UK Private Medical Insurance 2006

Published by: Datamonitor

Published: Mar. 9, 2007 - 106 Pages

Table of Contents

CHAPTER 1 EXECUTIVE SUMMARY

The slowdown in the PMI sector continued in 2005, however policyholder numbers showed slight signs of recovery

Premium income growth in the group PMI market increased in 2005, while the individual PMI market contracted for the first time

The individual sector declined in 2005, by 1.2 per cent, as lower premium rate increases slowed the decline in policyholder numbers, but were not enough to ensure overall market growth

Group sector GEP growth rose from 3.6 per cent in 2004, to 4.5 per cent in 2005, driven predominantly by rising subscriber numbers

Policyholder numbers showed signs of recovering in 2005

The fall in individual policyholder numbers slowed

12 per cent of consumers have private medical cover

Penetration remained static in 2006, possibly declining by around 1 per cent

Expense is a major deterrant and insurers need to reassure consumers that they are getting good value

Uptake of PMI peaks in the 45-54 age bracket and policyholders are typically from the highest income brackets

Penetration is weak at both ends of the age scale

BUPA's market share grew to over 40 per cent in 2005, driven in particular by high growth in the group sector

The two leading insurers in the PMI market increased their share at the expense of smaller competitors

There was further consolidation in the individual sector in 2005, as conditions deteriorated and performances diverged

BUPA and AXA extended their individual PMI market share, while PruHealth also recorded high growth rates

AXA targeted older consumers, including those leaving corporate schemes

BUPA, Standard Life, RSA and Clinicare recorded significant premium income growth in the group PMI sector in 2005

The sector's second largest player, AXA PPP, also recorded premium income growth

Two forecasts are used to present a pessimistic and an optimistic view of future PMI GWP growth

Scenario 1 offers a pessimistic view of the market, in which both the group and the individual sectors struggle to reverse slowdown and contraction

Scenario 2 presents a more favorable outlook, in which group sector GWP growth improves and the individual sector stems the decline

CHAPTER 2 INTRODUCTION

What is this report about?

Who is the target reader?

How to use this report

CHAPTER 3 MARKET CONTEXT

Introduction

The slowdown in the PMI sector continued in 2005, however policyholder numbers showed slight signs of recovery

Premium income growth in the group PMI market increased in 2005, while the individual PMI market contracted for the first time

The individual sector declined in 2005, by 1.2 per cent, as lower premium rate increases slowed the decline in policyholder numbers, but were not enough to ensure overall market growth

Group sector GEP growth rose from 3.6 per cent in 2004, to 4.5 per cent in 2005, driven predominantly by rising subscriber numbers

Policyholder numbers showed signs of recovering in 2005

The fall in individual policyholder numbers slowed

Growth in the group sector is driving the overall market

Premium inflation fell in 2005, especially in the individual sector

Premium rate increases in the individual sector fell to 2.7 per cent in 2005

Group sector price rises also declined slightly

The health insurance underwriting result improved in 2005, and the market remained in profit, largely as a result of a slowdown in claims cost increases

NWP growth outstripped growth in claims incurred

Increases in gross incurred claims slowed significantly in 2005

The individual sector continued to lose its fight against falling subscriber numbers in 2005, and price-based competition has started to increase

Providers have used product innovation to try and stem the fall in individual subscriber numbers, but this has failed to have an impact on policy numbers

Innovative new approaches to PMI products and underwriting have been tried in recent years

These innovative personal products did little to restore the market in 2005

Changes in the corporate sector seem to be taking policyholders away from the individual maket, making it harder for product innovation to have an impact

As individual policyholder numbers continue to fall, providers are increasingly competing for each others' business, leading to a rise in price-based competition

Profitable underwriting conditions are putting downward pressure on rates as insurers compete for a growing share of a shrinking market

The larger players are better placed to compete on price

Some recent examples of product innovation do exist

The group PMI market continues to be more buoyant than the individual sector and is being driven by a focus on the product's role as an absence management tool

The group sector is pulling away from the individual PMI market in premium income terms

Employees still view PMI as an important benefit, driving uptake among employers seeking to attract the best talent

Group providers are keen to emphasize the benefits of PMI as an absence management tool

Interest in workplace health is increasing, driving growth in the group market

Group PMI providers have increasingly emphasized the problems relating to sickness absence

Rehabilitation policies are now widespread

PMI providers have suggested to the Government that workplace health schemes should be awarded better fiscal terms, which would further increase penetration

Medical inflation and the performance of the NHS remain important concerns for all PMI providers

Claims costs are increasing, and the development of new cancer treatments are raising potential costs even further

Insurers are waiting to see what impact medical inflation will have on the pubic sector

If the NHS continues to use more ISTCs, PMI providers may have to do more to prove the value of cover

CHAPTER 4 CUSTOMER FOCUS

Introduction

12 per cent of consumers have private medical cover, however the majority remain apathetic towards the product

Penetration remained static in 2006, possibly declining by around 1 per cent

Consumer apathy is high; over 60 per cent of consumers without PMI have no interest in the product

Expense is a major deterrant and insurers need to reassure consumers that they are getting good value

Uptake of PMI peaks in the 45-54 age bracket and policyholders are typically from the highest income brackets

Penetration is weak at both ends of the age scale

37 per cent of consumers with an income over £50,000 have PMI

Over half of PMI customers get their policy through their employer, however the distribution channels used change significantly with age

56 per cent of people arranged their cover through an employer in 2006

Although clearly the most dominant channel, the popularity of employer distribution declines once consumers become older

Employers pay for, or contribute towards, 50 per cent of PMI premiums

Advertising expenditure rose in 2006, although BUPA and several other major players scaled back costs

PruHealth drove an increase in advertising expenditure

The highest-spending providers used TV to advertise their PMI services

CHAPTER 5 COMPETITIVE DYNAMICS

Introduction

The PMI market remains consolidated, following many mergers and acquisitions in 2005

A number of smaller companies were bought out by larger rivals

BUPA's market share grew to over 40 per cent in 2005, driven in particular by high growth in the group sector

The two leading insurers in the PMI market increased their share at the expense of smaller competitors

BUPA's size and brand has helped it increase its presence further, particularly in the group market

AXA PPP grew by achieving significant growth in the individual sector

The remainder of the top 10 PMI providers saw their market share decline, with the exception of Clinicare

There was further consolidation in the individual sector in 2005, as conditions deteriorated and performances diverged

BUPA and AXA extended their individual PMI market share, while PruHealth also recorded high growth rates

AXA targeted older consumers, including those leaving corporate schemes

PruHealth grew substantially in its first full year in UK PMI

Four of the top 10 individual PMI providers lost market share in 2005

BUPA extended its market leading position in the group sector, increasing its share by 3.6 per cent

BUPA, Standard Life, RSA and Clinicare recorded significant premium income growth in the group PMI sector in 2005

The sector's second largest player, AXA PPP, also recorded premium income growth

Standard Life's has achieved strong premium income growth in the group market since 2001

Growth returned to Royal & SunAlliance's group account, following the sale of its healthcare business in 2004

WPA's 2005 performance in the group sector reversed a longer-term trend of decline

Norwich Union has been gradually growing its underweight group PMI book

Clinicare saw increased premium income in 2005, and its acquisition by Groupama in October of that year has created a new key player in the group PMI sector

Data profiles of the top five PMI players

CHAPTER 6 THE FUTURE DECODED

Introduction

Two forecasts are used to present a pessimistic and an optimistic view of future PMI GWP growth

Scenario 1 offers a pessimistic view of the market, in which both the group and the individual sectors struggle to reverse slowdown and contraction

Scenario 2 presents a more favorable outlook, in which group sector GWP growth improves and the individual sector stems the decline

Scenario 1: The PMI market continues to record slow growth, driven by premium inflation, not by growth in subscriber numbers

The market struggles to achieve an increase in subscriber numbers, as customers continue to leave the individual sector

Individual policyholder numbers continue to decline between 2006 and 2011

Premium rate inflation continues to be higher in the individual sector than in the group sector

The group market is forecast to outperform the individual sector in terms of premium income between 2006 and 2011

Scenario 2: GEP growth picks up in the PMI market, as conditions improve in the group sector and the individual sector benefits from product development

Market conditions improve and subscriber numbers grow between 2006 and 2011

Growth in the group sector occurs as corporate schemes are extended to cover more people, and as product innovation has an impact on subscriber numbers in the individual sector

In Scenario 2, individual PMI premium inflation declines significantly during 2007 and 2008

A combination of better policyholder retention and a return to high premium inflation in 2009, lead the individual sector to stronger market growth

Scenario 1 is deemed to be more be likely than Scenario 2 for the future of the PMI market

CHAPTER 7 APPENDIX

Supplementary data

GWP figures

Research methodology

Ipsos MORI methodology and contacts

Sample design

Timescale

Competitor data

GWP versus GEP reporting

Current readings

Future readings

Datamonitor's custom research capabilities

SPP writing team

List of Tables

Table 1: PMI GEP by policy type, 2001-5

Table 2: Number of PMI subscribers and people covered by policy type, 2001-5

Table 3: PMI average premium, by policy type, 2001-5

Table 4: Health insurance market underwriting account, 2001-5

Table 5: Health reinsurance ceded and reinsurers' share of claims, 2001-5

Table 6: Advertising expenditure by media, top 10 highest spending private medical insurers, 2005

Table 7: The advertising expenditure of major players in the PMI market, by medium in 2004

Table 8: Market shares of the top 10 PMI providers, 2001-5

Table 9: Premium income of the top 10 PMI providers, 2001-5

Table 10: Market shares of the top 10 individual PMI providers, 2001-5

Table 11: Premium income of the top 10 individual PMI providers, 2001-5

Table 12: Market shares of the top 10 group PMI providers, 2001-5

Table 13: Premium income of the top 10 group PMI providers, 2001-5

Table 14: BUPA's PMI book, data profile, 2001-5

Table 15: AXA PPP's PMI loss and expense ratio, 2001-5

Table 16: Norwich Union's PMI loss and expense ratio, 2001-5

Table 17: Standard Life's PMI loss and expense ratio, 2001-5

Table 18: WPA's PMI loss and expense ratio, 2001-5

Table 19: Scenario 1: PMI policyholder numbers, 1997-2011f

Table 20: Scenario 1: Average PMI premium rates, 1997-2011f

Table 21: Scenario 1: PMI market GEP, 1997-2011

Table 22: Scenario 2: PMI policyholder numbers, 1997-2011

Table 23: Scenario 2: Average PMI premium costs, 1997-2011

Table 24: Scenario 2: PMI market GEP, 1997-2011

Table 25: PMI gross written premiums (GWP) by policy type, 2001-5

List of Figures

Figure 1: Individual PMI market GEP declined in 2005

Figure 2: In both sectors of the PMI market, policyholder growth rates improved in 2005, but the individual sector continued to see a fall in subscribers

Figure 3: Average PMI premiums fell significantly in 2005, especially in the individual sector where high costs are deterring consumers

Figure 4: The health insurance market's profitability rose in 2005, as NWP increased at a greater rate than total outgoings

Figure 5: PruHealth's approach to PMI centers on rewarding policyholders for looking after their health

Figure 6: PMI product penetration was 12 per cent in 2006

Figure 7: Interest in buying medical insurance among consumers who did not have PMI cover was low in 2006

Figure 8: Over a third of consumers without PMI were principally deterred by the cost of the product in 2006

Figure 9: Uptake of PMI is highest among 44-54 year old consumers, 2006

Figure 10: Wealthier consumers are more likely to have PMI in 2006

Figure 11: Over half of existing PMI customers surveyed in 2006 had arranged their cover through their employer

Figure 12: Although clearly the most popular channel, the popularity of employer distribution declines once consumers become older

Figure 13: In 50 per cent of cases, employers paid all or part of the PMI policyholder's premium in 2006

Figure 14: In 2005 BUPA spent far more than other providers on advertising, however PruHealth's commitment to growing its business was reflected in its very high expenditure

Figure 15: The PMI market remained heavily consolidated in 2005, due to the strong presence of BUPA and AXA PPP in particular

Figure 16: BUPA , AXA and Norwich Union controlled a large proportion of the individual PMI market in 2005

Figure 27: BUPA dominated the group PMI sector in 2005, with a market share of over 40 per cent

Figure 18: Scenario 1: Key variables affecting the PMI market 2006-11

Figure 19: Scenario 1: Individual PMI policyholder numbers are forecast to continue to decrease between 2005 and 2011

Figure 20: Scenario 1: High average premium rate growth continues in the individual sector between 2005 and 2011

Figure 21: Scenario 1: The group PMI market pulls away from the ailing individual sector between 2006 and 2011

Figure 22: Scenario 2: Key variables affecting the PMI market 2006-11

Figure 23: Scenario 2: The total number of PMI subscribers increases between 2008 and 2011 as retention in the individual sector improves

Figure 24: Scenario 2: Individual premium inflation is reduced between 2006 and 2008, but high inflation returns from 2009

Figure 25: Scenario 2: The outlook for the individual sector improves due to more controlled premium inflation and better subscriber retention between 2006 and 2011

Figure 26: Datamonitor's core consulting capabilities

Abstract

• Data and market research, including information on premium income, policyholder numbers and underwriting profitability.
• Insight into the competitive environment in the market, including the individual and group sectors.
• Information on PMI product penetration, as well as survey data on consumer attitudes and customer characteristics.
• Two scenarios forecasting the market's GWP growth until 2011, based on primary research and in-house expertise.

• Understand trends in policyholder numbers and mean premium costs.
• Benchmark your market share against those of major competitors.
• Develop your future market strategy using Datamonitor's unique forecasts.

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