With premiums rising to as much as £2,000 a year, it is not surprising clients are starting to demand alternative and less expensive ways to pay for PMI. Enter the self-pay option
PMI has never had a good press as regards cost. No more so than for the over-50s market. Ironically, this is an age when finances are looking a little healthier and yet costs of providing for private medical care insurance are increasing. The argument that this creates a convenient balance between need and affordable cost holds little sway with clients seeing their premiums rising to £2,000 plus a year. There is a hardening in attitude among individual consumers in regard to traditional PMI cover. The number of individual PMI policyholders has fallen to one million to 1.2 million, according to analyst Datamonitor, which also reports an increase in premiums for individuals of 6.9% in the five years to 2000.
'We are noticing a resistance to premium increases in PMI, which is more marked in the higher age group,' says John Hainsworth, of Rickman Tooze IFAs. 'While the percentage increase in premiums may be across the board, if you are already paying £2,000 a year in premiums the increase means more in cash terms.'
'The PMI market has shrunk by 3% to 4% in recent years and it is reasonable to assume that most of the shrinkage is in the over 50's market from the price point of view,' says Iain McMillan, national sales manager, intermediary sales division at Standard Life Healthcare.
Not surprisingly there is a demand for alternative and more affordable means of paying for PMI. Basically, this alternative is taking the form of clients paying for themselves. While this may sound like a signal for the financial adviser to pack up his pencils and go home, for both the specialist PMI adviser and the more general IFA, the changes in the PMI market present a real challenge. Paying less for PMI has been possible by taking an excess option ' that is, paying the first part of a claim ' agreeing to certain hospital grades or locations, agreeing to NHS treatment within a certain time scale, usually six to 12 weeks or paring out cover, for example, outpatient treatment. However, an increasing number of individuals are rejecting the insurance route altogether and paying for their medical care themselves.
Peter Furmoy, communications manager for the Independent Healthcare Association, says there has been a 100% growth in the self-pay market in the past four years. 'Four years ago 100,000 people paid for their own medical treatment, this increased to 200,000 in 2000.'
Given that, according to WPA, 90% of all PMI claims are for sums less than £7,000, this would mean a client with £7,000 to invest would have a nine in 10 chance that they would need an insurance company to pick up the excess. However, Standard Life Healthcare has paid out £250,000 on one cancer treatment. It is this catastrophe cover that PMI really stands for in the self-pay market. Product providers in the PMI market have begun to respond to this trend to self cover, by offering an extension of the excess option, thereby providing individuals with a more palatable means of taking out PMI insurance, allowing them the flexibility to pay what they can, if they can, but also providing a safety net if meeting medical costs is a problem.
WPA and Standard Life Healthcare offer self-pay options with their respective Self-Pay Protect and Choices policies. According to WPA, aside from the element of self-pay, the premiums it levies are lower because of the flexibility self-pay offers in terms of negotiating the best price for treatment. Standard Life Healthcare's Treatment Information Service will help clients negotiate a competitive price if no fixed 'package price' is available. Depending on the cash they have available clients can choose to meet up to £5,000 of their medical treatment under Standard Life Healthcare or up to 60% under WPA.
Hainsworth believes clients should opt for the maximum excess they can afford. 'We have had clients who have said they will not pay £120 a month for traditional PMI, but they will be prepared to pay £60 for one of these £5,000 excess plans.'
The self-pay option is to be welcomed for the flexibility it offers to individuals who want PMI cover, but at a lower cost and also want their cash to work for them and not disappear on insurance premiums. Self pay may also be the saving of the PMI market as a way for traditional PMI companies to open up a new category of clients, either those who have never wanted to pay up for PMI or those reluctant to continue. And for financial advisers, in the 1% world of stakeholder pensions, self-pay offers the opportunity to build or increase their PMI business as part of their client's over financial investment portfolio.
PMI market has shrunk, particularly in the over-50 age group.
Self-pay plans offer more flexibility for the client but little on the commission front for IFAs.
Clients should put as much as they can afford into the plan.
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