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Cash has dash

Cash plans are one of the fastest-growing healthcare products in the marketplace but IFAs are not utilising them as effectively as they could.

Although cash plans are predominantly sold direct to the public through call centres and the internet, product providers assert that they are a useful tool for supplying clients with a comprehensive protection package.

Most cash plan providers agree that the product is not a substitute for private medical insurance. In the perfect protection package, they maintain that cash plans should be seen as complementary to PMI rather than as a replacement.

However, this is far from the way that they have been sold to the masses, where it is still seen as a replacement to PMI. For instance, many consumers do not realise that cash plans do not pay for private hospital cover. Although they usually pay for time spent in NHS hospitals, this is more for supplemental needs rather than for the cost of the bed.

Providers claim that the product range is easy to understand. In its essence, it is simply money paid back to the client every time they use the healthcare system, whether for an eye test, dental work or spending a night in hospital.

Standard Life intermediary division national sales manager Claire Ginnelly says: “Most providers seem to offer the same raft of benefits. The key differentiators are price and pay out percentages. While we are not alone in offering 100 per cent payouts, many companies still only offer 50 per cent of what customers pay for healthcare services.”

Ginnelly says Standard sells cash plans on an individual, voluntary or company-paid basis. All three are essentially the same product with slightly different ratings and she believes the motivations for buying are usually the same for any cash plan.

She says: “Whether it is an individual or company cash plan, consumers buy them because they want protection but their budgets do not stretch to the cost of private medical insurance.”

Ginnelly believes many people use cash plans as a first step towards PMI, being attracted not only by the basic cashback premise but also by the low cost in comparison. However, she also maintains that some customers are simply not interested in PMI, feeling that cash plan benefits suit them adequately.

“For some consumers, cash plans basically cover everything they want,” she says.

Although cash plans are a big market in the UK, Ginnelly believes they are sold mostly through direct marketing.

HSA media relations executive Jo Curtis says some IFAs have had great success offering cash plans as a bolt-ons to PMI products. For instance, instead of selling PMI with no excess, some IFAs use the discounts they get from selling PMI with excess to buy cash plans for their clients. They claim this provides extra cover for clients above the cost of the excess.

The company has recently launched a new plan for the employee benefit market, anticipating that the product will be appealing to corporate clients.

Groupama Healthcare private medical underwriting manager Alan Bellingham believes that, for company policies, PMI is usually for management or white-collar workers. He says cash plans can often be used as a substitute for lower-grade employees where the employer does not want to provide PMI.

He says: “The same argument for cost applies to individuals. Some people simply would not buy PMI on ideological or financial grounds but they would be more comfortable buying cash plans.”

But PMI specialist IFA John Stevens Partnership is wary of cash plans. Company director Jim Niven says his firm suggests them intermittently but usually a PMI solution can be just as easily constructed.

He says: “There is probably a place for cash plans. Some businesses that cannot afford PMI still want to offer their employees healthcare benefits. Cash plans are the obvious option. They also seem adequate for clients who only want dental and optical cover but on the whole I do not think they are that helpful to individual clients.”

Any product shortfalls do not seem to have stopped the growth of the product. But analyst Laing and Buisson estimates that intermediaries presently only account for 3 per cent of the market. Bellingham says generally the cash plan market is healthy but that, after steady growth, the market is fairly static. He feels growth has panned out largely because of economic uncertainty among the target market.

But Ginnelly disagrees, saying the cash plan market is still buoyant. “There is massive potential for sales of cash plans. Companies and individuals are looking at their bottom-line costs and many clients see cash plans as a reasonably cost-effective alternative to PMI in the current economic environment,” she says.

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