7 million people can’t be wrong, can they? 7 million people can’t be wrong, can they? simon...
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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
7 Million People Can’t Be Wrong, Can They?
What on Earth is a Cash Plan?
Simon Jeffery
7 Million People Can’t Be Wrong, Can They?
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 …..
7 Million People Can’t Be Wrong, Can They?
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
7 Million People Can’t Be Wrong, Can They?
‘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
7 Million People Can’t Be Wrong, Can They?
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
7 Million People Can’t Be Wrong, Can They?
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
7 Million People Can’t Be Wrong, Can They?
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?
7 Million People Can’t Be Wrong, Can They?
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
7 Million People Can’t Be Wrong, Can They?
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
7 Million People Can’t Be Wrong, Can They?
Cash Plans - The Market
7 Million People Can’t Be Wrong, Can They?
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
7 Million People Can’t Be Wrong, Can They?
Cash Plans - The Market0
50
100
1st Qtr 2nd Qtr 3rd Qtr 4th Qtr
East
West
North
- All data sourced from Laing and Buisson Health Cash Plans UK Market Sector Report 2001
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
7 Million People Can’t Be Wrong, Can They?
Cash Plans - The Market
• 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
- All data sourced from Laing and Buisson Health Cash Plans UK Market Sector Report 2001
7 Million People Can’t Be Wrong, Can They?
Cash Plans - The Market
•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
- All data sourced from Laing and Buisson Health Cash Plans UK Market Sector Report 2001
7 Million People Can’t Be Wrong, Can They?
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
- All data sourced from Laing and Buisson Health Cash Plans UK Market Sector Report 2001
7 Million People Can’t Be Wrong, Can They?
Cash Plans - The Market
0
50
100
1st Qtr 2nd Qtr 3rd Qtr 4th Qtr
East
West
North
- All data sourced from Laing and Buisson Health Cash Plans UK Market Sector Report 2001
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
7 Million People Can’t Be Wrong, Can They?
Cash Plans - The Market0
50
100
1st Qtr 2nd Qtr 3rd Qtr 4th Qtr
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%
7 Million People Can’t Be Wrong, Can They?
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
7 Million People Can’t Be Wrong, Can They?
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
7 Million People Can’t Be Wrong, Can They?
Differences between Health Cash and PMI
7 Million People Can’t Be Wrong, Can They?
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.
7 Million People Can’t Be Wrong, Can They?
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.
7 Million People Can’t Be Wrong, Can They?
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.
7 Million People Can’t Be Wrong, Can They?
Health Cash vs PMI- Benefits
• Coinsurance• Waiting Periods• Cash Limits
• Indemnity• Excesses• Cash limits on minor
benefits
7 Million People Can’t Be Wrong, Can They?
Health Cash vs PMI-Benefits cont
• Multiplicity of benefits
• Benefit levels
• Limited benefit categories
• Comprehensive• Budget
7 Million People Can’t Be Wrong, Can They?
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
7 Million People Can’t Be Wrong, Can They?
Claims & Underwriting
Melanie Price
7 Million People Can’t Be Wrong, Can They?
Claims & Underwriting
• Cash Plan Benefits – Breakdown of Benefits Paid• Description of Health Cash Plan Benefits• Claims:
NotificationHandlingSettlementUnderwriting
Source: Independent Research/Laing & Buisson 2002
7 Million People Can’t Be Wrong, Can They?
Claims & Underwriting
Cash Plan Benefits – Breakdown – 2001
Source: Independent Research/Laing & Buisson 2002
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
7 Million People Can’t Be Wrong, Can They?
Claims & Underwriting
Health Shield Benefits – Breakdown – 2001
Physio etc.7%
Others15%
Optical32%
Dental22%
Hospital Inpatient
24%
7 Million People Can’t Be Wrong, Can They?
Claims & UnderwritingDescription of Health Cash Plan Benefits
Source: Independent Research/Laing & Buisson 2002
Primary Care
Secondary Care
Health Related Expenses
7 Million People Can’t Be Wrong, Can They?
Claims & UnderwritingClaims:• Notification:Time limits
Name/policy numberCompletion of claim formReceipts
• Handling: Interests of customer preservedCover was in force and adequateSwift settlement – 24 hours
Source: Independent Research/Laing & Buisson 2002
7 Million People Can’t Be Wrong, Can They?
Claims & UnderwritingClaims:• Settlement: Nature of cover
Adequacy of coverConditions which may limitAmount payableDisputes & Fraud
• Underwriting: AssessmentApplicationScope of cover to be offered
Source: Independent Research/Laing & Buisson 2002
7 Million People Can’t Be Wrong, Can They?
Sales & Marketing
Philip Wood
7 Million People Can’t Be Wrong, Can They?
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
7 Million People Can’t Be Wrong, Can They?
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
7 Million People Can’t Be Wrong, Can They?
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
7 Million People Can’t Be Wrong, Can They?
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.
7 Million People Can’t Be Wrong, Can They?
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
7 Million People Can’t Be Wrong, Can They?
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
7 Million People Can’t Be Wrong, Can They?
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
7 Million People Can’t Be Wrong, Can They?
Pricing
Simon Grout
7 Million People Can’t Be Wrong, Can They?
Pricing
What makes it different from PMI?
7 Million People Can’t Be Wrong, Can They?
Pricing
• Strategic Pricing
• Differential Pricing
• Practical Issues
7 Million People Can’t Be Wrong, Can They?
Pricing• Pure risk cost + others• Others include
– Expenses• acquisition• maintenance
– Cost of guarantees– Tax– ROCE– Profit– Competition
7 Million People Can’t Be Wrong, Can They?
Pricing - Practical Issues
• Community rated– average age of block– rating factors
• Mixture of lump sum and indemnity – claims distribution
• Cyclical claims– advertising campaigns
7 Million People Can’t Be Wrong, Can They?
Pricing - Practical Issues (2)
• Past Data– relevance– propensity to claim
• How often do you review?– annually?
• Tailored schemes– other schemes
7 Million People Can’t Be Wrong, Can They?
Pricing
DATA