Private Medical Insurance - Progress report

Some might say private medical insurance is becoming redundant, that improvements in the NHS mean people will move back to the public sector and abandon their insurance plans. So what is really happening in the PMI market? Many factors show that PMI remains an important product for insurance brokers, and that, far from being in decline, the industry is being invigorated by changes in healthcare needs and expectations.

Firstly, it is important to consider the NHS. There has been a big injection of cash over recent years and Chancellor Gordon Brown has recently announced that the NHS budget will be further increased to £92bn by 2007-08.

Impressive though this investment is, it is necessary to look at this budget in the context of both the cost of medical advances and also what impact additional money will actually have. It has been claimed that, despite massive increases in spending on the NHS, there has not been a corresponding increase in the performance of the service.

Nick Herbert, director of think-tank Reform, says: "The concerns are that the speed of the (spending) rises is resulting in inefficiencies, the scale does not represent value for money, and the NHS at these higher levels of funding is not performing at international standards."

Fallen productivity

Reform claims NHS productivity has actually fallen following greater investment, and that improvements are not satisfactory given the amount of money that has been spent.

There is also some question over the continued inequalities in healthcare.

Niall Dickson, chief executive of the Kings Fund, an independent think-tank, recently observes: "There is a general consensus that things are not improving. It is not universal, it is not in every service and it is not everywhere."

Health inequalities are a barrier to an unquestionably successful NHS; therefore, state-funded healthcare will be under greater pressure to deliver discernable and consistent improvements in the next term of government.

This is a profoundly important challenge for the NHS, and one that will demonstrate the continued importance of PMI.

Standard Life Healthcare's 'Attitudes to Healthcare' survey suggests the government is right to focus on waiting lists - the survey indicates that 72% of people would rather pay for treatment than wait. Certainly, talking to intermediaries and sales consultants on the front line, it is clear waiting lists remain the key driver behind decisions to purchase PMI.

Waiting list

The question for the government and the future of waiting lists is how sustainable the increased funding is. The reality is that healthcare costs are increasing at such a rate that the rise in government investment can never match the need for new services to meet increased expectations.

The NHS budget faces a whole range of increasing pressures. An ageing population, rising patient expectations and new technologies will all continue to add to the demands placed on healthcare expenditure. Tax funding cannot keep pace with the upward pressures on the cost of healthcare.

The new £92bn budget, impressive though it sounds, is equivalent to an annual increase of 7.1% while the cost of advances in modern medicine alone is likely to exceed this rate of increase.

For example, the technology that is currently being developed to control the advance of cancer and heart conditions will cost thousands of pounds each year, and these drugs will need to be taken for a patient's lifetime.

Predictions point to cancer cases trebling in the next 20 years, while the British Heart Foundation announced last year that the number of Britons living with heart defects will rise by more than 50% in the next decade.

These and other similar trends will put a huge strain on the NHS so that sustained funding will be a key factor in addressing such issues. That cholesterol-lowering drugs such as statins are now available over the counter is a tacit admission by the government that the cost of health services cannot be met entirely by the NHS, and patients will have to make a contribution.

Partnerships between public and private sectors are important in the development of sustainable funding. In his 2001 report, 'Securing our Future Health', Derek Wanless spoke about "difficult decisions" being made by the government with regard to healthcare funding. With the increased cost of healthcare, as well as rising consumer expectations about acceptable waiting times for treatment, this is an issue that will need to be addressed.

The government has already gone some way to accepting the need for partnership between the public and private sectors to improve healthcare in general, stating that by 2008 private sector firms could be providing up to 15% of NHS medical procedures. This will massively increase the capacity of the NHS, opening the door to real choice for patients. This cannot be achieved without much better co-operation between the state and independent sectors, and a move away from the outdated ideology of an artificial divide between public and private provision.

In the meantime, the government views the private sector as an ally in its determination to improve healthcare. Other European countries have public and private systems that work side by side, but the UK has no overall strategic view about the best way to use resources. Consequently, there are lost opportunities and, with costs increasing and patient expectations rising, it is time that the two sectors displayed real partnership and moved towards an integrated system of healthcare. Pressure on government funds will force greater political acceptance of the need for PMI. And, despite the seemingly popular belief that the private and public sectors are in competition with each other, there are many examples of the private sector complementing the NHS, enabling more patients to be treated than would be the case if PMI did not exist. For example, in 2002 the private sector provided healthcare worth more than £2bn by caring for patients who would otherwise have been treated in the NHS. It is estimated that if the private sector did not exist, there would be an extra quarter of a million people on the NHS waiting list.

The annual statistics recently published by the Association of British Insurers point towards a continued role for PMI in UK healthcare. There was a rise in the total of subscriptions taken out during 2003 to 3.7 million and the number of corporate health policies reached 2.6 million - this is not a story of decline. Employers recognise that taking out health insurance for their staff aids staff recruitment and retention, resulting in a healthier, more motivated workforce. As the focus on the role of the employer comes under more focus in the wake of the second Wanless report, and the soon-to-be published government White Paper on public health, it is clear this market is ripe for further growth.

White Paper

This growth is likely not to be simply in traditional PMI products. In the wake of the public health White Paper, employers will take a greater role in the prevention of illness among their employees, which will bring about a new range of products from healthcare providers like Standard Life Healthcare. Certainly, our surveys have shown that people have rising expectations about their employer's role in looking after health. Many stated they wanted their employers to be involved in their healthcare, while employers see keeping staff healthy as a corporate objective.

Products, such as Standard Life Healthcare's Health and Well-being Service, that encourage healthy lifestyles are likely to become more commonplace in the future. Indeed, there will be many developments in PMI over the coming years that will demonstrate an awareness of changing consumer needs and show the flexibility of PMI. The past few years have seen a definite shift in focus from cure to prevention, which will become part of a broader change in the market to offer a healthcare solutions approach. A range of PMI products will continue to be a core service, but other products will be offered to complement customers' changing healthcare needs, thereby enhancing the customer experience and supporting sales and retention.

Partnership

The PMI industry will also continue to work with its business partners, including insurance brokers, to offer a quality service to all customers.

Recent innovations, such as Standard Life Healthcare's launch of its CD-Rom marketing tool kit, demonstrate this. Designed to give additional support to intermediaries and brokers, especially those that do not sell PMI on a regular basis, Standard Life Healthcare will continue to look at these kinds of initiatives and offer quality service to intermediaries and customers alike.

An evolving range of PMI products is the way forward, recognising that the consumer is changing. This new customer is informed and service-orientated, and not willing to be dictated to. With a continued focus on access to healthcare, PMI that adapts to customers' needs will have a role to play in the future provision of healthcare. This will be achieved in partnership with the public sector, drawing on the strengths of both. Whatever the outcome, there is little doubt that PMI continues to play an important role, so that wise insurance brokers will keep it firmly in their portfolio.

- Standard Life Healthcare has been one of the UK's fastest growing health insurers since its launch in 1988 and offers a range of individual and company plans to around 440,000 customers.

Part of the Standard Life Group, the company's culture is customer-orientated, and a key focus is delivery of world-class service. This focus has led to the company winning many industry awards. Additionally, last summer it was one of only six companies to receive a Gold Standard Award, sponsored by a national newspaper, recognising high standards in service, value, capability, trust and financial strength. Standard Life Healthcare takes pride in listening to its customers and business partners, developing innovative solutions that meet the needs of the customer, whether intermediary or purchaser.

While PMI remains at the heart of its business, the company has a long-term commitment to provide for the prevention of illness as well as cure.

To reflect this, it has developed a range of healthcare solutions, recently launching an occupational health package and an online health and well-being service. Both add real value to the PMI proposition for clients.

Standard Life Healthcare provides further commitment to customer service by its achievement of ISO 9002. The company is a member of the Association of British Insurers and the General Insurance Standards Council and is regulated by the Financial Services Authority.