As competition heats up in the iPMI sector, Sam Barrett reports on some aggressive pricing strategies on the part of some providers.
Something of a price war is breaking out in the international private medical insurance (iPMI) market as providers fight for a larger share of the market. But, while this is good news for anyone looking for a deal, it can lead to longer-term problems for the market.
“It’s an extremely competitive market at the moment,” says Chris Beardshall, global account executive for PMI Health Group, the national intermediary. “We’re seeing some new entrants looking to establish themselves in the market but also other providers looking to grow their market share. It’s getting a bit aggressive and there are some very cheap prices out there.”
Philip Wright, director UK at Globality, the iPMI provider, agrees.
“There are a few players committing suicide out there, offering prices way below centre of the market. We’re not seeing the market follow them down yet though so I’m not convinced we’re plummeting into a price war,” he says.
There are a number of reasons why an insurer might look to lower its prices below the market average. For new players, it is a way to get established in the market, allowing them to gain critical mass and demonstrate their service proposition.
A spot of price manipulation is also used by more established players to grow market share. This could be to re-establish the brand, perhaps after losing market share; to increase the size of the business in anticipation of selling the company; or to compensate for other lines of business that are not performing so well.
Wright explains: “The UK domestic market is static at the moment so insurers are having to look elsewhere to get the volume. The international market offers this opportunity.”
But, while some of these strategies are fairly innocent, the long-term effect can be much less palatable. After a year of bargain basement cover, premiums inevitably rise and, coupled with medical inflation of anything from 8% to 18%, policyholders can be hit with a price hike of 20% to 30% plus.
“This can be problematic for brokers to explain to their clients,” says Ron Buchan, chief executive of Allianz Worldwide Care, the provider. “By recommending a cheap premium they’re storing up a difficult conversation for the following year. On top of this, where the client is medically underwritten, there can be cover issues if they’ve made a claim and need to switch to another insurer.”
NOW Health International is among those that have reduced their premiums this year. Although it only launched in January, it cut some of its rates towards the end of May. This price review saw reductions of at least 15% on its two most comprehensive products; reductions of between 10% and 20% on age bands over age 56; and, by adding new age bands for its group rates, a discount of up to 50% on book rates.
But while these are significant reductions, its marketing and ecommerce director Alison Massey insists it’s not a bid to win market share at any cost but a reflection of the way pricing has shifted across the market.