A number of years ago, Exeter Family Friendly (then simply Exeter Friendly) introduced a range of PMI plans that had the unique selling point of age-on-entry pricing. The marketing slogan that Exeter used to promote the product was ‘the age you join is the age you stay’, which provided ongoing reassurance to policyholders that they were not subject to the age-related increases that affect most PMI policies.

The scheme is now closed to new members but existing members continue to enjoy this benefit and are very loyal toward their insurer as a result. Policyholders do still see annual increases for medical inflation and these can be reasonably substantial, but still less than is customary. The downside is that the policies are subject to stringent financial limits on cancer treatment and it is this, I assume, that sustains the age-on-entry pricing.

I mention this only to illustrate the problem that the PMI market has with annual increases and the difficulty of overcoming this problem. Medical inflation is rampant and this is the primary reason—aside from age—why PMI policies are subject to annual increases well in excess of general inflation. Consumers buying PMI need to be made aware of this fact so that their expectations are set accordingly.

When National Friendly (then National Deposit) introduced its ‘Healthcare Deposit Account’, the USP was that premiums were fixed for life (later changed to five years). Naturally, this had tremendous appeal to consumers, especially those who had experienced significant annual increases. This was not traditional PMI, though: the flip-side of the fixed premiums was that members had to contribute a percentage of their claims and were subject to overall financial limits.

Predictably, the fixed-price model (whether for life or for five years) has proved to be unsustainable, despite the aforementioned controls. Whatever the appeal of fixed premiums, it is self-evident that they will not be viable in a market with high inflation. For consumers, National Friendly withdrawing from the PMI market reinforces the old adage that, if something seems too good to be true, it probably is. 

For the PMI broking community, the National Friendly debacle is a lesson learned. Those brokers who recommended the original product will have had the unenviable task of apprising their clients of the recently announced changes. It is impossible to make a future-proof recommendation when advising on a product that is usually an annually renewable contract, but, nonetheless, brokers should be critically engaged with the products that they are selling.

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.

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.