is price—the belief that a cost saving can be achieved by going direct to the insurer. This is a misconception that is easily dispelled: the price is the same whether you buy direct or through a broker. In fact, most brokers have access to preferential rates that are not available direct from the insurers.

Whatever its faults, the UK medical insurance market is very consumer friendly: it is set up in such a way that consumers can access independent advice, nearly always without charge. This applies to both new and existing policies, so those who have previously bought direct and want to improve their terms can approach a specialist broker for free advice.

Some consumers are concerned about brokers receiving commission, but these reservations tend to be expressed in uncertain terms. The influence of commission is a separate issue, so I’ll deal with that in a separate post. In the meantime, I’ll outline four reasons why you should use a broker when buying health insurance:

1. No two PMI products are the same. Comparing five ‘budget’ plans on a price-comparison website and choosing the cheapest isn’t the way to go. For a few extra pounds a month, you might get better cancer cover and more out-patient cover, for example. A good broker will be looking for the best-value policy, not necessarily the cheapest policy.

2. Your medical circumstances are unique and may well determine the most suitable insurer. If you’re switching from one insurer to another on a ‘no worse terms’ basis, it is vital that you understand and meet the transfer criteria. A competent broker will ensure that you don’t unwittingly make a false declaration.

3. The broker can act as a buffer between you and your insurer if you ever run into problems and should advocate for you if you enter into a dispute.

4. As mentioned above, some of the most competitive products on the market are only available through brokers. This may sound counter-intuitive, but I can assure you that it’s true. Buying direct denies you access to these products.

Private medical insurance is a complex product and this is reflected in the number of specialist brokers that have grown up around the industry.

Related post: The influence of commission on PMI brokers

Abridged press release from AMII:

Brian Walters from Regency Health is the first individual to have sat and passed the new Association of Medical Insurance Intermediaries (AMII)/Chartered Insurance Institute (CII) IF7 examination introduced from 1 July.

Walters sat the examination in Bristol, then travelled up to join the AMII Annual Conference in Hinckley, Leicestershire to receive a special award to mark his success from AMII’s General Secretary, Michael Payne, at the evening’s Gala Dinner.

Michael Payne said, “Brian has made history by being the first person to successfully sit our new examination. Interest shown in the coursework and exam across our industry has been very encouraging and we look forward to hearing about many more successful candidates over coming months.”

Brian Walters added, “I’m fully behind AMII’s drive to professionalise our sector and I wanted to demonstrate that by taking the exam on the day it launched. This is a positive development for our industry that can only help to promote consumer confidence and bolster our message that private medical insurance is best purchased with specialist advice”.

I’ve just arrived back from Bristol, having sat and passed the Chartered Insurance Institute’s new healthcare insurance products exam (IF7) on the day of launch. The revised IF7 syllabus was designed in conjunction with our trade body, the Association of Medical Insurance Intermediaries, and the study text authored by industry luminary Andy Couchman.

This is a watershed moment for our sector. There is currently no requirement for PMI advisers to hold a public qualification, although the FSA do mandate that firms train their advisers and ensure their competence. Some intermediaries promote their advisers as being ‘fully qualified’, but that’s just marketing rhetoric.

This isn’t to say that the standard of advice within the industry is poor; on the contrary, it’s generally of a high standard. The problem is that we advise on a reasonably complex product and, as a community, the need for specialist advice is central to our marketing message. If that message is to carry any weight, we need to be better qualified than the people we’re advising.

I know that a number of insurers and intermediaries have made IF7 mandatory for customer-facing staff within a specified timeframe, typically two years. I am optimistic that some firms will go further still and eventually require their advisers to hold the CII’s Certificate in Insurance (which can be built around IF7), especially those providing advice to retail customers. This is the standard that I’ve set for Regency Health, and I have the remaining exams booked to complete the certificate myself before the end of August.

This is a positive development for our industry that can only help to promote consumer confidence and bolster our message that private medical insurance is best purchased with specialist advice.