Private Medical Insurance - Strategic Considerations

John Gillman

‘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

The hedgehog approach: corporatehibernation only works if recessions areshort

BCG: Organisations with adoptive advantage recognise the unpredictability of today’s environment and the limits of deductive analysis. They ……

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

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.

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

PruHealth’s business grew by over 50%

AXA/PPP’s business added nearly £90m in premiums

Review of 2008/2009

Simply Health’s 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 > 75% of the market

Standard Life down slightly WPA market share down

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 46Source: The Hannover Re (UK) Protection Review Consumer Survey 2009

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

Why didn’t you buy PMI?%

Can’t afford it 37

The State will look after me 18

I haven’t thought about it 16

Other priorities 6

I don’t trust insurers to pay claims 6

Other / don’t know 17

Source: The Hannover Re (UK) Protection Review Consumer Survey 2009

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 <1 1 CS Healthcare <1 0.5

Source: Laing’s Healthcare Market Review 2008/2009

Protection Insurance Adviser’s 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

Tax Relief: Research amongMembers of Parliament

Conservative: 49% Labour: 1%

Source: BMI Healthcare Research 2009Sample: 44 members

Tax relief or tax incentives?

New funding models must pass the test ofEFFICIENCY and EQUITY

Efficiency: will the proposal achieve its proposedend and provide the greatest possibleimprovement and healthcare within the fundingavailable?

Equity: how will the proposal match financialcontributions to ability to pay, and how well wouldit match healthcare to health needs?

Should tax incentives be offered toindividuals 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

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

Health & Wellness

Will ‘wellness’ provision become an integralpart of private medical insurance offerings?

The health and wellness approach

‘The principle of risk pooling means thatpeople who are healthy, fit and well don’tsee good value for their premiums. We seerewarding people for taking care ofthemselves as the key to breakingthrough this and focusing on improving andmaintaining health as the mechanism’

Source: Mark Noble, Aviva, quoted in the 2009 Protection Review

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 behealthy.

Continued…

The health and wellness approach

Vitality – which rewards our policyholders for

participating in healthy activities – is an even more

applicable model in this difficult economicenvironment because the value of the

incentivesand the rewards it provides means more’

Source: Shaun Matisonn, PruHealth, quoted in the 2009 Protection Review

Is the risk of needing to pay for parents’ longterm care something you think about?

%Yes, it is a major concern 17No, they have funds to cover it

20No, they can use house equity

10No, the State will look after them 5Other/don’t know 15Not applicable (parents deceased)

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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

Business development – what thecommentators 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

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

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\......

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

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\....

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

Key Performance Indicators 2014

1. 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

2. New member growth – what part will advisers and employers play in this objective. Is entering the group market feasible?

3. Operational efficiency – essential, but remember that only claimants will know how great you are

Continued/….

Key Performance Indicators 2014

4. Financial performance – the ‘early warning system ’ is important

5. Positive staff contribution – empowerment and the correlation between staff satisfaction and customer satisfaction

6. Regulatory and governance – regulatory best practice is often just good business practice

Is the future friendly?

Yes, as long as we remember that it starts right now!

www.prioryhouseconsulting.co.uk

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