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Saturday market opens up

The healthcare cash plan market has reached a critical point in its long

development, fuelled by increasing intervention by the FSA and moves by big

insurance companies into this sector for the first time.

The healthcare cash plan is an insurance hybrid with 19th Century roots.

The whole cash plan movement came about as a result of the dire need during

the 1870s to improve the way that the then voluntary hospitals were funded.

There were many diverse local and regional funds formed with one common

thread – workers paid a small contribution each week from their wage into a

fund which would then allow them access to hospital treatment as and when

it was needed. Pay day was on Saturday at that time – hence the rather

curious generic term Hospital Saturday Funds.

The modern healthcare cash plan pays cash to the policyholder for expenses

incurred for a wide variety of healthcare and medical treatments. The

premiums are low and, providing that the policyholder continues with

payments, cover is for life, with no increase in premiums irrespective of

age or claim rates.

There has been steady growth in this market, driven by the growing

realisation that people will have to make some sort of self-provision for

their healthcare as pressure increases on the NHS and with the growth in

alternative treatments, which must be paid for. There is a pressing need

for more professional organisations providing HCPs in this specialist


This is a fact recognised by the FSA which is keen to see fewer and bigger

professionally run organisations providing HCPs. Currently, there are

around 28 traditional healthcare cash plan providers with about six big

players dominating the industry.

Like all areas of the financial services market, consolidation will be the

way forward. Banks, building societies, insurance companies and related

sectors have all seen a busy period of merger and acquisition over recent

years. In order to survive and flourish, HCP providers will have to go the

same way.

The HealthSure Group was created through the merger of a number of these

Hospital Saturday Funds. The smaller Healthcare Alliance of North-ampton

and Norwich merged with the Manchester and Salford Hospital Saturday Fund

in September 1999 to form one of the biggest HCP providers with 200,000


Smaller organisations, however, will struggle for a number of reasons. As

the market develops it will become more competitive. Bigger amalgamated

funds will be managed by professionals who can structure the companies and

product offering to give maximum benefits to consumers. Smaller

organisations will not be able to offer the same level of service and

benefits and if they try it is likely that they will struggle financially.

The sector has changed gradually from a non-competitive regional market to

a highly competitive, national one and the smaller companies will find

themselves in direct competition with highly organised, aggressively

marketed organisations offering benefit-laden products, added-value service

and a variety of additional and related products.

Additionally, the increased claims&#39 culture in the UK is set to have a

dramatic effect on the market. Every day, TV advertisements encourage

consu-mers to claim for accidents.

This will have an effect on all claims-based industries and there can be

no doubt the rate of claims in the healthcare cash plan market will

increase greatly as the UK adopts the claims&#39 culture.

Some companies that may not have structured their products accordingly may

find the environment increasingly harsh. Regu-lation by the FSA will place

an increasing financial and administrative burden on HCP providers. Again,

smaller organisations will find the costs prohibitive and the

administration difficult to manage.

With companies such as Royal & Sun Alliance, Legal & General and Boots

entering the market, we can be sure of two things – the sector has grown up

and aggressive competition will be the name of the game.

The smart Saturday funds are looking to align themselves with companies

which are able to compete on a national level and yet still offer the kind

of service their members have come to expect.

The industry will also have to brace itself for a harder type of company

entering the arena. Traditionally, companies operating in this sector have

been very “ethical” and have established close links with the NHS. For

example, the HealthSure Group donates a substantial amount of its annual

fund surplus to the NHS and related charities. Newer ent-rants to the

market may not share this ethical vision.

There are some factors that work in favour of the long established funds.

The importance of critical mass cannot be underestimated – the cash plan

can only ever be viable when a large number of people pay into the fund

regularly. These people need to be recruited vigorously to avoid the danger

of an ageing and ever reducing profile to the fund.

The new entrants to the market may not understand the needs of the

consumers as well as the traditional Saturday funds do. They know their

policyholders and they have their trust – and consumer trust in today&#39s

competitive environment is something that takes a long time to establish.


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