News analysis: Safety first on health cover

Employers may be concerned when health insurance products are withdrawn from the market, but there are safeguards they can take, says Tynan Barton

News of the withdrawal of health insurance products and providers from the market have triggered debate about where an employer stands when services are removed or, in extreme cases, a provider falls foul of the law.

In June, National Friendly announced the temporary closure of new health cash plan policies. This followed its
announcement in spring 2011 that it had withdrawn its products from the private medical insurance (PMI) market.

The firm said it had decided to withdraw its PMI products to protect its integrity and future services. Chief executive Richard Sear said: “We were the only provider in the UK to be writing PMI on a life basis. With claims rising across the PMI market, we are no longer in a position where we can sustain this product at the existing levels of volume while maintaining value for our members. As a mutual, we believe our first responsibility is to protect our members. We will continue to make the right decisions to secure the society’s future.”

National Friendly has said all existing PMI and health cash plan policies will be fully serviced, and that if new staff join an organisation, the employer will be able to take out a health cash plan for them.

If employers are existing customers of a provider that has withdrawn products, any changes will depend on the terms and conditions of their contract, said Malcolm Tarling, spokesman for the Association of British Insurers.

“The insurers may make changes at renewal periods, but once the changes are made, they would normally remain
unchanged throughout the term of the policy.”

When a new product or provider is launched, employers should make careful checks. Tarling said that if an employer used an authorised UK insurer, it would have to meet strict solvency requirements set by the Financial Services Authority. Scrutiny by an employer could include asking an intermediary to carry out enquiries on its behalf. Joseph said: “[Employers] are reducing their exposure, providing they are working with a healthcare specialist intermediary that follows all the necessary due diligence.”

Back in 2006, concerns were raised for customers of Your Health Insurance and Your Health Plus when these went into administration. On 1 July 2011, two women who had run the firms were each sentenced to 30 months in prison for dishonestly obtaining money from the businesses.

In cases like this, as well as getting support from the Financial Services Compensation Scheme (FSCS), employers could seek support from intermediaries, said Lindsey Joseph, executive committee member at the Association of Medical Insurance Intermediaries. “The situation with Your Health Plus was pretty dire, but anyone that was working with an intermediary found a home immediately.”

Although it is not commonplace for a provider to withdraw services, employers should be aware that it does happen and that things can change quickly. Joseph added: “It is crucial [employers] have someone on hand
to navigate them as and when necessary. They must ensure continuity of cover, or the employer could end up with the liability of paying for treatment.”

While new products and providers will continue to enter the market, employers should conduct checks or follow an intermediary’s advice. Stephen Clements, partner, health and benefits at Mercer, said: “We support product innovation because that is the lifeblood for consultants and intermediaries. But we need to have due diligence in place to ensure we are not exposing [employers] to risks they are not aware of. Some are prepared to take risks, but need to do so with their eyes open.”

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