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Private Medical Insurance - Strategic Considerations

Private Medical Insurance - Strategic Considerations. John Gillman. ‘ Living strategy and the death of the five-year plan: is strategy dead? ’ No, but strategy needs to be different! Source: Financial Times 27 October 2009. The hedgehog approach: corporate

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Private Medical Insurance - Strategic Considerations

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  1. Private Medical Insurance - Strategic Considerations John Gillman

  2. ‘Living strategy and the death of the five-year plan: is strategy dead?’ No, but strategy needs to be different! Source: Financial Times 27 October 2009

  3. The hedgehog approach: corporate hibernation only works if recessions are short • BCG: Organisations with adoptive advantage recognise the unpredictability of today’s environment and the limits of deductive analysis. They ……

  4. Process relevant data quickly • They see clearly how their business fits into a wider context • They are alive to social change and shifting customer preferences • They experiment effectively • They draw on the talents of the best people they can find – whether they employ them or not

  5. McKinsey: ‘You have to give up the pretence that you can predict the future’ ‘Strategy is really an evolving idea which develops over a long period on a long and winding road .… and this new world calls for just-in-time decision making’ While the eternal truths - market position, scale and capabilities – endure, a more dynamic and adaptive approach is now needed.

  6. Review of 2008/2009 • Total people covered was 7,562,000 – 12.3% of the U.K. population with individuals the main contributors of market growth • PruHealth’s business grew by over 50% • AXA/PPP’s business added nearly £90m in premiums

  7. Review of 2008/2009 • Simply Health’s market share grew to 2.5% • Standard Life marketed heavily in 2008 (but lost market share) • The top 10 advertisers are focusing on direct mail • Top 5 competitors BUPA, AXA/PPP & Aviva control > 75% of the market Standard Life down slightly WPA market share down

  8. What was the main reason you purchased PMI? % • Part of our financial planning 20 • I consider it a financial priority 14 • Death or illness of family friend persuaded me 9 • Bought it with mortgage/loan 4 • Persuaded by a salesperson 3 • Other 46 Source: The Hannover Re (UK) Protection Review Consumer Survey 2009

  9. Why did you purchase – then and now? • Jumping the queue • Choice of specialist/surgeon • Hotel facilities Now added: • Fear of hospital acquired infections – AXA PPP 2009 Research • Cost of new drugs

  10. Why didn’t you buy PMI? % • Can’t afford it 37 • The State will look after me 18 • I haven’t thought about it 16 • Other priorities 6 • I don’t trust insurers to pay claims 6 • Other / don’t know 17 Source: The Hannover Re (UK) Protection Review Consumer Survey 2009

  11. PMI Market share by subscription income 1992 – 2007 1992 % 2007 % • BUPA 44 42 • AXA/PPP 28 24.5 • Norwich Union 3.5 10 • Standard Life 3 7.5 • Cigna 3 3.5 • WPA 5 3 • Simply Health n/a 2.5 • PruHealth n/a 2 • Exeter Friendly <1 1 • CS Healthcare <1 0.5 Source: Laing’sHealthcare Market Review 2008/2009

  12. Protection Insurance Adviser’s Forecasts For the next 12 months • Write more 43.9% • Write less 7.4% • Write the same 48.7% Source: Protection Review, 985 PFS members responding to an e-mail questionnaire April 2009

  13. Tax Relief: Research among Members of Parliament • Conservative: 49% • Labour: 1% Source: BMI Healthcare Research 2009 Sample: 44 members

  14. Tax relief or tax incentives? New funding models must pass the test of EFFICIENCY and EQUITY Efficiency: will the proposal achieve its proposed end and provide the greatest possible improvement and healthcare within the funding available? Equity: how will the proposal match financial contributions to ability to pay, and how well would it match healthcare to health needs?

  15. Should tax incentives be offered to individuals and employers? The efficiency test fails it in four respects: • Its effects are likely to be minimal without a strong level of compulsion • It diverts funds from the public healthcare system • It does not save the public sector money • It would inflate healthcare costs

  16. It fails the equity test: • Its uses taxpayer funds to expand two-tier access to healthcare • It shifts the burden of paying for healthcare from the healthy, young and wealthy to the unhealthy, old and poor

  17. WELLNESSVTHE NATIONAL ILLNESS SERVICE

  18. Health & Wellness Will ‘wellness’ provision become an integral part of private medical insurance offerings?

  19. The health and wellness approach ‘The principle of risk pooling means that people who are healthy, fit and well don’t see good value for their premiums. We see rewarding people for taking care of themselves as the key to breaking through this and focusing on improving and maintaining health as the mechanism’ Source: Mark Noble, Aviva, quoted in the 2009 Protection Review

  20. The health and wellness approach ‘The message is definitely getting across. Half our policyholders agree that our unique Vitality incentive programme has helped them to be healthy. Continued…

  21. The health and wellness approach Vitality – which rewards our policyholders for participating in healthy activities – is an even more applicable model in this difficult economic environment because the value of the incentives and the rewards it provides means more’ Source: Shaun Matisonn, PruHealth, quoted in the 2009 Protection Review

  22. Is the risk of needing to pay for parents’ long term care something you think about? % Yes, it is a major concern 17 No, they have funds to cover it 20 No, they can use house equity 10 No, the State will look after them 5 Other/don’t know 15 Not applicable (parents deceased) 32

  23. Prospects • Subscribers will fall in the short term • Growth will resume between 2011 and 2013 (but more slowly in the group market) • PMI usually rides out recessions quite well since it is considered an essential purchase

  24. Business development – what the commentators say • Look out for more cancer drug top-up policies • Retention activity is more important than ever • Direct distribution is key to the individual market, but • Marketing via employers has a part to play

  25. Business development – what the commentators say • Lower costs are needed to bring in customers • Adequacy of care for the over 60s is an issue • The NHS 18 week waiting time target is still seen as too long • Intermediary involvement may increase

  26. Opportunities for the PMI market • Difficult to envisage the NHS getting all the resources it demands • Development of products that meet a range of perceived needs in partnership with culturally acceptable other providers • Public sector pensions and the emergence of flex plans? • Excesses, co-pays and ‘deposit’ plans for a wealthier baby-boom clientele • Government policy and the ‘Nudge’ strategy Continued\......

  27. Opportunities for the PMI market • Demographics and the ‘worried well’ • Will the competition be slow to move? • Will ‘wellness’ be the new trend? • Emergence of more specialised and better qualified advisers • Marketing through employers – Flex and voluntary plans • Aggregate sites

  28. Threats: • NHS waiting lists are effectively addressed • The recession lingers and bites harder • Competitors launch a ‘killer’ product aimed at market segment • Slow attrition as members age and premiums increase Continued\....

  29. Threats: • Development of new expensive drugs and treatments • Emergence of more specialised and better qualified advisers • Competitors throw even more resources at distribution in a static market

  30. Key Performance Indicators 2014 • Customer satisfaction – ‘very satisfied’ is the only really safe place. Listening to ‘the voice of the customer’ is even more critical and should drive product design. They need to know you value them even if they do not claim • New member growth – what part will advisers and employers play in this objective. Is entering the group market feasible? • Operational efficiency – essential, but remember that only claimants will know how great you are Continued/….

  31. Key Performance Indicators 2014 • Financial performance – the ‘early warning system’ is important • Positive staff contribution – empowerment and the correlation between staff satisfaction and customer satisfaction • Regulatory and governance – regulatory best practice is often just good business practice

  32. Is the future friendly? • Yes, as long as we remember that it starts right now!

  33. Find out more at www.prioryhouseconsulting.co.uk

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