Table of Contents

CHAPTER 1 EXECUTIVE SUMMARY

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Introduction

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Growth in the UK health insurance market slowed in 2004, as the private and group sector both faced challenges

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Premium income in the private medical insurance market grew by just over 3 per cent in 2004, which was half the average rate since 2000

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The number of PMI policyholders fell in 2004, due to a slowdown in the group sector, and faster decline in the individual market

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Individual policies have become steadily more expensive, driving the fall in policyholders, while premium rate increases in the group market have slowed

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Uptake of PMI is greatest among 45-54 year-olds, and policyholders typically fall into the highest income brackets

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Penetration is weak at both ends of the age scale, but 20 per cent of those in the 45-54 age group have PMI cover

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The advertising spend of the top five PMI insurers increased by 51.1 per cent in 2004, as providers focused on raising awareness and sales

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BUPA remains by far the largest player in the market, but Standard Life grew its market share faster than other competitors in 2004

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BUPA increased its hold on the PMI market marginally, growing its market share by 0.6 per cent

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Standard Life grew its share of the PMI market faster than any other competitor in 2004

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The two forecast scenarios depend on the success of the individual sector

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In Scenario 1 there is an uplift in the market, driven by a better performance from the individual sector

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In the second scenario, while the market shows signs of uplift in 2005, growth in the individual sector is not sustained

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CHAPTER 2 INTRODUCTION

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What is this report about?

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Who is the target reader?

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How to use this report

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CHAPTER 3 MARKET CONTEXT

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Introduction

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Growth in the UK health insurance market slowed in 2004, as the private and group sector both faced challenges

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Premium income in the private medical insurance market grew by just over 3 per cent in 2004, which was half the average rate since 2000

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GEP growth has slowed in both the individual and the group sectors

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However, better GWP growth was recorded by the market, indicating that providers sold more business in 2004

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The number of PMI policyholders fell in 2004, due to a slowdown in the group sector, and faster decline in the individual market

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The individual market's policyholder number losses accelerated in 2004

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The group market saw a marginal increase in policyholder numbers

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Individual policies have become steadily more expensive, driving the fall in policyholders, while premium rate increases in the group market have slowed

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Underwriting profits in the health insurance sector dropped in 2004, as more claims fell under the reinsurance level

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Underwriting profits in the health insurance sector fell by 38 per cent in 2004, as reinsurers took less of a share of claims incurred

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PMI profitability has been affected by rising claims costs, driven by increasing claims frequency and cost inflation

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Claims costs are on the increase

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The incidence of claims is rising because treatment is improving, and the population is aging

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Advances in medical science mean more prodecures are undertaken

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PMI policyholders expect to be able to claim more than those who are covered by the public sector

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Treatments for illnesses such as cancer and heart failure are becoming costly for both PMI providers and the NHS alike

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However, the increase in gross claims incurred has fallen significantly since 2002, as insurers have focused on reducing their exposure to risk

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Although improvements to the NHS have been made, spending on patient services has been limited and so the impact on the PMI market has been modest

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While the NHS has met many targets in 2005, efforts to reduce factors that are contributing to the population's ill health have been largely unsuccessful

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Investment in the NHS has met with success, but there are still shortcomings

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Despite the progress of the NHS, there are a number of areas where PMI providers are out in front

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MRSA and hospital associated infections (HAIs) are still a significant problem for the NHS

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The availability of new drugs in the private sector is also attracting patients

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The effect of improvements in waiting lists and NHS care are unlikely to have much of an impact on PMI providers

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Driven by the need to entice more customers into the PMI market, and therefore improve earnings, insurers have been developing innovative policies and alternative forms of cover

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In an effort to address falling policyholder numbers, providers have designed low-cost alternatives, which are more affordable, but subsequently less comprehensive

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Some of the major PMI players have focused on enticing new customers with improved product offerings, while others have looked to improve efficiency

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Standard Life's high excess policies are admired in the market for their low-cost/low claims frequency basis

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WPA has challenged conventional policy underwriting, by bringing the customer into 'partnership' with it...

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In 2005, PruHealth continued to demonstrate that it is applying new methods to meet the challenges facing the PMI market

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AXA has successfully improved the cost-effectiveness of its supply chain...

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...while looking to increase penetration by targeting market segments

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Norwich Union has focused on allowing consumers to select only the cover they want, and win large no claims bonuses, with its Health Solutions product

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CHAPTER 4 CUSTOMER FOCUS

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Introduction

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Just over 1 in 10 consumers have PMI cover, but the majority remain apathetic towards the market

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The penetration of the PMI market has been static, with around 13 per cent of consumers having this form of cover

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Consumer apathy is high; over 60 per cent of people without PMI have no interest in getting it

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The most common reason cited by consumers for not taking out PMI was the expense, but over 20 per cent of consumers had never given the product any thought

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One in five have just never really thought about the private sector

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Uptake of PMI is greatest among 45-54 year-olds, and policyholders typically fall into the highest income brackets

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Penetration is weak at both ends of the age scale, but 20 per cent of those in the 45-54 age group have PMI cover

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40 per cent of consumers with an income over £50,000 have PMI

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Almost half of PMI customers get their policy through their employer, however the distribution channels used change significantly with age

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47 per cent of PMI customers get their policy from their employer

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Employers begin to arrange the majority of policies once customers pass the age of 25, however this starts to decline after policyholders turn 45

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Almost half of PMI customers pay for their policies themselves

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The advertising spend of the top five PMI insurers increased by 51.1 per cent in 2004, as providers focused on raising awareness and sales

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TV marketing campaigns were used to boost awareness, and this drove increases in total advertising expenditure

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Market leader BUPA's advertising increased by over 75 per cent in 2004 and dwarfed that of its competitors in the market

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CHAPTER 5 COMPETITIVE DYNAMICS

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Introduction

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The competitive landscape in 2005

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Groupama has boosted its influence in the PMI market through its acquisition of Clinicare

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Standard Life believes that its acquisition of First Assist's PMI book makes it larger than Norwich Union in the PMI market

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BCWA intends to target the individual PMI market through intermediaries, so that it can grow significantly

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Standard Life confirmed plans for demutualization

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BUPA remains by far the largest player in the market, but Standard Life grew its market share faster than other competitors in 2004

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BUPA increased its hold on the PMI market marginally, growing its market share by 0.6 per cent

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Standard Life grew its share of the PMI market faster than any other competitor in 2004

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Royal & SunAlliance experienced the largest market share decline in 2004, as a result of selling its healthcare business

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Premium income declined for WPA and BCWA

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The individual PMI sector is more consolidated than the group sector, as it is dominated by a small number of large players

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BUPA continued to expand into the individual sector, and was almost twice as large as its nearest competitor

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Royal & SunAlliance recorded a substantial decline in GEP, as it exited the market in 2004

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Competition between Norwich Union and Standard Life intensified in 2004

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Legal & General and Clinicare recorded increases in market share

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The top 10 providers had a market share of almost 90 per cent in the individual PMI sector in 2004

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Standard Life increased its market share in the group PMI sector by 1.6 per cent in 2004

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Despite the very strong position of the leading two or three competitors, players outside of the top 10 accounted for 19 per cent of the group market

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Data profiles of the top five players

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CHAPTER 6 THE FUTURE DECODED

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Introduction

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The two forecast scenarios depend on the success of the individual sector

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In Scenario 1 there is an uplift in the market, driven by a better performance from the individual sector

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In the second scenario, while the market shows signs of uplift in 2005, growth in the individual sector is not sustained

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Scenario 1: The individual market improves, and providers focus more of their attention on winning back business in this sector

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Growth in individual policyholders takes off after 2005

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Individual policyholder numbers pick up as PMI providers offer affordable cover

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Rising numbers of cancer patients and increasing demand for heart surgery and other operations impact on the NHS's service record

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The introduction of low-cost policies slows individual premium rate increases

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The PMI market records steady growth, driven by the strong performance of the individual sector between 2005 and 2008

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Scenario 2: Providers maintain their focus on the group market, as the individual market fails to take off

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The individual market's uplift is not sustained

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Growth in the group sector occurs, as the value of insurance as an absence management tool is increasingly recognized

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In Scenario 2, premium costs in the individual sector continue to increase rapidly, as low-cost policies fail to capture the public imagination

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Despite much lower premium rates, GEP growth is sustained in the group market as a result of higher subscriber numbers

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Growth in the group market slows in 2009, and this coincides with a period of renewed interest in the individual market

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Due to the product development the PMI market has seen, and the fact that catering for the UK population's health is predicted to become more difficult, Scenario 1 seems the more likely

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CHAPTER 7 APPENDIX

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Supplementary data

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Definitions

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Definitions of general terms

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Health insurance

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Research methodology

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Ipsos MORI methodology and contacts

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Sample design

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Timescale

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Explanatory notes to competitor tables

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SynThesys Non-Life database

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References

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Current and future readings

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Relevant links

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Do you need more information?

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Datamonitor Financial Services Consulting

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SPP writing team

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List of Tables

Table 1: PMI GEP by policy type, 2000-4

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Table 2: PMI gross written premiums (GWP) by policy type, 2000-4

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Table 3: Number of PMI holders by policy type, 2000-4

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Table 4: Number of lives covered by PMI, split by policy type, 2000-4

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Table 5: PMI average premium by policy type, 2000-4

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Table 6: Health underwriting result, 2000-4

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Table 7: Health reinsurance ceded and reinsurers' share of claims, 2000-4

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Table 8: PMI gross claims incurred, 2000-4

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Table 9: The advertising expenditure of major players in the PMI market, by medium in 2004

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Table 10: The advertising expenditure of major players in the PMI market, by medium in 2003

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Table 11: Market shares of the top 10 PMI providers, 2000-4

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Table 12: GEP of the 10 largest PMI providers, 2000-4

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Table 13: Market share of the top 10 individual PMI providers, 2000-4

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Table 14: GEP of the largest providers in the individual PMI market, 2000-4

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Table 15: Market share of the top 10 group PMI providers, 2000-4

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Table 16: GEP of the 10 largest providers in the group PMI market, 2000-4

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Table 17: BUPA's PMI loss and expense ratio, 2000-4

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Table 18: AXA PPP's PMI loss and expense ratio, 2000-4

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Table 19: Norwich Union's PMI loss and expense ratio, 2000-4

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Table 20: Standard Life's PMI loss and expense ratio, 2000-4

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Table 21: WPA's PMI loss and expense ratio, 2000-4

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Table 22: Scenario 1: PMI policyholder numbers, 1996-2010f

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Table 23: Scenario 1: Average PMI premium costs, 1996-2010f

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Table 24: Scenario 1: PMI market GEP, 1996-2010f

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Table 25: Scenario 2: PMI policyholder numbers, 1996-2010f

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Table 26: Scenario 2: Average PMI premium costs, 1996-2010f

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Table 27: Scenario 2: PMI market GEP, 1996-2010f

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Table 28: Distribution channels used by PMI providers to arrange their cover, spilt by age group, 2005

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Table 29: Percentage of consumers with PMI, by age group, 2005

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Table 30: Percentage of consumers with PMI, by income bracket, 2005

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Table 31: Reasons for not having private medical insurance, 2005

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Table 32: Major distribution categories used by PMI providers to arrange their cover, spilt by age group, 2005

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List of Figures

Figure 1: Since 2002, GEP from both the individual and group sectors have slowed down considerably

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Figure 2: Since 2002, GEP from both the individual and group sectors have slowed down considerably

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Figure 3: GWP in the individual market picked up slightly in 2004

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Figure 4: Individual PMI policyholder numbers continue to decline, while group insurance saw negligible growth

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Figure 5: Premium rates for individual PMI policies have increased steadily since 2000, whereas group increases have been more sedate

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Figure 6: NWP increased in 2004, but higher outgoings resulted in a decline in the health market's underwriting result

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Figure 7: PMI Claims cost increases have slowed significantly since 2002

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Figure 8: 13 per cent of people in the UK have PMI

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Figure 9: 61 per cent of consumers that do not have PMI are not at all interested in this product

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Figure 10: In 2005, the most common reason for not taking out private medical insurance was the expense

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Figure 11: 20 per cent of people in the 45-54 age bracket had private medical insurance in 2005

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Figure 12: Higher earners are increasingly likely to have private medical cover

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Figure 13: 47 per cent of people had their PMI cover arranged for them by their employer in 2005

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Figure 14: The distribution platforms used by PMI customers to arrange their cover shift considerably with each age group

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Figure 15: 47 per cent of PMI customers paid for their policies themselves in 2005

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Figure 16: The PMI market remains heavily consolidated, due to the strong presence of BUPA and AXA PPP in particular

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Figure 17: BUPA and AXA remain dominant in the individual PMI market

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Figure 18: BUPA and AXA alone had a 59.4 per cent share of the group sector in 2004

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Figure 19: Scenario 1: Key drivers and issues affecting the PMI market, 2005-10f

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Figure 20: Scenario 1: Current trends are bucked, and individual PMI policyholder numbers increase after 2005

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Figure 21: Scenario 1: Premium rate increases slow in the individual PMI market, but move higher in the group sector

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Figure 22: Scenario 1: There is an uplift in the market as individual PMI policyholder numbers increase in 2005-6

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Figure 23: Scenario 2: Key drivers and issues affecting the PMI market, 2005-10f

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Figure 24: Scenario 2: Group sector PMI policyholder numbers increase strongly between 2005 and 2008

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Figure 25: Scenario 2: Individual PMI premium costs continue to rise faster than group policies

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Figure 26: Scenario 2: Between 2007 and 2009 the group PMI sector grows more quickly than the individual sector, despite its much lower premium costs

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Figure 27: Datamonitor's core consulting capabilities

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