Group private medical insurers that refuse to disclose claims hist-ory on SME business are on dangerous ground.
It is a problem that has pers-isted in the group PMI sector for years – but just because it has been around for a long time does not mean the regulator should let it persist.
Imagine trying to buy car insurance and finding out your previous insurer would refuse to tell you what claims you have made or how many years no claims you had, even though it holds that information on your file. Without knowing what sort of risk you are, other insurers are unable to price a premium properly. Great for the holding insurer who has the customer where they want them but not great for the consumer and hardly what most people would call a normally functioning insurance market.
Yet that is effectively what is happening in the group PMI market in SME schemes that are priced on a claims-related basis. Insurers have offered several defences over the years. One argument is that the information is commercially sensitive, which it certainly is. At least insurers putting forward this defence are saying it how it is. Such an answer then begs the question, should an insurer help a client to go to a cheaper competitor? Perhaps not but they should not obstruct them from doing so if they try to seek out a better deal.
Another argument is that the SME market is community rated yet while that may have been the case years ago, it is increasingly the case that schemes are priced on the basis of claim experience.
Brokers also tell me that when they do ask for this information, with a properly constituted letter of authority from the employer client consenting to the release of the information to them, some insurers cite data protection legislation as a reason for saying no. Yet no personal data about employees is being requested – just generic inform-ation about claims.
The data protection argument does not stand up. Group risk providers regularly hand over claim data. Indeed, in the group risk world, oversensitivity on the part of underwriters can mean the holding insurer ends up left holding the baby in cases where there are claims on a policy, as competitors take fright.
But in group PMI land, things are different and as a result the broker is not able to do his or her job properly. As one compliance expert said to me recently, not only does the way the SME group PMI market function potentially raise anti-competition issues and very possibly breach their TCF duties, it leaves brokers unable to fulfill their obligations to their clients.
It could be argued that fiscal pressures on PMI insurers mean they should be given a soft touch on this one. After all, it is not a business to consumer relat-ionship that is in question. But surely a market with such a blockage in it is not a properly constituted market. Unless providers are encouraged to operate in an environment that is set up to deliver value for money to customers, the sector can only stagnate and customers will soon begin to pick up the unpleasant smell.
Some think intermediaries are at fault for this market failure. By not pushing hard enough to get information they are legally entitled to, they are letting down their clients and their profession. But what intermediary is in a position to take on a deep-pocketed insurer that simply refuses to budge?
The only body that can effectively do anything about it is the FSA, which should look at this issue as a matter of priority.
John Greenwood is editor of Corporate Adviser