7 Million People Can’t Be Wrong, Can They? 7 MILLION PEOPLE CAN’T BE WRONG, CAN THEY? Simon...

7 Million People Can’t Be Wrong, Can They?

7 MILLION PEOPLE CAN’T BE WRONG, CAN THEY?

Simon Grout

Simon Jeffery

Shane Kingston

Stephen Evans

Melanie Price

Philip Wood


What on Earth is a Cash Plan?

Simon Jeffery


What You Get For Your Dollar

Benefits Vs Contributions

£3 per week

£90 dental fees

£90 optical fees

£400 complimentary medicine

£400 maternity

£40 Hospital cash

Plus …..


What’s the Catch

• There isn’t one!

• One price fits all, automatic eligibility

• But– Extensive exclusions for pre-existing

conditions– Initial waiting period– Co-insurance


‘Clever’ Promotion

• Actually it’s not that clever!

• But it does tend to promote:– Low premium (on lowest bands)– High benefits (on highest scale)

• And always gives the impression that you can’t lose


Looking at It Another Way

• To get full benefits, you have to pay• £156 contribution (£3 per week)• £30 contribution to dental• £30 contribution to optical• Total so far = £216, compared to £180

dental & optical benefits• So perhaps not so open to ‘abuse’ as at first

sight


Other Benefits

• Most plans include a host of other benefits• Which look very generous• But in fact the ‘risk cost’ of each is very

low• E.g. Home Help Benefit

– Risk cost = £0.xx per month = yy% of total price

• Plus people may not even claim


Inertia

• Even when people do know they have the product– The benefit levels in absolute terms are actually

quite modest– And ‘the can’t be bothered’ syndrome applies– Or at least put it off – and then forget

• How does one measure this?


Pattern of Claims For a Block of New Business

Premiums V Claims

0

5

10

15

20

25

30

35

40

45

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24

Month

Va

lue Claims

Premium


The winners and losers

• Some customers do claim large sums regularly• Most do not• Indeed some do not claim at all

– They bought the product for the ‘insurance’ element of the plan

– Not for the ‘routine benefits’– Also may have bought because they feel it is a funding

plan• If I take too much out this year then there won’t be anything

left next year – when I really need it


Cash Plans - The Market


Cash Plans - The Market• Contributors

– 3.1m contributors to health cash plans (HCPs) in 2000

• 2.4m individual contributors• 0.7m company paid contributors

– 7m people covered • 11.6% of UK population

- All data sourced from Laing and Buisson Health Cash Plans UK Market Sector Report 2001


Cash Plans - The Market0

50

100

1st Qtr 2nd Qtr 3rd Qtr 4th Qtr

East

West

North


Trends in Contributors and People Covered 1996-2004 est.

0

2,000

4,000

6,000

8,000

10,000

1996 1997 1998 1999 2000 2001 2002 2003 2004

000's

Contributors People Covered



• Contribution Income

– £339m contribution income in 2000 • individual £245m, average premium £102

• company paid £94m, average premium £134

– average premium increase 12.4% pa since 1990• main driver is regular expansion of health benefits




•Benefits Paid– £251m benefits paid in 2000

• individual £177m, average benefit £73

• company paid £74m, average benefit £105

– average benefit increase 11.6% pa since 1990• mainly driven by higher claims incidence due to wider coverage of health benefits



Cash Plans - The Market•Margins

– 26% gross margins in 2000• gradual reduction since peak in mid 90’s

– historically higher and more predictable than PMI• smaller average claims, pre-stated maximum benefits

• greater proportion of individual business




0

50

100


East

West

North


Average Premium, Average Benefit and Average Gross Margin

1996-2000

0

30

60

90

120

1996 1997 1998 1999 2000

£

22%

24%

26%

28%

30%

Premium Benefit Paid Gross Margin


Cash Plans - The Market0

50

100


East

West

North

- All data sourced from Laing and Buisson Health Cash Plans UK Market Sector Report 2001 and other data

• Market shares largely static over recent years

Market Share - 2000O ther Providers

27% H S A38%

Westfie ld9%Leeds Hospital

Fund7%

HealthSure Group

4%

Healthshield4%

Birmingham Hospital Fund

4%

Medicash7%


The Market – 2001

• Hospital Savings Assn £140 million• Westfield £ 35 million• Medicash £ 23 million• Health Shield £ 13 million• Birmingham HSF £ 13 million• Health Sure £ 13 million• Other Schemes £113 million

Source: Independent research & Laing & Buisson 2001


The Market – 2001• Hospital Savings Assn 40%• Westfield 10%• Medicash 6%• Health Shield 4%• Birmingham HSF 4%• Health Sure 4%• Other Schemes 32%• Total number of schemes: 37 across UK Source: Independent research & Laing & Buisson


Differences between Health Cash and PMI


Health Cash vs PMI

• Provides cash (subject to limits and coinsurance) to cover some of the costs and expenses associated with defined health related situations.

• Provides for the costs of treatment for acute medical conditions on an indemnity basis including inpatient and outpatient events.


Health Cash vs PMI-Underwriting

• Pre-existing condition exclusion

• Largely ignored by OFT.

• Medical questionnaire• Moratorium• MHD for large groups• Subject of lengthy

review by OFT.


Health Cash vs PMI-Pricing

• Wide age bands-often adult and child.

• Ignores (?) shape of risk cost curve.

• Age bands or individual ages.

• Follows shape of risk cost curve.


Health Cash vs PMI- Benefits

• Coinsurance• Waiting Periods• Cash Limits

• Indemnity• Excesses• Cash limits on minor

benefits


Health Cash vs PMI-Benefits cont

• Multiplicity of benefits

• Benefit levels

• Limited benefit categories

• Comprehensive• Budget


Health Cash vs PMI-Features

• Average annual premium £110ish (growing)

• Average claim £80• Largely individual• Insignificant broker

• Average annual premium £600ish

• Average claim £1200• Largely group• Very significant

broker sales


Claims & Underwriting

Melanie Price



• Cash Plan Benefits – Breakdown of Benefits Paid• Description of Health Cash Plan Benefits• Claims:

NotificationHandlingSettlementUnderwriting

Source: Independent Research/Laing & Buisson 2002



Cash Plan Benefits – Breakdown – 2001


Benefit Category Value of Benefits Paid

Benefit Paid £`000s

Hospital Inpatient 27.5% 75,800

Optical 25% 68,800

Dental 21.5% 59,200

Physiotherapy 9.5% 26,750

Others 16.5% 47,040



Health Shield Benefits – Breakdown – 2001

Physio etc.7%

Others15%

Optical32%

Dental22%

Hospital Inpatient

24%


Claims & UnderwritingDescription of Health Cash Plan Benefits


Primary Care

Secondary Care

Health Related Expenses


Claims & UnderwritingClaims:• Notification:Time limits

Name/policy numberCompletion of claim formReceipts

• Handling: Interests of customer preservedCover was in force and adequateSwift settlement – 24 hours



Claims & UnderwritingClaims:• Settlement: Nature of cover

Adequacy of coverConditions which may limitAmount payableDisputes & Fraud

• Underwriting: AssessmentApplicationScope of cover to be offered



Sales & Marketing

Philip Wood


Distribution Methods

• Worksite Marketing – Corporate Groups

• Human Resources – Decision Making Unit

• Flexible Benefits Schemes - Increasing

• Web, CD Rom, Intranets & E-Marketing

• Direct Marketing - Consumers

• IFA’s, Brokers & Consultants – increased role


Worksite Marketing – What is it?

• Flyers & literature sent to all employees• Posters & pre-awareness of site visits

raised, staff e-mailed for attendance times• Sales team visit worksites for ‘open days’ –

advice type sessions• Return visits for follow-up• Service visits – claims advice, promotions,

etc


Worksite Marketing – Why does it work?

• Saves on sales costs of ‘one to one’ home visits

• Company paid schemes becoming more popular – quoting for more bespoke schemes

• Voluntary schemes – one payment for up to 2,500 staff• Targeted resources – non-profit marketing


Marketing Plan Strategies

• Market Penetration – Target existing market with existing product – more take up from key accounts – better account management standards.

• Market Development – existing ‘cash plan’ products taken to new market sectors e.g. Health Shield – Railway to blue-chip B2B sector.


Tactics

• Worksite Marketing – 2 x tier sales:– Corporate Decision Making Unit– Direct to employees as end-user

• More pro-active account management• Personalised fliers, company endorsements,

branded literature• Retention of existing members – being taken more

seriously – initiatives• Growing size of sales teams and investment in

direct sales route


Tactics – Promotional Activity

1. Advertising

2. Direct Marketing – Mailers – DMU & end

3. Promotional Goods

4. Exhibitions – CIPD, Employee Benefits

5. Public Relations

6. Web – Intranets, CD Rom and new media


The Future for Marketing

1. Bespoke Schemes for Corporate Groups2. Bespoke Scheme for Consumers?3. Cost is a business driver – is this the real

issue? Other issues:4. Differentiation – Quality & Service or

Price – up to the company5. Marketing Research, customer base &

future possibilities


Pricing

Simon Grout


Pricing

What makes it different from PMI?


Pricing

• Strategic Pricing

• Differential Pricing

• Practical Issues


Pricing• Pure risk cost + others• Others include

– Expenses• acquisition• maintenance

– Cost of guarantees– Tax– ROCE– Profit– Competition


Pricing - Practical Issues

• Community rated– average age of block– rating factors

• Mixture of lump sum and indemnity – claims distribution

• Cyclical claims– advertising campaigns


Pricing - Practical Issues (2)

• Past Data– relevance– propensity to claim

• How often do you review?– annually?

• Tailored schemes– other schemes


Pricing

DATA

Date post:	12-Jan-2016
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7 Million People Can’t Be Wrong, Can They? 7 MILLION PEOPLE CAN’T BE WRONG, CAN THEY? Simon...

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