Tag Archives: PMI

The political landscape and UK private medical insurance (PMI)

Before we consider the impact of potential changes in regulation for the PMI industry, we review the manifestos of six parties for their views on the UK healthcare system and consider the implications for the UK PMI industry. The commentary around healthcare is fairly high-level in all manifestos. We present the sound bites for context and interest, along with our thoughts on what this may mean for the UK PMI industry, in the table below.

Political Party Manifesto ClaimsPotential Implications for UK PMI
Labour Party1
‘Labour will protect our public services, like the NHS, from being opened up to further privatisation.’– A Labour Party government could mean increased taxes and fewer opportunities for the National Health Service (NHS) to collaborate with the private healthcare sector.

– Though not explicitly written in the Labour manifesto, Jeremy Corbyn has made a number of claims on increasing funding for the NHS through various methods, including raising the insurance premium tax. This could directly increase premiums and reduce demand for PMI products.

– It seems unlikely that pilot programmes to use private sector hospital capacity for NHS patients will be expanded, meaning a lost source of revenue for private hospitals. This will further lower private hospital occupancy rates and may lead to increased tariff rates for insurers.

Conservatives/Tory Party2
‘We will increase NHS spending by a minimum of £8 billion in real terms over the next five years.’– The perception of increased spending on the NHS will likely result in reduced demand for PMI products, even if the increased spending is wholly insufficient to create more capacity in the context of an expanding and ageing population. The King’s Fund has suggested that a real-term funding increase of approximately £30 billion a year is needed over the next five years to maintain current services3, much more than the £8 billion promised in the Conservatives/Tory manifesto, as well as the £20 billion a year promised by Theresa May in the budget speech last year4.
‘We will ensure that the NHS and social care system have the nurses, midwives, doctors, carers and other health professionals that it needs…Last year we announced an increase in the number of students in medical training of 1,500 a year; we will continue this investment, doing something the NHS has never done before, and train the doctors our hospitals and surgeries need.’– The BBC reports that 1,500 additional students a year is potentially not enough to meet the growing demand, and replace all those who may be quitting or retiring from the NHS5.

– In 2018 it was reported that an additional 3,000 places on midwifery training courses will be created over the next four years, but there were concerns on whether this would be enough to guarantee that the midwife workforce would grow6. With numbers leaving the NHS reaching 8,900 over a period of five years, the increases that are proposed may still fall short of that required by the NHS to meet growing demands.

‘We will ensure that the NHS has the buildings and technology it needs to deliver care properly and efficiently.’– If more NHS buildings and facilities are created, the use of private medical facilities by the NHS will reduce. This will take a number of years to create though and, given the lack of ring-fenced funding for this development, seems unlikely to be achieved due to other competing priorities.
‘For a country to remain stable, an economy to be strong, a society to stay healthy, we need a partnership between the individual and the wider nation, between private sector and public service, and the strong leadership only government can provide.’– The Tory party is more open towards people using the private sector, though it does not speak specifically about the healthcare system. It is less likely to suggest the use of policies that would directly harm the PMI industry. It is not clear exactly what role it expects the private sector to play in healthcare from the vague manifesto statement.
Brexit Party
No manifesto, but a quote from Nigel Farage: ‘We need to move to an insurance-based system of healthcare.’– A host of possibilities exist depending on the type of insurance system proposed and accepted by parliament. Options include a social insurance scheme, mandatory private insurance scheme or a hybrid model.

– Even in a fully insurance-based system, the government may decide to retain some responsibility for providing healthcare, in which case private healthcare facilities may compete alongside public facilities for insurance reimbursement. This will increase utilisation and limit cost inflation among private healthcare facilities.

– Any insurance plan (social or private) would have to have a defined set of benefits which may be substantially more limited than today. This may encourage the development of complementary and/or supplementary insurance products. This could vastly transform and expand the PMI market. However, our experience from other social insurance schemes is that the benefit package is constantly under pressure due to budget constraints and resetting the benefit package each year is a highly political process.

– Private insurers could redefine their roles as third-party administrators for social insurance schemes, even if they were not taking on any insurance risk directly.

Liberal Democrats7
The Liberal Democrat manifesto is solely focused on remaining within the EU and includes a host of reasons for this, including noting the contributions the EU makes towards healthcare and pharmacy within the UK. Some areas highlighted in the manifesto:

‘The EU also makes it easier for people such as doctors, nurses, vets and architects to work abroad by ensuring that their qualifications are recognised across Europe.’

‘The EU funds research into new treatments for diseases and gives the UK access to cutting-edge treatments at the earliest opportunity.’

– Leaving the EU could cause the prices of certain treatment options and drugs that are accessed from the EU market to increase if there are additional levies or taxes added.

– Under a Liberal Democrat rule, and if Brexit is cancelled, the PMI industry should largely remain similar to the status quo, based on the current pledges within the Liberal/Democrats manifesto. This does not however mean they would not introduce policies that could impact the PMI industry in the future.

Independent Group for Change (previously Change UK8)
Similar to Liberal Democrats, the Independent Group for Change Party is focused on the benefits of remaining within the EU: ‘Brexit will be a disaster for our hospitals, science and research, social care and public health. It will be bad for our health workforce – if they leave the UK, patients and those who are dependent on care will bear the brunt. It will be bad for getting the medicines we need, which have a short shelf-life and which we risk losing if we leave the EU without a deal.’– Like the Liberal Democrats the preference is to remain within the EU, indicating the PMI industry would likely remain similar to the status quo.
Green Party9
‘Roll back privatisation of the NHS to ensure that all health and dental services are always publicly provided and funded, and free at the point of access, via the introduction of an NHS Reinstatement Act. Scrap NHS Sustainability and Transformation Plans.’

And ‘Close the NHS spending gap and provide an immediate cash injection, to ensure everyone can access a GP, hospitals can run properly, and staff are fairly paid.’

– The use of private healthcare providers for NHS-funded admissions would be expected to reduce or potentially end. It is not clear how the increased public provision will be funded, particularly in some areas where there is heavy private provision of NHS-funded services, such as psychiatry.

– Expanding NHS coverage for all health and dental services may dramatically reduce the requirements for some health insurance. The general perception of increased NHS services would deter people from buying PMI and cash plans or encourage existing customers to lapse their policies.

– Under a properly funded NHS many services that are currently paid for by the user, such as dental and optical, would be provided for free. This would likely impact the cash plan market, reducing demand for these products.

– It is not at all clear which funding gap is being referred to, or the cost of this pledge, but it’s likely to be substantial.

‘Major investment in social care for the elderly and all those who need it.’– This suggestion is likely to reduce the current pressure on NHS services, but it does not have obvious implications for PMI.

We expected more detailed and explicit views towards healthcare in the manifestos and ultimately it is difficult to determine the likely steps each party would take if they have the power to action their pledges. For many parties Brexit remains the main focus, with little thought or attention to healthcare within their manifestos.

Over the coming weeks we will keep a close eye on the campaigns of Boris Johnson and Jeremy Hunt for updates and changes in statements relating to healthcare and the PMI industry, following up with our findings in our forthcoming blogs.

Our next blog looks at the impact of potential changes in regulation following Brexit for the PMI industry. Please see our previous blogs on the impact of changes in the market size and medical inflation on the PMI industry.

1See the Labour Party Manifesto at http://labour.org.uk/wp-content/uploads/2019/05/Transforming-Britain-and-Europe-for-the-many-not-the-few.pdf.
2See the Conservatives/Tory Party Manifesto at https://www.conservatives.com/manifesto.
3The King’s Fund (6 June 2017). Call to strengthen NHS finances: Letter to the editor. Retrieved 25 June 2019 from https://www.kingsfund.org.uk/publications/articles/call-strengthen-nhs-finances.
4Triggle, N. (17 June 2018). NHS funding: Theresa May unveils £20bn boost. BBC News. Retrieved 25 June 2019 from https://www.bbc.com/news/health-44495598.
5 BBC News (25 March 2018). NHS: Over 3,000 more midwifery training places offered. Retrieved 25 June 2019 from https://www.bbc.com/news/health-43529877.
6 Ibid.
7 See the Liberal Democratic Manifesto at https://d3n8a8pro7vhmx.cloudfront.net/libdems/pages/45093/attachments/original/1557342873/Liberal_Democrat_European_Election_Manifesto_2019.pdf?1557342873 .
8See the Change UK Manifesto at https://voteforchange.uk/wp-content/uploads/2019/05/Change-UK-Charter-for-Remain.pdf.
7See the Green Party Manifesto at https://www.greenparty.org.uk/green-guarantee/our-nhs-and-public-services.html.

Impact of Brexit on medical inflation

United Kingdom medical inflation for 2019 is estimated at an average of 6%, having averaged around 7% over 2018. Medical inflation is generally several percentage points higher than retail price inflation (RPI).

Medical inflation generally refers to the annual increase in the cost of medical treatment per insured life. It encompasses both changes in the average cost of treatment for the same basket of services and changes in the frequency of seeking treatment for a steady-state portfolio. It is impacted by anything that will change the cost per insured life for the same services, ranging from technological medical advances to shifts in costs and from social and national healthcare systems to private insurance payers. A change in the mix of services will impact the relative weights that each service contributes to the ‘basket’ of goods (similarly to a calculation of RPI). Using risk adjustment as a true measure of inflation, the effects of a change in the mix of lives in a portfolio would be stripped out, although most cited measures do not remove this element and instead quote inflation inclusive of mix changes.

Continuing from our first blog, which focussed on the potential impact of Brexit on PMI market size, in this blog we examine factors that will impact the average cost of treatments through the supply of medical professionals, cost of drugs, changes in general inflation and the economic health of the UK.

The figure below summarises how the topics we cover impact medical inflation.

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What is the impact of Brexit on the UK’s private medical insurance market size?

Brexit and its eventual impact on the British economy remain nearly as uncertain today as on the day of the referendum. In this blog series, we consider the effect of Brexit (in its various guises) on business drivers for insurers within the UK private medical insurance (PMI) industry.

In this first post, we consider some of the key factors that affect demand for PMI policies and how they impact the average risk cost per life for an insurer.

Impact from outwards migration

A significant number of reports show that a growing number of corporations are moving their headquarters abroad or rearranging assets to move substantial amounts out of the UK market. These companies range from Dyson and Sony to investment banks such as JP Morgan and Goldman Sachs. If large numbers of jobs and staff are relocated out of the UK, particularly from within the financial sector, PMI insurers may see the size of group policies reducing after Brexit, or potentially a total loss of some contracts if whole firms or subsidiaries are relocated. We can expect the majority of migrating employees will hold mid- to high-level positions, and as such would qualify for employee benefits such as group PMI cover.

Historically, when an overall corporate portfolio has been downsized, we have seen a spike in claims from employees who are aware that they may lose their cover imminently and seek to take advantage of accessing private care while it is still available.

NHS pressures

As the British government spends more of its budget on Brexit at a time of increasing public demand for National Health Service (NHS) services, individuals may become frustrated with the increasing waiting times and consider purchasing PMI to meet their healthcare needs.

The government is also currently reviewing the insurance premium tax (IPT) rate. This follows from insurers urging a review of the fairness of the tax, and the potential barriers it creates to accessing healthcare. Lower taxes could help make PMI more affordable and appealing to the public and we may reach a point where the government perceives that making PMI more attractive will remove some pressures from the NHS, leading to a growth in the PMI market. This has been a perennial hope of the PMI industry for 20 years, however, so don’t hold your breath.

Impact due to economic uncertainty

Given the supplementary nature of PMI, it does not classify as a ‘necessity’ product for the majority, and, in the absence of changes in government policy, economic cycles can impact demand for the product heavily.

If there is a recession, individual customers may find themselves reconsidering a PMI policy renewal and companies may be less inclined to keep the benefit at the expense of other more pressing costs, particularly if they have incurred heavy Brexit-related direct costs, such as exchange rate impacts, tariffs, or just additional internal compliance costs. Following the 2008 global financial crisis, the UK healthcare market for PMI cover reduced by 4.3%, as measured by change in the number of PMI-covered lives. The graph[1] below highlights how, during the height of the global financial crisis (2007-2009), PMI market size and gross domestic product (GDP) growth rate exhibited nearly identical decreases in growth. In the years following the crisis, PMI market size has shown a slower growth rate than GDP.

Sources: PMI market size in terms of PMI covered lives from Laing & Buisson, Health Cover, 14th ed. GDP growth rate from World Bank Group, http://www.worldbank.org.

In the individual market, lapses are more likely if policyholders are in good health and do not foresee use of their policies anytime soon. Those using their cover, or generally in poorer health, are less likely to lapse their policies. Therefore, insurers may experience an acceleration of the selective lapsing many have already been experiencing over the last few years, leading to an increase in medical inflation and overall reduction in total market size. Those who have measures in place to combat selective lapsing will tend to fare better than those who have less attractive offerings for healthier customers. These measures can include reward programmes with wellness benefits such as gym discounts and mobile health apps.

Corporate markets may also experience increased utilisation, in a fashion similar to migrating employees, from policyholders wishing to use their cover before it ceases.


The overall impact of all factors affecting the demand for PMI services on the total market size is difficult to ascertain, and the direction and magnitude of impact for each factor will certainly differ.

Insurers may experience higher claims from policyholders about to lose corporate cover, as well as the risk of overall reduction to the market size due to smaller corporate books.

There is a possible silver lining if demand increases as a result of tighter government budgets and more delayed access to the NHS, coupled with possible reductions in IPT. However, the risks from general market uncertainty are greater. Risks of uncertainty can leave people less committed to their PMI cover, and companies with a higher risk of selective lapses.

In our next blog we look at key factors impacting medical inflation, including the availability of medical practitioners and nurses, as well as speculating on what might happen to the cost of drugs.

[1] PMI market size in terms of PMI covered lives from Laing & Buisson, Health Cover, fourteenth edition. GDP growth rate from the World Bank Group resources, http://www.worldbank.org

Benefits of cohort analysis for India’s private medical insurers

Annual claims ratio projections for private medical insurance (PMI) business can help various stakeholders understand the factors that affect the future profitability of the business. For PMI business, one of the effective ways to project claims ratios is through a cohort analysis. Such an analysis tracks the claims ratios of a group of policies underwritten in a particular year for its subsequent durations, repeating the process for each underwriting year.

The advantage of conducting a cohort analysis is that the user can project claims ratios at different durations for each underwriting year. This gives a more comprehensive view of how the portfolio is going to perform at future durations and policy years. This paper by Milliman actuaries Joanne Buckle and Ankush Aggarwal focusses on claims ratio projections in the context of the Indian health insurance market.

What role will data play in transforming UK private medical insurance analytics?

Health insurers are relying more on advanced analytic tools as they move from reimbursement services through to provider management, care management, and care delivery services. The sheer volume and complexity of healthcare data can create bias, hinder analysis, and impair decision making. Inadequate data is costly because it is time-consuming to work with and often expensive to address.

Fortunately, data quality tools can identify specific areas of improvement to help actuaries and insurers carry out advanced operational and clinical analytics. In this paper, Milliman’s Joanne Buckle and Natasha Singhal highlight such a tool to assure data quality is properly vetted prior to actuarial analysis. The data quality tool was applied to data collected from five different private medical insurance (PMI) insurers in the United Kingdom. The authors also discuss ways that high-quality PMI data can be used to achieve decision confidence.

Assessing the international private medical insurance market

International private medical insurance (IPMI) provides employees with long-term travel obligations access to broader healthcare services. The global IPMI market has become very competitive. Expectations are that the market will continue to grow. In this article, Milliman’s Joanne Buckle and Neha Taneja take a look at some key pricing and experience rating items for group IPMI issuers to consider.

Here is an excerpt:

Dealing with multiple geographies, changing regulations, various health systems, diverse demographics and movement of the insured population results in a number of additional complexities when compared to rating a traditional PMI policy. Here are some of the key factors IPMI providers need to consider:

  • Local data limitations: The wealth of data that a traditional health insurer holds on domestic PMI policies is usually insufficient for pricing an IPMI product, because:
    • IPMI policies usually offer a more much comprehensive benefit package.
    • Differences in the socio-economic profile of the target market, resulting in markedly different benefit features and claims experience.
    • Distinct claiming patterns due to the international nature of the benefits.
    • Variation in utilisation patterns by country and nationality.
    • Portability offered under an IPMI policy allows full access to benefits wherever the employees are and it is difficult to predict where different services will be consumed.Obtaining reliable and relevant data with a desired level of granularity can be challenging making it difficult to get any credible results on which to base sound conclusions.
  • Geographical area of coverage: This is considered one of the key rating factors for an IPMI policy as claims costs can vary significantly between countries. For example, most insurers provide separate cover for ‘worldwide excluding US’ and ‘worldwide including US’, because healthcare costs are typically much more expensive in the United States than anywhere else in the world. Most insurers would classify countries into different regions/levels/zones that have broadly similar costs and healthcare systems for more accurate rating. However, constructing such classifications is difficult because:
    • Limited claims experience for some countries and lack of data for others makes the classification statistically less sound.
    • Even countries with similar costs may have different types and quality of healthcare services, disease trends and state healthcare systems which can make it difficult to group countries into particular zones. For example, insurers may experience lower claims ratio in countries with well-functioning state healthcare systems, which allow access for temporary residents. The rules on whether an overseas national is eligible to access the local state healthcare system are complex and vary by destination country, as well as nationality. In addition, the likelihood that an employee will access state coverage depends on the quality of the state healthcare system, as well as the nationality and cultural preferences of the employee.
    • Volatility in exchange rates can result in the pricing zone relativities becoming rapidly obsolete.

All of these factors are likely to have a significant impact on the claim frequencies and costs. As a result, trying to price cover accurately for a multinational company with employees residing in multiple countries across the globe is quite a task.