Health needs the kiss of life

It's a critical time for the health insurance market. The private medical insurance (PMI) sector coughed and spluttered its way to 1% growth last year - down from 3.5% in 2000. And the wheezing individual market declined by 2%.

Each year, 500,000 people give up their PMI cover and commentators talk morbidly of the `PMI death spiral' of rising premiums and an ever-deteriorating risk pool.

With insurers and brokers now looking on anxiously, can the health market pull through?

Innovation is seen as the key to transforming the sector and insurers are putting a lot of energy into product development (page 9). Traditional individual PMI - fully comprehensive policies with set benefits - is dead. Flexibility and choice is the new mantra, with menu driven products, variable excesses and hybrid policies populating the market.

But is this enough? Critics such as Larry Bulmer, chairman of the Association of Medical Insurance Intermediaries, think not (page 22). Others say that the insurers have failed to grasp what consumers will want in the coming years. They argue that investment vehicles and personal assets will be used as a means of financing private healthcare, and that the new breed of health products will need to fit around this consumer mindset.

But where do these developments leave intermediaries? In fact, they are rather bullish when it comes to the future. This is not surprising. As the health market becomes ever more complicated and the range of products more diverse, the role of an intermediary will be all the more vital. There is even a great deal of optimism when it comes to the growth of the PMI market.

Nevertheless, recovery is not assured. Consumers need to see value in the products, something which they have failed to do so at present - despite the fact that PMI costs less than a smoking habit or a subscription to Sky Sports. There is clearly a lot of work to be done.

Michael Faulkner
Markets reporter