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Cost cutters

The small corporate private medical insurance market, encompassing schemes covering three to 99 lives, saw very little innovation during the 1990s.

Some new health insurers came along, offered “me-too” type products – and then went. Established insurers tweaked their benefits but as comprehensive cover became more expensive, they turned to fragmenting hospital lists and introducing budget plans to control premiums rather than genuine innovation.

Large corporate clients have always had a degree of benefit flexibility when establishing a PMI scheme. However, smaller companies have often felt shoehorned into products that health insurers want to sell, rather than policies with benefits companies would want to buy.

Smaller companies can often balk at the perceived high cost of providing PMI for all staff, especially if they feel they are paying for benefits that their employees would not need or use.

However, the last two years has seen the beginnings of a change in the way small corporate PMI is sold, as some insurers introduce “modular-benefit” schemes offering a degree of flexibility to smaller companies previously only available to the large corporate schemes.

Western Provident Association launched the first “modular-benefit” product for small companies in autumn 1999 – Enterprise Flexible Benefits. December 2000 saw the launch of new insurer Health-on-Line, with the modular-benefit Company Choice for small groups and Personal Choice, the first modular-benefit plan for individuals.

This year has seen Secure Health introduce the Options plan for companies and individuals. At last, the larger insurers are beginning to catch up, with Norwich Union dipping its toe into the market with Solutions, a modular-benefit plan for groups of 50 to 99 employees.

The modular-benefit approach offered by these new plans gives the small corporate client greater control over the healthcare benefits provided and their cost.

The modular-benefit scheme will comprise a core benefit package, with several additional benefit options that can be taken in any combination to provide the type of scheme a company wants. However, advisers will need to tread carefully when comparing modular-benefit products as no two insurers offer the same levels of cover.

The core benefit package will usually comprise cover for inpatient and day-care hospital treatment, radiotherapy and chemotherapy. However, WPA and SecureHealth go further, including MRI and CT scans and an NHS cash benefit as part of the core benefit.

Norwich Union includes outpatient cover within its core benefit package – but then gives the option to remove it.

For an additional premium, clients can add a comprehensive outpatient benefit option, giving full cover for specialist consultations, minor surgery and diagnostic procedures.

With SecureHealth and Health-on-Line, the premiums for the outpatient benefit option can be reduced by accepting an overall financial limit on claims.

Additional benefit options could include therapies (physiotherapy and alternative therapies), ancillary benefits (these vary between insurers but can include cover for complications of pregnancy, oral surgical procedures, postoperative home nursing and parent with child accommodation) and psychiatric treatment (not offered by WPA).

Other options offered by some insurers include dental cover, overseas medical expenses, and a “six-week” wait option for hospital cover. Add in to this mix the ability to choose different hospitals and different levels of excess for categories of employees and you can begin to appreciate that a modular-benefit scheme can really be tailored to customer&#39s exact requirements.

Although intermediaries may initially be overwhelmed by all these different permutations in cover, insurers believe that once they have grasped the menu-based concept of the product, modular-benefit policies may become an easier sell.

A menu-based product is less complicated because people get exactly what they want. Having to describe a suite of policies can be more complicated as you have to describe the differences between separate policies, each with their own literature.

Such options give the small corporate client more control over allocating benefits to employees and controlling costs.

For example, a company may wish to provide all benefit options to directors and managers, with just the core benefit and standard outpatient cover for other employees. Depending on the insurer, a company could also tailor the hospital cover to the employee&#39s exact location and include worldwide cover only for those employees who travel abroad on business.

Health-on-Line marketing manager Emma Ansell says: “Sales figures show that policyholders have chosen all the different permutations of our option mixes, proving that people really are using the options to suit their own needs.

“Health-on-Line&#39s most frequently chosen options are &#39ancillary benefits&#39 and &#39comprehensive outpatient&#39. There is one policy number and one payment for all these different permutations, thus saving the company administrative time. Over a third of our company policies to date have taken advantage of the category system.”

Modular-benefit products are likely to become more commonplace in the future. New technology and increasing sophistication in pricing is allowing insurers to be more flexible in designing products.

In addition, distribution costs can be controlled as insurers only need concentrate on designing literature and printing policy documentation for one product rather than several products offering different benefit levels.

A modular-benefit product is also more suited to internet sales, as the insurer only has to describe one product and provide one application.

Clients need to understand the benefits that are being provided by each option, however, and the consequences of not including some of the additional benefits.

Norwich Union believes these products are especially suited to the intermediary market as an intermediary can ensure clients have access to all the relevant information needed to help them decide which modules to include or discard.

Although Norwich Union has initially introduced its modular-benefit Solutions package for groups of 50+ employees, it sees no reason why the same approach cannot be used for smaller companies in the future.

WPA has recently extended its Flexible Benefits scheme into the individual market. Head of communications Charlie MacEwan believes that the high costs of the traditional comprehensive medical plan, coupled with the increasing sophistication of the purchaser (whether a company or individual) means more health insurers are going to have to change the way they do business. He says: “Flexible Benefits has been a huge success for WPA. We believe that having a menu-based product is on the pathway to future success in the PMI market.”

Only time will tell whether modular-benefit packages will become the norm in the small group PMI market. The flexibility they provide can only help maintain growth in this sector of the market.

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