After years of decline in individual subscriber numbers, the UK private medical market is heading for growth, according to a new report from independent market analyst Datamonitor.

The number of people with individual private medical insurance (PMI) is forecast to increase over 10%, to 1.2 million in 2010.

James Dieppe, financial services analyst at Datamonitor and author of the report, said: “The reason for the turnabout in the market's fortunes is the introduction of new low-cost policies. Providers are attracting new customers into the market with new, sophisticated offerings, that cost the consumer less, but in return for a lower premium, offer a lower level of cover.”

Datamonitor said PMI providers, in return, have been able to mitigate the effects of increasing claims costs, while also trying to address the problem of falling policyholder numbers.

Until recently, it said, the private medical insurance market has struggled to maintain growth. Faced with higher medical costs and higher claims, insurers have protected themselves by pushing up premium rates, with yearly increases in some areas averaging around 8%. Put off by high prices, individual customers have left the market, and policyholder numbers have declined. Between 1997 and 2004, the number of people with individual private medical insurance fell by 192,000.

Datamonitor's latest report ‘UK Health Insurance 2005' suggests that efforts by private medical insurers to respond to the challenges facing their market are beginning to take effect.

Dieppe said: “Insurance companies have realised that with premium costs spiraling, consumers are not going to show an interest in taking out private medical insurance, unless providers offer them good value for money.

"A focus on providing value for money, and more affordable cover, has led to a proliferation of low-cost policies, with some of the biggest names in PMI targeting a new generation of price-sensitive consumers.

"Statistics show that even in 2004, as these low-cost policies began to emerge, the individual PMI market experienced an uplift, recording 4% growth in gross written premiums (GWP), compared with 2.6% in 2003.

“Possibly the biggest shake-up in the market has been caused by the entrance of new player, PruHealth, at the end of 2004.”

PruHealth has focused on offering customers the opportunity to influence their premium costs, by giving very attractive price reductions to those who take reasonable steps towards improving their health, such as by going to the gym or downloading healthy-eating recipes from the insurer's website.