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