Market: private medical insurance

Overview

Pressure is growing on health insurers to share the claims histories of policyholders with brokers, a topic that was the focus of a recent meeting between the Association of Medical Insurance Intermediaries (AMII) and Biba.

In most areas of general insurance, the holding insurer provides the broker with a policyholder’s claims history at renewal. This allows the broker to compare rates across the market. But private medical insurers for small and medium-sized enterprises (SMEs) are keeping this data secret.

Opposing insurers say the information is “commercially sensitive” and releasing medical files would breach data protection rules. But Biba says withholding this information leaves brokers unable to accurately compare market rates for their customer and gives the holding insurer an unfair advantage.

Last month’s closed meeting marked the first Transparency of Claims discussion panel. Mike Izzard, chairman of the AMII, represented healthcare intermediaries and financial advisers, while Peter Staddon, head of technical services at Biba, represented brokers. A number of insurers, including Groupama, Cigna and Standard Life, were part of the panel. Bupa and AXA PPP, which lead the private medical insurance market, were also present.

Groupama issues a challenge

Groupama – which says it is the only insurer to provide claims history regularly for this area of insurance – has challenged its rivals to rectify what it considers a breach of the FSA’s Treating Customers Fairly principles.

Alistair Sclare, head of healthcare underwriting for Groupama Healthcare, says most companies would share claims data if it were a universal practice. “What they won’t do is what Groupama has done: stick our head above the parapet and say we are going to do this because we believe in it.” Groupama has been sharing claims data for about three years.

He says most of his company’s competitors only release the data if they have a poor claims experience as they can use it to support any rate increase.

But Fiona Harris, director of health insurance, sales and retention for Bupa, argues that sharing small and medium-sized enterprise claims history is not in a customer’s best interests.

“If such information were used to calculate prices for a company with fewer than 10 employees and with significant claims, SMEs would be subject to sudden price increases from one year to the next. This would make it impossible for the employer to accurately budget for the cost of medical cover for staff.

“For this reason, the pricing mechanism we use for SMEs spreads the risk more widely, minimising annual fluctuations.”

AXA also shows no sign of budging. A spokesman says: “It is our policy to not release claims information in respect of smaller group schemes due to its commercially sensitive nature.”

How premiums are set

Premiums for large group schemes – about 50 members or more – are calculated by claims experience. But small and medium-sized enterprise premiums are based on community rating – the pooling of smaller group schemes.

Larger providers argue that community rating ensures SMEs aren’t hit with any sharp changes in premiums. But Alistair Sclare, head of healthcare underwriting for Groupama Healthcare, says some insurers who refuse to release claims data use that same data to set their own renewal rates.

“Over a number of years, the market has steadily moved to the point where claims influence SME premiums,” he says. “It’s not pure experience rating, such as for large group schemes and motor fleet. But it takes a set of tabular rates, looks at claims experience on the group and then adjusts the premium of the tabular rate to suit the scheme.

He says the data becomes more valuable the more it is used. “The holding insurer will use the information to price the renewal, but then decline to release it to the policyholder or the broker ... to enable them to use it to get a new business quote.”

Some insurers also argue that if an SME has, say, fewer than 10 staff, there won’t be enough information to reveal significant claims trends. But those in favour of sharing say that if past claims data is of no use in determining accurate pricing, there is no reason to keep it secret.

Groupama has a relatively small market share, which explains why access to rivals’ data is so pressing. Sclare admits that being the only company to share claims information can put Groupama at a disadvantage. But he adds that its market share has remained static and believes there would be a “significant movement” of brokers away from some insurers if claims data were shared.

“We believe so strongly this is about looking after the interests of the customers that we continue to do it.”

What do Biba and the ABI say?

Biba is consulting with the Information Commissioner’s Office and a QC to determine what claims data can be shared without breaching the Data Protection Act.

Peter Staddon, Biba’s head of technical services, says: “I’m not convinced some insurers are playing this with a straight bat. They feel this could erode their position, but it’s only right to provide an authenticated claims experience.”

In 1996, the ABI and Biba jointly produced updated voluntary procedures on claims sharing. These measures, which fall under “recommended procedures for dealing with broker reporting mandates,” apply mainly to commercial package policies such as motor fleet. An ABI spokesman told Insurance Times that private medical insurance was excluded from the procedures.

But as Staddon points out, this exclusion is not mentioned in the reporting mandates.

The ABI spokesman said: “It doesn’t apply to PMI. But if Biba has concerns about its limitations, we’d be happy to discuss them.”

He added: “This issue has never really been tested before and there’s no reason it shouldn’t be raised now.”

Even if the ABI decided to include private medical cover in its guidance, claims sharing would still remain voluntary for insurers.

Brokers aren’t always on the same side

Brokers also find themselves on different sides of the fence. Peter Staddon, head of technical services at Biba, suspects some larger brokers are given claims data when smaller brokers are not.

“We all know that larger brokers tend to have a better relationship with insurers with commercial activities,” he says.

Alistair Sclare, head of healthcare underwriting for Groupama, agrees: “We believe some larger intermediaries receive a certain degree of this information. This creates a distortion and unfair degree of competition.

“One would also ask whether it’s likely that the larger brokers who get that information would campaign for it to be generally available in the market.”

Two key questions remain: whether brokers are truly able to advise their clients effectively without full risk data, and whether the private medical insurance market for small and medium-sized enterprises is truly competitive.

The insurance industry tends to prefer market-led solutions to regulation. But principles-based regulation like Treating Customers Fairly has always been a grey area and it could be that clarification is needed from the ABI and FSA.

AMII chairman Mike Izzard says there are no plans yet to change industry practice. “But it is important that all parties understand the issues and the various viewpoints if we are ever to develop a consensus that is in the best long-term interests of all our SME clients.”

The next meeting of the Transparency of Claims panel is planned for spring.