Private medical insurance is flourishing, bolstered by the perceived shortcomings of the NHS. But it has received plenty of flak over big premium rises. Two industry heavyweights set the record straight

1. Figures from Laing & Buisson, the healthcare analysts, show the average annual premium for an individual policyholder has climbed from £410 to £990. How do you feel when the premium rises in the private medical sector are called a scandal?

3. What impact are the soaring costs of technological advances in healthcare having on your company?
These questions deal with two closely linked points - the cost of premiums and advances in medical care. The period described is 1990 to 2000 - we need to remember that, during this time, both the NHS and the private sector have been facing - and continue to face - increasing demands from patients/consumers on their services.

Clearly, to stay in business, we have had to adjust the premiums we charge to cover the cost of our customers' claims. Over the past ten years, the cost of customers' claims has continued to rise. And they have done so principally because our customers are - rightly - taking advantage of increasing availability of new medical technologies and treatments

1: The climb from £410 to £990 is the increase over the last decade - one that has seen comparable or greater increases across a range of areas from house prices to motor insurance. The main drivers of premium increases in medical insurance are advances in technology (such as MRI scanning), new or improved drugs (such as tamoxifen for the treatment of breast cancer) and the frequency with which people make use of their cover.

3: Historically, medical insurers received, processed and paid claims. Today, PMI offers a wider range of treatments than ever before, some of which are very costly. The important thing to remember is that medical insurance is not just about price, it's about quality of treatment as well.

2. How do you justify the price rises?
We are not helpless in the face of rising healthcare costs. We use our strength to negotiate hard with healthcare providers on behalf of our customers to ensure their charges are justified and are good value for money (indeed, we have managed to keep down increases in the unit cost of hospital charges below the increase in the retail price index for several years now).

In health, much has changed over the last decade - today BUPA members are making much greater use of their private cover than ever before and getting better value from that cover as a result. That said, we recognise good quality health care is expensive and our very top priority remains to do everything possible to ensure our members get high quality, best value health care at the right price.

4. In which segment do you see the most claims - individual or group private medical insurance? Why is this?
Our individual policyholders tend to make more claims than their corporate counterparts. We believe that this is because, in large corporate schemes, there is very little `anti-selection' - we cover the whole of the workforce - whereas individual purchasers tend to be of a mind-set where they take full advantage of their cover. This means that insurers have to charge personal customers higher premiums to accommodate their higher level of claims. This is a big issue for the market in personal business and, in order to encourage more healthy people to take out personal cover.

The main thing that affects the number of claims is age and not whether the cover is paid for by an individual or an employer. It is a well known fact that the older you get, the more health care you need. For example, the most common surgical procedure we pay for on behalf of our members aged 71-80 is a hip replacement at an average cost of £6,500. If you compare this with the 21-30 year olds, it is six times more expensive - their most common procedure is the removal of impacted wisdom teeth, which costs under £1,000.

However, subscriptions are often substantially lower for group schemes because of the community rating effect of mixing young and older employees together.

5. What impact has new entrants, such as, had on the market?
Not much so far, but we underestimate them at our peril. The UK medical insurance market has become increasingly competitive for the past ten years or so since the entry of the composite insurers in the early 1990s. E-commerce does, of course, have an important part to play in the continuing development of the market and we believe to be successful we need to offer a range of accessible entry points for prospective customers. With this in mind, we are continuing to develop our presence in both the direct and intermediary channels.

Any new entrant to the PMI market is good as it stimulates interest and demand for products and services. According to healthcare analysts Laing & Buisson, in 2001 there were over 30 organisations selling PMI in the UK. The market no longer offers just one product - traditional private medical insurance. There are a raft of plans, policies and prices available.

The new entrants that should succeed are those companies which recognise health insurers are partners in people's long term health choices. It is no longer enough for them simply to pay the bills.

6. Has the economic slowdown had any impact on PMI sales?
Our experience broadly reflects the market trend of recent years - modest growth in the corporate sector with the personal sector continuing to be under pressure. The recent downturn in the economic cycle poses a significant challenge, but we are quietly optimistic that, in Britain, its repercussions will not be as serious as they may be in other developed countries.

The majority of private medical insurance cover in this country is paid for by corporate Britain. Companies are increasingly recognising that providing PMI to their staff assists with recruitment and retention and helps to reduce sickness absence costs. Employees also perceive PMI as a highly attractive and valued benefit because of the reassurance it offers to them and their families.

Any material economic slowdown is going to have some impact, particularly if that slowdown is both prolonged and severe.

7. What effect will the new savings plans offered by some health insurers for those people who do not want to take out PMI have on the sector?
The UK market in self-payment for private medical services, whether through savings or out-of-pocket funds, is growing and we are optimistic the trend will have a positive, complementary effect on the market for medical insurance (indeed, we recently introduced our own self-pay service, called Pay As You Go Healthcare, with an eye to this).

Simply, we believe that going `self-pay' will give people, who may previously have felt that private healthcare or medical insurance was not for them, first hand experience of treatment in the private medical sector - where you are looked after by the specialist of your choice, at a time that suits you, in privacy and comfort.

The number of people paying for their own care has grown significantly over the past three years, in the majority of cases by people currently on NHS waiting lists.

Self-pay is an option well worth considering for people who need treatment, are on an NHS waiting list and do not have private cover. Some minor procedures are relatively inexpensive and most private hospitals now have a "fixed menu" pricing policy for individual patients. However, given the

relatively high cost of more serious procedures, self-pay cannot match the reassurance and peace of mind offered by private medical cover.

8. How do you answer the critics who say the standard of treatment in the private sector is significantly below that offered by the NHS?
I do not believe the criticism is justified. Broadly speaking, standards of care in the private sector are high, as you would expect from a consultant-led service.

It is, of course, true that there have been regrettable mishaps in the private sector in which patients received unacceptable standards of care. Sadly, the same can also be said of the NHS.

The important thing is that lessons are being learned (for instance, from the recent Bristol inquiry) and things are improving in both the private and public sectors with the introduction of tougher regulation and clinical governance to safeguard patients' interests.

It's not. The quality of care offered to our insured members, whether in the NHS or private sector is our number one priority. BUPA works in partnership with a national network of hospitals that meet specific quality and cost criteria. It also has a partnership agreement with consultants who agree to work within quality guidelines and price ranges. These partnerships enable patients to concentrate on getting better, rather than worry about administrative matters.