Roger Hymas predicts big changes in the health insurance market
Having been relatively quiet for a decade or more, the tectonic plates of the health insurance market are moving.
Some time in the next year the biggest selling health insurance product will switch from traditional private medical insurance (PMI) or cashplans to critical illness insurance. As this happens, there is the possibility of a huge power shift from the players who have traditionally dominated the market - Bupa, PPP and HSA - to those who write critical illness cover - the big banks and mainstream insurers.
The PMI market has not grown for 12 years. More than 500,000 individual purchasers have given up their cover in the past five years. This means that, while a PMI policy is held by 11% of the UK population, only about 4% of people pay for their own insurance.
Back in the mid-1990s, a consultancy characterised the developing phenomenon as the `PMI death spiral'. The sick and the old cannot give up their cover. The young and fit do. So as the risk pool deteriorates, prices go up, creating a barrier to entry.
An annual premium of £3,000 for a couple in their late 60s means that, given average life expectancy of around 80 and inflation of 1%, their PMI outgoings on PMI will be more than £100,000.
Cashplans, held by 11.5% of the population, have also seen no growth over the past ten years or more. Critical illness grown substantially. According to a Mintel report published last month, 11% of the UK's adults now have critical illness cover they bought themselves. Mintel forecast that by 2006, more than 16% of UK adults will have CIC.
The other big change in the private healthcare market is the shift to self-pay. At a recent conference the PPP Healthcare speaker said the self-pay market had grown by 220% in the past three years. Over a quarter of private hospitals' bills are now settled in cash - that's a sum approaching three quarters of a billion pounds.
Just a few more statistics. Over two million health insurance claims are made every year for amounts of less than £125, 96% of claims are for under £5,000 and 99% for under £10,000. The average claim for inpatient treatment, usually surgery, is £2,000.
So what you see is a triangle with lots of inexpensive claims at the base and a relatively small number of very expensive claims at the top.
And insurers - and just ahead of them, the consumers - have worked all this out. I'll use cash for the minor lumps and bumps and critical illness cover to pay for really nasty things. Recently, PMI with a very large excess has started to occupy this middle ground. The organisations that are best equipped to create these new middle ground new solutions should now produce a lot of original thinking.
Roger Hymas is chairman and founder of Health Care Navigator and a director of Rubicon Health
