Private Medical Insurance - Strategic Considerations

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Private Medical Insurance - Strategic
Considerations

• John Gillman

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• Living strategy and the death of the
• five-year plan is strategy dead?
• No, but strategy needs to be different!
• Source Financial Times 27 October 2009

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• The hedgehog approach corporate
• hibernation only works if recessions are
• short
• BCG Organisations with adoptive advantage
  recognise the unpredictability of todays
  environment and the limits of deductive analysis.
  They

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1. Process relevant data quickly
2. They see clearly how their business fits into a
   wider context
3. They are alive to social change and shifting
   customer preferences
4. They experiment effectively
5. They draw on the talents of the best people they
   can find whether they employ them or not

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• McKinsey
• You have to give up the pretence that you can
• predict the future
• Strategy is really an evolving idea which
  develops
• over a long period on a long and winding road
• . and this new world calls for just-in-time
• decision making
• While the eternal truths - market position,
  scale
• and capabilities endure, a more dynamic
  and
• adaptive approach is now needed.

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• Review of 2008/2009
• Total people covered was 7,562,000 12.3 of the
  U.K. population with individuals the main
  contributors of market growth
• PruHealths business grew by over 50
• AXA/PPPs business added nearly 90m in premiums

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• Review of 2008/2009
• Simply Healths market share grew to 2.5
• Standard Life marketed heavily in 2008 (but lost
  market share)
• The top 10 advertisers are focusing on direct
  mail
• Top 5 competitors

BUPA, AXA/PPP Aviva control gt 75 of the
market Standard Life down slightly WPA
market share down
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• What was the main reason you purchased
  PMI?
• Part of our financial planning 20
• I consider it a financial priority 14
• Death or illness of family friend persuaded me
  9
• Bought it with mortgage/loan 4
• Persuaded by a salesperson 3
• Other 46
• Source The Hannover Re (UK) Protection Review
  Consumer Survey 2009

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• Why did you purchase then and now?
• Jumping the queue
• Choice of specialist/surgeon
• Hotel facilities
• Now added
• Fear of hospital acquired infections AXA PPP
  2009 Research
• Cost of new drugs

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• Why didnt you buy PMI?
• Cant afford it 37
• The State will look after me 18
• I havent thought about it 16
• Other priorities 6
• I dont trust insurers to pay claims 6
• Other / dont know 17
• Source The Hannover Re (UK) Protection Review
  Consumer Survey 2009

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• PMI Market share by subscription income 1992
  2007
• 1992 2007
• BUPA 44 42
• AXA/PPP 28 24.5
• Norwich Union 3.5 10
• Standard Life 3 7.5
• Cigna 3 3.5
• WPA 5 3
• Simply Health n/a 2.5
• PruHealth n/a 2
• Exeter Friendly lt1 1
• CS Healthcare lt1 0.5
• Source Laings Healthcare Market Review
  2008/2009

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• Protection Insurance Advisers Forecasts
• For the next 12 months
• Write more 43.9
• Write less 7.4
• Write the same 48.7

Source Protection Review, 985 PFS members
responding to an e-mail questionnaire April 2009
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• Tax Relief Research among
• Members of Parliament
• Conservative 49
• Labour 1
• Source BMI Healthcare Research 2009
• Sample 44 members

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• Tax relief or tax incentives?
• New funding models must pass the test of
• EFFICIENCY and EQUITY
• Efficiency will the proposal achieve its
  proposed
• end and provide the greatest possible
• improvement and healthcare within the funding
• available?
• Equity how will the proposal match financial
• contributions to ability to pay, and how well
  would
• it match healthcare to health needs?

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• Should tax incentives be offered to
• individuals and employers?
• The efficiency test fails it in four respects
• Its effects are likely to be minimal without a
  strong level of compulsion
• It diverts funds from the public healthcare
  system
• It does not save the public sector money
• It would inflate healthcare costs

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• It fails the equity test
• Its uses taxpayer funds to expand two-tier access
  to healthcare
• It shifts the burden of paying for healthcare
  from the healthy, young and wealthy to the
  unhealthy, old and poor

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WELLNESSVTHE NATIONAL ILLNESS SERVICE
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• Health Wellness
• Will wellness provision become an integral
• part of private medical insurance offerings?

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• The health and wellness approach
• The principle of risk pooling means that
• people who are healthy, fit and well dont
• see good value for their premiums. We see
• rewarding people for taking care of
• themselves as the key to breaking
• through this and focusing on improving and
• maintaining health as the mechanism
• Source Mark Noble, Aviva, quoted in the 2009
  Protection Review

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• The health and wellness approach
• The message is definitely getting across. Half
• our policyholders agree that our unique Vitality
• incentive programme has helped them to be
• healthy.
• Continued

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• The health and wellness approach
• Vitality which rewards our policyholders for
• participating in healthy activities is an even
  more
• applicable model in this difficult economic
• environment because the value of the incentives
• and the rewards it provides means more
• Source Shaun Matisonn, PruHealth, quoted in the
  2009 Protection Review

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• Is the risk of needing to pay for parents long
• term care something you think about?
• Yes, it is a major concern 17
• No, they have funds to cover it 20
• No, they can use house equity 10
• No, the State will look after them 5
• Other/dont know 15
• Not applicable (parents deceased) 32

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• Prospects
• Subscribers will fall in the short term
• Growth will resume between 2011 and 2013 (but
  more slowly in the group market)
• PMI usually rides out recessions quite well since
  it is considered an essential purchase

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• Business development what the
• commentators say
• Look out for more cancer drug top-up policies
• Retention activity is more important than ever
• Direct distribution is key to the individual
  market, but
• Marketing via employers has a part to play

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• Business development what the
• commentators say
• Lower costs are needed to bring in customers
• Adequacy of care for the over 60s is an issue
• The NHS 18 week waiting time target is still seen
  as too long
• Intermediary involvement may increase

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• Opportunities for the PMI market
• Difficult to envisage the NHS getting all the
  resources it demands
• Development of products that meet a range of
  perceived needs in partnership with culturally
  acceptable other providers
• Public sector pensions and the emergence of flex
  plans?
• Excesses, co-pays and deposit plans for a
  wealthier baby-boom clientele
• Government policy and the Nudge strategy
• Continued\......

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• Opportunities for the PMI market
• Demographics and the worried well
• Will the competition be slow to move?
• Will wellness be the new trend?
• Emergence of more specialised and better
  qualified advisers
• Marketing through employers Flex and voluntary
  plans
• Aggregate sites

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• Threats
• NHS waiting lists are effectively addressed
• The recession lingers and bites harder
• Competitors launch a killer product aimed at
  market segment
• Slow attrition as members age and premiums
  increase
• Continued\....

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• Threats
• Development of new expensive drugs and treatments
• Emergence of more specialised and better
  qualified advisers
• Competitors throw even more resources at
  distribution in a static market

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• Key Performance Indicators 2014
• Customer satisfaction very satisfied is the
  only really safe place. Listening to the voice
  of the customer is even more critical and should
  drive product design. They need to know you value
  them even if they do not claim
• New member growth what part will advisers and
  employers play in this objective. Is entering the
  group market feasible?
• Operational efficiency essential, but remember
  that only claimants will know how great you are
• Continued/.

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• Key Performance Indicators 2014
• Financial performance the early warning
  system is important
• Positive staff contribution empowerment and the
  correlation between staff satisfaction and
  customer satisfaction
• Regulatory and governance regulatory best
  practice is often just good business practice

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• Is the future friendly?
• Yes, as long as we remember that it starts right
  now!

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