Personal accident & health insurance - key trends to 2019
05 January 2016
08 November 2018
Extract of the report Personal Accident and Health Insurance in the UK, Key Trends and Opportunities to 2019. ©Timetric. November, 2015. Provides an outlook over the personal accident and health insurance industry in the UK, with supporting statistics.
Personal accident and health insurance outlook
The UK personal accident and health insurance segment accounted for 4.2% of the industry's gross written premium in 2014. The segment's gross written premium declined at a review-period CAGR of ‑0.8%. This was primarily due to the flat growth of premium prices in 2013, and reductions of up to 10% in 2014, which were as a result of increased competition and tough economic conditions.
The country has both a National Health Service (NHS) and private healthcare providers. Although private health insurance accounts for a low share of overall healthcare expenditure, it was the largest category in the personal accident and health segment. The category accounted for 52.9% of the segment's gross written premium in 2014. The country's health insurance direct written premium valued GBP4.2 billion (US$7.0 billion) that year, after registering a review-period CAGR of -1.1%. This was primarily due to a decline in the purchase of individual health insurance, coupled with a decrease in premium prices. According to ABI, private health insurance in the UK covered 5.1 million of the total population in 2014, and registered a paid claims value of GBP7.4 million (US$12.2 million) daily. Health insurers were able to register an underwriting profit of GBP247.0 million (US$406.4 million) that year, however due to declining premium prices it was lower than the 2013 value of GBP271.0 million (US$23.7 million).
Travel insurance was the second-largest category, and accounted for 29.7% of the segment's gross written premium in 2014. The number of travel insurance claims stood at 581,000 and valued GBP370.0 million (US$608.8 million). This situation was driven by the rising number of outbound and domestic tourists. The number of outbound tourists from the UK increased from 55.6 million in 2010 to 60.1 million in 2014, at a CAGR of 2.0%. The direct written premium of the travel insurance category valued GBP2.4 billion (US$3.9 billion) in 2014, at a review-period CAGR of 4.3%.
The number of fatal, serious and minor road accidents in the UK grew from 138,660 to 146,322 during 2013-2014. This supported the demand for personal accident insurance during the review period. Accident insurance can be purchased by people in the 18-59 age group. The UK's personal accident insurance direct written premium is expected to reach GBP1.5 billion (US$2.4 billion) in 2019, after registering a forecast-period CAGR of 1.4%.
A rise in outbound travel, healthcare expenditure and economic improvements all aided the growth of the segment during the review period. Growth was also supplemented by an increase in medical expenses and the UK's aging population.
A penetration rate of 2.0% provides opportunities for personal accident and health providers to expand their business and increase their customer base over the forecast period. Gross written premium is expected to increase from GBP8.3 billion (US$13.7 billion) in 2014 to GBP9.5 billion (US$15.1 billion) in 2019, at a forecast-period CAGR of 2.8%.
Tax relief to boost personal accident and health segment
The government announced several income tax changes applicable from April 6, 2015 that will benefit low- and middle-income individuals. These include:
- An increase in personal allowance, irrespective of the individual's date of birth. For the financial year (FY)2015-2016 (April to March), tax exemption was increased from GBP10,000.0 (US$16,454.7) to GBP10,600.0 (US$15,978.4). The government plans to increase it by a further GBP200 to GBP10,800.0 (US$16,279.9) in FY2016-2017, and eventually to GBP11,000.0 (US$16,581.4) in FY2017-2018. According to HM Revenue & Customs, this will reduce income tax for 24.3 million and 24.5 million base rate tax payers in 2016-2017 and 2017-2018 respectively. The remaining higher rate tax payers benefiting from this will be 4.8 million and 5.0 million people in 2016-2017 and 2017-2018 respectively.
- The government announced tax benefits for married couples and civil partners falling into the basic rate income tax bracket. According to this new rule, eligible couples can make a tax free transfer of up to GBP1,060.0 (US$1,597.8) to their partners.
- For savings of GBP5,000.0 (US$7,537.0), the government reduced the savings income tax rate from 10% to 0%.
This will directly increase disposable income, facilitating investments in personal accident and health products.
Increase in outbound tourism
The number of outbound tourists from the UK increased from 55.6 million in 2010 to 60.1 million in 2014, at a CAGR of 2.0%. This supported the growth of travel insurance during the review period. The direct written premium generated from the category valued GBP2.4 billion (US$3.9 billion) that year, after recording a review-period CAGR of 4.3%. This trend is expected to continue over the forecast period, supporting demand for travel insurance. According to Timetric, the travel direct written premium is expected to reach GBP3.1 billion (US$4.9 billion) in 2019, recording a forecast-period CAGR of 5.3%.
Rising demand for cancer insurance
According to Aviva and Breast Cancer Now, more than 50,000 women in the UK are diagnosed with breast cancer every year. This is the most common form of cancer, which affected one in eight women in the UK. During the review period, claims paid by Aviva for breast cancer accounted for 22.8% of the total claims paid under critical illness in 2014, compared to 21.9% in 2010.
According to The Lancet Oncology Commission, with factors such as modern lifestyles, longer life expectancy and environmental factors, the chances of developing cancer during one's lifetime is 50%. Demand for cancer care is therefore expected to increase by 40% during 2015-2035.
Increasing awareness of the benefits of private health insurance
Despite the UK's well-developed public healthcare system, private healthcare has flourished in the country. This is mainly due to long waiting times, and the limited availability of specialists accepting NHS patients. Access to private hospitals, treatment centers and specialty clinics through private health insurance also encouraged the country's population to use private providers. The rising cost of private healthcare is also expected to encourage the country's middle- and upper-class populations to take out private cover.
Demand for long-term care
Average life expectancy in the UK rose from 79.9 years in 2010 to 80.4 years in 2014. The percentage of the population aged above 65 years reached 17.5% in 2014, and is expected to rise to 19.6% by 2019. 24% of the population will be over 65 years of age, with people aged 85 and over accounting for 5% of the population.
According to Alzheimer's Research UK, one in every three people born in the UK in 2015 will develop dementia during their lifetime. According to the Care Quality Commission, 41% of community-based adult care services, residential social care services and hospice services inspected during October 2014- August 2015 required improvement. State aid provides partial benefits in long-term care, but only people with assets valued at GBP23,250.0 (US$35,047.0) or less are fully covered. The government originally planned to introduce a cap on lifetime care costs in 2016, but this was deferred until 2020 due to the funding crisis. It also plans to raise the asset limit of individuals eligible for 100% cover from GBP23,250.0 (US$35,047.0) to GBP118,000.0 (US$177,873.2).
With the new pension law giving flexibility to pensioners to withdraw 25% of their pension pot as a lump sum, this is likely to generate opportunities for private health insurers.
Growth of assets
The total assets value of companies operating in the segment increased from GBP20.4 billion (US$31.5 billion) in 2010 to GBP24.4 billion (US$40.2 billion) in 2014, at a review-period CAGR of 4.6%. Financial strength resulted in an increase in local capacity, and is expected to drive the segment over the forecast period as insurers will be able to assume more personal accident and health insurance risks.
Increasing emphasis on transparency
The Financial Conduct Authority (FCA) and the European Union (EU) have enforced a number of regulations such as MIFID II, PRIPs and the Insurance Mediation Directive to ensure transparency in terms of the fees paid for cover. Proposals emphasize greater supervision to counter acts of corruption and money laundering. On October 1, 2015, the Consumer Rights Act came into force. The second part of the act deals with unfair contract terms. Insurers are required to prepare contracts that clearly mention policy details and prices in a transparent and intelligible language. Such initiatives aim to promote customer focus and transparency.
The maturity of the UK's personal accident and health insurance segment forces insurers to focus on strategic collaborations to gain competitive advantages.
- In August 2015, Axa PPP, the UK division on Axa UK plc's private medical insurance, completed the acquisition of SimplyHealth's private medical insurance portfolio. Through this deal, Axa PPP aims to increase its presence in the UK's health insurance category. SimplyHealth will use the funds generated from this deal to develop and support its everyday healthcare products, such as cash plans and dental benefits for individuals and corporations.
- In March 2015, Aviva completed the acquisition of Friends Life. This deal is expected to provide more opportunities for the company with increased profitability, as well as an improved customer experience due to a broader product portfolio and improved service.
- In January 2015, AA Insurance entered into an agreement with Cigna Insurance. This deal entails the re-launch of AA's travel insurance with modifications. Cigna insurance services will do the underwriting, marketing and handle claims on behalf of AA. The new policy abolishes any upper age limit on single-trip world-wide travel policies. It will also include insurance against low-risk medical conditions, baggage coverage and physiotherapy treatment in the UK following injuries sustained abroad.
- The Royal Bank of Scotland Group Plc (RBS) sold 423.2 million of its shares in Direct Line Insurance Group Plc in February 2014. The total value of the deal stood at GBP1.1 billion (US$1.9 billion) and GBP2.6 (US$4.4) per share. In September 2013, the firm sold 300 million of its shares for a sum of GBP630.0 million (US$1.0 billion).
- In February 2014, Starr Investment Holdings, LLC and Partners Group Holding AG together bought MultiPlan, Inc. from Silver Lake Management, LLC and BC Partners Ltd for GBP2.7 billion (US$4.4 billion).
- In March 2014, Liberty International Underwriters (LIU) entered into an alliance with the US-based medical malpractice insurer NJ Pure to become its exclusive reinsurer for new policies. LIU is a UK-based subsidiary of Liberty Mutual Group Inc., which provides aviation, marine and property insurance.
The above mentioned mergers and strategic alliances are expected to provide UK personal accident and health insurers with a competitive edge over the forecast period.
Introduction of new products and services
New products and services in the personal accident and health segment include:
- In October 2015, Aviva introduced a new group protection proposition, including enhanced coverage against critical illness. The product includes value added services such as a long-term Personal Nurse Adviser service, RedArc, a stress helpline run by Care First, and a specialist second opinion firm: Best Doctors. The existing customers of both Aviva and Friends Life are eligible for the product upon the completion of their rate guarantee period.
- In October 2015, the insurance broker Arthur J Gallagher International, launched a TravelCerta application. This administers data related to group travel such as the number of travelers, their emergency contact numbers and location. It also provides accurate real time information to insurers.
- In October 2015, the new self-referral service from Bupa Insurance was introduced and will allow customers suspected of having bowel and breast cancer to directly call upon a new nurse-led self-referral team. The team will then refer the customer to a specialist for further support.
- In July 2015, SimplyHealth collaborated with YouGov to launch the Everyday Health Tracker. This questionnaire-based tracker helps insurers gain comprehensive information related to the healthcare industry.
- In May 2015, Zurich Insurance included skin cancer and common forms of adult leukemia, multiple sclerosis and heart attacks in its critical illness plan.
- In April 2015, Bupa Insurance re-launched its corporate health insurance product: Business Fit.
- In January 2015, the worldwide travel insurer ERV and Eye Airports launched ERV Go, a last minute travel insurance product that can be purchased via a mobile phone before boarding a plane.
Investment portfolio of personal accident and health insurer
Insurers in the UK increased their investment in investment funds; however, stock market volatility prompted them to invest more into corporate bonds. Investments in securities posted a review-period CAGR of 1.6%. Stock market growth lifted the value of investments in investment funds from GBP2.3 billion (US$3.6 billion) in 2010 to GBP2.5 billion (US$4.1 billion) in 2014, while investment in corporate bonds increased from GBP3.8 billion (US$5.9 billion) to GBP4.9 billion (US$8.1 billion), at a review-period CAGR of 6.7%.
Rise in insurance premium tax
From November 1, 2015, insurance premium tax on private health insurance and accident insurance will increase from 6% to 9.5%. If the policy is renewed or purchased after November 1, then the policyholder will have to pay the premium tax of 9.5%. However, any change made to the existing policy with an increase in premium during November 2015-February 2016 will not be subject to the tax increase. The move is part of the government's strategy to secure funding for the overburdened NHS in order to meet its liabilities. This will result in higher premium prices, making it difficult for households to purchase health and accident cover.
High insurance fraud
According to ABI, each policyholder in the UK pays an average additional GBP50.0 (US$82.3) towards their annual insurance premium due to fraud. In 2014, the industry uncovered fraudulent claims worth GBP1.3 billion (US$2.1 billion) in 130,000 cases.
Insurance companies in the UK have their own anti-fraud system, and the ABI works closely with the Insurance Fraud Register. Other initiatives to counter insurance fraud include the Insurance Fraud Bureau, a non-profit organization dedicated to countering organized fraud, and the Insurance Fraud Enforcement Department, a specialist police unit. The government also works with the law insurance agencies of other countries such as Estonia, Germany, Ireland, the Netherlands, Portugal, Spain, Denmark and Croatia to exchange information.
Implementation of Solvency II to pose a challenge for insurers
Solvency II legislation is expected to be implemented in January 2016, and will cause qualitative changes to companies' risk management strategies. This new regulatory framework is also expected to introduce new capital requirements for insurance companies, increasing their solvency margins. The introduction of high capital requirements will pose a challenge to small and medium insurers in the UK.
This document is believed to be accurate but is not intended as a basis of knowledge upon which advice can be given. Neither the author (personal or corporate), the CII group, local institute or Society, or any of the officers or employees of those organisations accept any responsibility for any loss occasioned to any person acting or refraining from action as a result of the data or opinions included in this material. Opinions expressed are those of the author or authors and not necessarily those of the CII group, local institutes, or Societies.