19 September 2016

Is shopping around always best for the consumer? – Probably not for everyone says health insurance broker

The Financial Conduct Authority has issued new guidance to the general insurance industry to encourage policyholders to shop around at renewal after four years of continuous cover with their current insurer. The intention is worthy; to get policyholders to seek best value for their changing needs and circumstances. The reality may have far reaching effects for consumers and the insurance market.

“Best value does not always equate to cheapest in health insurance terms, where  symptoms and treatment can be ongoing for some time and old medical conditions can resurface again in future years” explains Brett Hill, Managing Director of The Health Insurance Group. “Take the example of pre-existing conditions where an existing provider of cover has to provide inclusive renewal but a new provider does not – how do you compare the two policies? Most medical insurers offer a range of options for underwriting terms, benefit levels, and access to specific types of treatment and specific hospitals. To determine best value, you need to weigh up the chances, or probability, that you may need to claim for a particular medical condition or need access to certain hospitals or types of treatment, which may in turn depend on the quality and availability of NHS services in your local area. You then need to try and do like-for-like comparisons between different insurance providers; no easy task when they all have their own variations on the above themes.”

The other curious effect of the new FCA guidelines is to do with the way the insurance market operates.  A high cost is involved in finding and acquiring new customers but, once acquired, the assumption is that most customers will not change their provider for some time.  In the short term the new rules could encourage switching as customers will be actively encouraged to do it. However, if all providers have to base their pricing on a much shorter customer retention model then that could actually see new business prices increase, to the detriment of savvy consumers, as insurers will expect to have less time in which to recover the costs of winning new customers.

Brett Hill continues, “The FCA Guidelines were developed based on research which only covered home and motor policies, complex in themselves but nothing like as complex as health insurance. It all makes sense in theory but I fear in practice all that will happen will be customers being encouraged more than ever to buy the cheapest product out there based on some of the FCA's proposed renewal messages, which are pretty simplistic. This creates a risk of customers finding themselves without the cover they need at point of claim, because they’ve been encouraged to shop around and have brought a policy costing less than they were previously paying, without realising there may be a significant difference in cover, or exclusions for medical conditions covered by their previous policy. With so many options available to customers, all of which can affect their cover when they come to claim, it’s important they seek independent advice from a specialist insurance broker before making any decision about whether a change of insurer is right for them and their family”