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Private numbers

Worsening news of the NHS&#39s ability to cope with the number of patients wanting treatment means consumer interest in the various types of PMI products is likely to increase.

Consumers are not alone in their interest. The Government itself is now on record as saying that public and private sectors should work together to provide health services and has identified four areas where the private sector would be allowed into the NHS:

1: Operations in private sector hospitals on NHS patients paid for by the NHS, such as cataracts and gall bladders.

2: Getting private sector management to run new stand-alone NHS surgery centres specialising in high-volume procedures.

3: Extending private finance from major hospital building to improving surgeries for family doctors, and also in mental health and social services, and the provision of radiology equipment.

4: Using private sector management and expertise in running NHS information technology systems and NHS buildings.

But, on the face of it, there will be little change in the way that PMI consumers use their policies as a res-ult of these initiatives.

Only time will tell whe-ther the growing lack of confidence in the NHS pushes up the total proportion of the population subscribing to PMI from its current 10.8 per cent.

In comparison with other personal finance products, pensions in partic-ular, PMI is fairly simple to describe.

The kinds of cover generally fall into the following groups.

Special group schemes

These are often designed for employers with 50 or more employees. They usually cover private consultations, day-patient, out-patient and in-patient treatment. Other add-ons are available, sometimes included in the package and sometimes for an additional cost to the employee (for example, including spouse and children on the policy, some complementary treatments such as osteopathy).

Budget cover

Usually includes day-patient and in-patient treatments, plus chemotherapy and radiotherapy. Some of these schemes limit customers to a group of hospitals.

Comprehensive cover

Usually includes private consultation, plus out-patient, in-patient and day-patient treatment, with more choice of hospital than the budget cover.

Dental cover

These schemes cover most of the cost of dentistry bills, including routine check-ups, treatments and accident and emergency costs.

Cash plans

Traditionally provided separately, now increasingly included with PMI. Cash plans provide a cash sum for medical expenses (such as travel to visit hospital), or dental/optical fees and often complementary treatments like homoeopathy.

The costs of individual cover will vary according to age and status. For group schemes, average premiums are around £200-£500 a year per employee.

Usually, group schemes offer employees the opportunity of adding their spouse and children to the cover by paying an additional premium themselves.

Tax is becoming more of an issue. Insurance premium tax now stands at 5 per cent and employees are taxed on their premiums as a P11D benefit but pay no tax when they receive benefits, even cash benefits.

Employers&#39 National Insurance contributions are also payable on employees&#39 PMI. Employees who are earning less than £8,500 generally do not incur a tax charge.

Taxation aside, with increasing premiums pushing up the cost of the benefit, many employers have responded by reducing benefits, covering fewer dependents, restricting choice or asking employees to pay a proportion of each claim (co-insurance).

They are also asking hard questions about the way their PMI schemes are being used and the size and type of claims received.

At a lunch held by BCWA in November last year, the Shadow health minister Liam Fox indicated that a future Conservative Government would be keen to increase PMI cover to the self-employed. At present, self-employed people can usually only buy cover on an individual basis. Fox would encourage insurers to operate umbrella schemes for the self-employed, with attendant economies of scale.

Another possibility would be the mobile PMI scheme, which an employee could take with him or her when changing job, in the same way as a personal pension plan.

In the last article, I mentioned that intermediaries have established their position in the corporate market, accounting for 29 per cent of PMI sales in this sector.

An increasing number of specialist intermediaries are active in the PMI corporate market. Usually, their prime function is to help the company choose an insurer. Increasingly they also coordinate claims, restructure PMI benefits, handle subscriber information and oversee the claims and financial management services offered by third-party administrators.

Generally, however, intermediaries have not played too great a role in developing new business.

In the individual paid PMI market, only 13 per cent of business is sold via intermediaries. Traditionally, the reasons for this have been the low ticket sales compared with the corporate sector and lower commission rates.

This is changing now as commission of 20-30 per cent is not uncommon. Another driver of change has been the introduction of a core benefit statement which helps brokers and individuals compare policies across various PMI providers.

In the next article I will look at PMI as part of the corporate benefits package – a particularly exciting market for intermediaries.

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