Private medical insurance (PMI) advisers have questioned whether VitalityHealth's change to its pricing strategy will adversely affect customers.
The health insurer announced this week that renewal premiums will now be based on an ‘ABC' model which takes into account increasing Age; the Base medical inflation rate; and a new Claims and wellness engagement measure.
The insurer described the industry-standard no claims discount (NCD) rating structure as opaque and said that it could "produce volatile premiums on renewal."
It claimed that the new pricing structure would be" fairer, more intuitive and more transparent" for VitalityHealth members.
However advisers have welcomed the insurer's bid for transparency but warned that the pricing structure may negatively impact policyholders.
Impact on members
Brian Walters, principal of PMI brokers Regency Health said: "It's good news that an insurer has recognised that traditional NCDs are a blunt instrument, often penalising customers disproportionately for small claims.
"Vitality's new framework builds on a concept that Simplyhealth introduced to the market some years ago, introducing a more proportionate approach to claims loadings."
Claire Ginnelly, managing director of Premier Choice Group highlighted the difference in VitalityHealth's pricing compared with other insurers in the market.
She said: "Any move in the consumer market to make premiums fairer for the customers, especially when they claim, has to be welcomed so I am pleased to see this move by Vitality Health.
"However, their NCD scale is possibly one of the most punitive in the market for policyholders who claim so I think they need to tread carefully in their assessment of NCD and justification for moving to ABC.
"Yes, it is good what they are doing but if they operated an NCD system more like other providers there may not be a need to change it.
However Walters warned that although the new framework will result in less severe loadings, claimants will continue to be penalised year after year.
He continued: "This is in contrast to a traditional no-claims discount structure, where the member will eventually bottom out.
"Vitality has also failed to adequately address the issue of family members impacting upon each other's premiums, and therefore continues to lag behind the rest of the market in this regard, with all other insurers having long since moved to applying claims loadings to individual family members, rather than across the whole policy.
"We are also concerned at the news that Vitality will be imposing this new framework on existing members, some of whom have lost all of their no-claims discount under a system that Vitality is now maligning as unfair.
"These policyholders will now see further claims-related increases, which may eventually price them out of the market."
Ginnelly added: "With most other insurers, an NCD structure does bottom out so when you get to zero NCD you can't go any further (setting aside normal age and inflation increases).
"However, my understanding with ABC is the loadings can continue if a policyholder continues to make a claim. So, although I agree with them regarding the transparency compared to their current NCD structure, I don't necessarily see this as being so much better than other NCD structures in the market. So, yes it is definitely a move in the right direction for Vitality but policyholders may still be better off with other insurers' NCD structure.
"Their innovation and desire to change things for the better has to be applauded but they can't forget where they have come from and the policyholders who have been massively impacted by their NCD which they say "is a misnomer; it is more of a claims penalty. Sharp increases often follow even small claims, which negates the insurance cornerstone of collective risk sharing."
"It is much better than what they had but it is not the final solution to the on-going premium issue in the consumer market."
Fair and simple for clients or brokers?
Meanwhile Peter Lurie, director of Proactive Protection defended the NCD model saying: "As a big fan of mutual funded companies where there are no surprises, it makes me wonder why commercial entities are still hung up about the NCD and their place in the market.
"Is it down to the fact that the company feels bad about the penalty? Or the fact that the client gets itchy feet when they claim and the premium goes up?
"The value of NCD's are that they work, and with the option of protecting them the client can feel more at ease with this in place, even if it means a protection for only one year or a buy back option is available. People understand that. What's more is that you give the client a choice."
Discussing VitalityHealth's pricing proposition, Lurie said: "Vitality's new idea about the FIT framework makes it simpler and fairer for them, does it actually make it simpler and fairer for the client, or for us as brokers?
"As a fairly complex product in nature the idea of being able to manage premiums through age, medical inflation and claims and wellness is no different.
"In VitalityHealth's literature it states price increases related to age, base increase and claims adjustment (a+b+c), we all know how to spell but what does that actually mean, I also notice the word ‘increases?'"
He added: "From what I understand as well is that if an older client makes a claim, their premium % increases more than a younger client, but I could be wrong.
"However, I am looking forward to seeing how this works in practice."
Transparency and simplicity
Meanwhile Stuart Scullion, chairman of Association of Medical Insurers and Intermediaries (AMII) and Commercial Director at Punter Southall Health & Protection welcomed the transparency of Vitality's new pricing model.
He said: "The current system of NCDs can cause confusion. Each Insurer has slightly differing criteria in the application of their NCD scheme. In some instances it is financially better for the client not to claim where the cost is relatively small because of the impact on the NCD band movement.
"Some insurers offer a "zero impact" clause where the cost of claims in the insured period is less than £250, or where they are in relation to certain treatments. Vitality are correct in their statement that a 10% move in NCD does not necessarily mean an 10% increase in the clients premium.
"Within my own business we have received more commentary from clients in relation to NCDs as part of our client contact programme and Conduct Risk evaluation than anything.
"Many find their application difficult to understand, confusing and not always in their best interests. As a result we have produced our own customer guide "No Claims Discounts explained" to remove the mystery and mystique.
"Anything which encourages openness and transparency must be in the best interests of the consumer."
Meanwhile Lurie questioned whether Vitality's shared value model could be applied in a different way to reward clients in the name of simplicity.
He said: "Wouldn't it be simpler if Vitality who are so engaged with wellness and fitness really reward clients for those who do well rather than penalise them for claims, I find this harder to explain given the nature of how it all works these days as there are so many attributes to vitality and engagement?
"The hardest part of this is getting my head around a client who injures them trying to keep fit and then gets penalised for it? Furthermore, for those who have exclusions reward them by lowering their premiums making it fairer all-round? We do now have an extra 2% IPT increase to deal with come next year."
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