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Private Medical Insurance - UK - November 2014

“Penetration of private medical insurance is at an all-time low. Just 14% of consumers say that they are covered by an insurance policy. However, 40% of the adult population agree that ‘private medical insurance gives a standard of care that the NHS can’t match’, showing that people can see the value of the product. As economic growth continues and the market begins to recover, the challenge for providers is to help consumers see this higher standard of care as essential for their well-being, and not an unnecessary luxury”
– Jessica Morley, Financial Services Research Analyst

This report discusses the following key topics:

  • The traditional PMI business model is challenged by changes to the NHS
  • The proliferation of health information is causing confusion for young consumers
  • Increasing prevalence of long-term conditions puts pressure on carers 
  • Exposing consumers to private healthcare through cheaper alternative products first can encourage PMI sales later on

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Table of contents

  1. Introduction

      • Abbreviations
      • Executive Summary

          • The market
            • Standard model predicts consistent premium growth
              • Figure 1: Forecast of total PMI gross earned premiums, 2009-19
            • Market factors
              • Economic recovery
                • Slowing rate of premium inflation
                  • Figure 2: Average PMI premium, by sector, 2003-13
                • Remedial actions of the Competition Markets Authority
                  • The NHS spending gap
                    • The NHS as a key feature of the 2015 general election campaign
                      • Companies, products and innovations
                        • A highly concentrated market
                          • Figure 3: Top five providers’ market shares, based on subscription income, 2013
                        • Product innovation
                          • Brand promotion
                            • The consumer
                              • Ownership of private medical insurance
                                • Figure 4: Consumer ownership of insurance or savings products for health needs, July 2014
                              • Consumers’ assessment of their health
                                • Figure 5: Consumer perceived state of health, July 2014
                              • Consumer use of routine health services
                                • Figure 6: Personal and family use of routine health services, July 2014
                              • Consumer use of non-routine health services
                                • Figure 7: Personal and family-use of non-routine health services
                              • Consumer attitude towards private medical insurance
                                • Figure 8: Consumer attitude towards Private Medical Insurance
                              • Consumer satisfaction with the NHS
                                • Figure 9: Consumer satisfaction with the NHS, July 2014
                              • Consumer interest in additional health services
                                • Figure 10: Consumer interest in paying for additional health services, July 2014
                              • What we think
                              • Issues and Insights

                                • The traditional PMI business model is challenged by changes to the NHS
                                  • The facts
                                    • The implications
                                      • The proliferation of health information is causing confusion for young consumers
                                        • The facts
                                          • The implications
                                            • Increasing prevalence of long-term conditions puts pressure on carers
                                              • The facts
                                                • The implications
                                                  • Exposing consumers to private healthcare through cheaper alternative products first can encourage PMI sales later on
                                                    • The facts
                                                      • The implications
                                                      • Trend Application

                                                        • Trend: Guiding Choice
                                                          • Trend: Prove It
                                                            • Futures: Human
                                                            • Market Drivers

                                                              • Key points
                                                                • The economic recovery is becoming more established…
                                                                  • …but wage growth remains stagnant…
                                                                    • …and the fall in unemployment can be linked to a marked increase in the numbers of self-employed
                                                                      • Figure 11: Proportional distribution of PMI subscribers, people covered and gross earned premiums, by sector, 2013
                                                                      • Figure 12: Number of PMI subscribers and people covered, by sector, 2009-13
                                                                    • Cost containment efforts are beginning to combat premium inflation
                                                                      • Figure 13: Average PMI premium, by sector, 2003-13
                                                                    • Lapse rates are falling
                                                                      • Figure 14: New business and lapse rates for UK PMI, 2009-13
                                                                    • Remedial action taken by the Competition Markets Authority will go some way towards reducing costs
                                                                      • The NHS is facing significant restrictions on spending…
                                                                        • Figure 15: NHS total managed expenditure 2010/11 – 2015/16
                                                                      • The 2015 general election boost to the NHS
                                                                      • Competitor Products

                                                                        • Key points
                                                                          • Private medical insurance
                                                                            • Figure 16: Ownership of insurance or savings products for health needs, July 2014
                                                                            • Figure 17: New business and lapse rates for Private Medical Insurance, 2009-13
                                                                          • Low cost health cash plans are strong competitors in the corporate market
                                                                            • Figure 18: New business and lapse rates for health cash plans, 2009-13
                                                                            • Figure 19: Number of health cash plan subscribers and average price paid, 2010-2013
                                                                          • New NHS services undermine key added value PMI options for individuals
                                                                            • …and the new Government Health and Work Service does the same for company subscribers
                                                                              • The relationship between private healthcare and the NHS is complicated
                                                                                • Competitive remedies to drive down costs for self-paying consumers
                                                                                • Market SWOT Analysis

                                                                                    • Figure 20: The PMI market – SWOT analysis, 2014
                                                                                • Market Size and Forecast

                                                                                  • Key points
                                                                                    • A positive outlook for the private healthcare market
                                                                                      • Figure 21: New business and lapses rates for private medical insurance by sector, 2009-2013
                                                                                      • Figure 22: Number of company paid and individual paid insured subscribers, 2009-2013
                                                                                    • Market forecast
                                                                                      • The value of the market should increase consistently
                                                                                        • Figure 23: Forecast of total PMI gross earned premiums, 2009-19
                                                                                        • Figure 24: Forecast of value of private medical insurance annual premiums, 2009-19
                                                                                      • Increasing numbers of subscribers
                                                                                        • Increasing average premium price
                                                                                          • Market uncertainty
                                                                                            • Forecast methodology
                                                                                              • Fan chart explanation
                                                                                              • Channels to Market

                                                                                                • Key points
                                                                                                  • Overall influence of intermediaries decreases
                                                                                                    • Figure 25: Breakdown of PMI sales distribution, 2012 & 2013
                                                                                                  • Direct corporate sales are also increasing
                                                                                                    • Greater intermediary involvement could boost sales in the individual-paid market
                                                                                                      • The growing importance of digital channels
                                                                                                      • Market Share

                                                                                                        • Key points
                                                                                                          • A highly concentrated market dominated by top five providers
                                                                                                            • Figure 26: Top five providers’ market shares, based on subscription income, 2013
                                                                                                          • Bupa continues to dominate despite 3% drop in subscription income
                                                                                                            • Figure 27: PMI subscription income, 2009-13
                                                                                                          • PruHealth experience sees largest increase in income
                                                                                                          • Companies and Products

                                                                                                            • Bupa
                                                                                                              • PMI market position
                                                                                                                • PMI subscription income
                                                                                                                  • Description
                                                                                                                    • Product range
                                                                                                                      • Figure 28: Bupa’s Independent Policy Options
                                                                                                                    • Financial performance
                                                                                                                      • Figure 29: Key financial performance data for Bupa, 2012-13
                                                                                                                    • Recent activity
                                                                                                                      • AXA PPP healthcare
                                                                                                                        • PMI subscription income
                                                                                                                          • Description
                                                                                                                            • Product range
                                                                                                                              • Financial performance
                                                                                                                                • Figure 30: Key Financial performance data for AXA, 2012-13
                                                                                                                              • Recent activity
                                                                                                                                • Aviva
                                                                                                                                  • PMI market position
                                                                                                                                    • PMI subscription income
                                                                                                                                      • Description
                                                                                                                                        • Product range
                                                                                                                                          • Financial performance
                                                                                                                                            • Figure 31: Key financial performance data for AVIVA, 2011-13
                                                                                                                                          • Recent activity
                                                                                                                                            • PruHealth
                                                                                                                                              • PMI market position
                                                                                                                                                • PMI subscription income
                                                                                                                                                  • Description
                                                                                                                                                    • Product range
                                                                                                                                                      • Financial performance
                                                                                                                                                        • Figure 32: Key Financial Information for Discovery, 2012-13
                                                                                                                                                      • Recent activity
                                                                                                                                                        • Simplyhealth
                                                                                                                                                          • PMI market position
                                                                                                                                                            • PMI subscription income
                                                                                                                                                              • Description
                                                                                                                                                                • Product range
                                                                                                                                                                  • Financial performance
                                                                                                                                                                    • Figure 33: Key financial information for Simplyhealth, 2012-2013
                                                                                                                                                                  • Recent activity
                                                                                                                                                                  • Who’s Innovating?

                                                                                                                                                                    • Key points
                                                                                                                                                                      • The industry is moving beyond cost containment
                                                                                                                                                                        • Bupa has grown its mental health coverage
                                                                                                                                                                          • Aviva’s BacktoBetter improves musculoskeletal services
                                                                                                                                                                            • Developments in elderly care reflect changing UK demographics
                                                                                                                                                                            • Brand Communication and Promotion

                                                                                                                                                                              • Key points
                                                                                                                                                                                • Advertising expenditure remains restricted for second year running
                                                                                                                                                                                  • Figure 34: Advertising expenditure on private healthcare insurance
                                                                                                                                                                                • AXA PPP Healthcare and PruHealth increase advertising expenditure…
                                                                                                                                                                                  • Figure 35: Top ten advertisers of private healthcare insurance in 2014
                                                                                                                                                                                • …whilst Bupa and Simplyhealth cut back
                                                                                                                                                                                  • Provider preferences for different media drives variation in predominance of expenditure both overall…
                                                                                                                                                                                    • A note on adspend
                                                                                                                                                                                    • Product Ownership

                                                                                                                                                                                      • Key points
                                                                                                                                                                                        • Penetration of health-related insurance or savings products is low
                                                                                                                                                                                          • Figure 36: Ownership of insurance or savings products for health needs, July 2014
                                                                                                                                                                                        • Changes to the NHS may encourage greater interest in private cover
                                                                                                                                                                                          • Private medical insurance is the most commonly owned health-related product…
                                                                                                                                                                                            • ...but this may change if providers cannot find ways of attracting a wider range of consumers.
                                                                                                                                                                                                • Figure 37: Ownership of PMI by employment status, July 2014
                                                                                                                                                                                            • Consumers’ Assessment of their Overall Health

                                                                                                                                                                                              • Key points
                                                                                                                                                                                                • Consumers predominantly perceive themselves as healthy
                                                                                                                                                                                                  • Figure 38: Perceived state of health, July 2014
                                                                                                                                                                                                • Taking a different approach
                                                                                                                                                                                                  • Pressures on those in the middle take toll on health
                                                                                                                                                                                                      • Figure 39: Perceived state of health by age, July 2014
                                                                                                                                                                                                    • Building brand awareness amongst the young and healthy creates opportunities for the future
                                                                                                                                                                                                      • Growing health concerns mean that providers need to find a way of making cover affordable for those with the greatest health needs
                                                                                                                                                                                                        • Prioritising healthcare as an essential expense has placebo effect on perceived state of health
                                                                                                                                                                                                          • Figure 40: Consumer perceived state of health, by ownership of health-related insurance products, July 2014
                                                                                                                                                                                                      • Use of Routine Health Services

                                                                                                                                                                                                        • Key points
                                                                                                                                                                                                          • The demand for health-care services is high
                                                                                                                                                                                                            • Figure 41: Personal and family use of routine health services, July 2014
                                                                                                                                                                                                          • Personalisation of services can help consumers see the benefits of private medical insurance
                                                                                                                                                                                                            • Demand is highest for over-stretched GP services
                                                                                                                                                                                                              • Self-employment takes its toll on consumer health
                                                                                                                                                                                                                • Figure 42: Personal use of routine health services, by working status, July 2014
                                                                                                                                                                                                              • The effects of caring for dependent family members should not be overlooked
                                                                                                                                                                                                                • Figure 43: Percentage of consumers who have had a family member visit a GP in the past two years, by age, July 2014
                                                                                                                                                                                                              • Men are missing out on key preventative opportunities
                                                                                                                                                                                                                • Technology can increase interaction amongst hard-to-reach groups
                                                                                                                                                                                                                  • Figure 44: Personal use of routine health services by age and gender, July 2014
                                                                                                                                                                                                              • Use of Non-Routine Healthcare Services

                                                                                                                                                                                                                • Key points
                                                                                                                                                                                                                  • Time to change perceptions of alternative and specialist therapies
                                                                                                                                                                                                                    • Figure 45: Personal use of non-routine healthcare services, July 2014
                                                                                                                                                                                                                  • Shifting care out of hospitals
                                                                                                                                                                                                                      • Figure 46: Personal use of routine health services, by personal use of non-routine health services, July 2014
                                                                                                                                                                                                                    • Use of both routine and non-routine healthcare services negatively impacts perceptions of health
                                                                                                                                                                                                                      • Figure 47: Consumer perceived state of health, by personal use of non-routine health services, July 2014
                                                                                                                                                                                                                  • Attitude towards Private Medical Insurance

                                                                                                                                                                                                                    • Key points
                                                                                                                                                                                                                      • For consumers the existence of the NHS means that private medical insurance is a luxury and not a necessity
                                                                                                                                                                                                                        • Figure 48: Attitudes towards private medical insurance, July 2014
                                                                                                                                                                                                                      • General lack of understanding regarding different policies prevails amongst consumers
                                                                                                                                                                                                                        • Figure 49: Ownership of insurance or savings products for health needs by attitude towards the statement ‘It is difficult to know which Private Medical Insurance policy to buy, July 2014
                                                                                                                                                                                                                        • Figure 50: Ownership of insurance or savings products for health needs by agreement or disagreement with the statement ‘It is difficult to know which Private Medical Insurance policy to buy, July 2014
                                                                                                                                                                                                                      • Lack of interaction with the healthcare system leads male consumers to value PMI less
                                                                                                                                                                                                                        • Figure 51: Attitude towards the statement ‘private medical insurance is not good value for money’ by gender, July 2014
                                                                                                                                                                                                                      • Demand for 24/7 services is driving down young consumers opinion of the NHS
                                                                                                                                                                                                                        • Figure 52: Attitude towards PMI by age, July 2014
                                                                                                                                                                                                                      • Ownership of private medical insurance has a positive impact on consumer attitude towards the product…
                                                                                                                                                                                                                        • Figure 53: Agreement with the statement ‘Private Medical Insurance is not good value for money’, by PMI ownership, July 2014
                                                                                                                                                                                                                        • Figure 54: Agreement with the statement ‘the NHS means that Private Medical insurance is just a luxury’, by PMI ownership, July 2014
                                                                                                                                                                                                                        • Figure 55: Agreement with the statement ‘private medical insurance gives a standard of care that the NHS can’t match’, by PMI ownership, July 2014
                                                                                                                                                                                                                      • ...and towards providers
                                                                                                                                                                                                                        • Figure 56: Agreement with the statement ‘I trust private medical insurers to treat me fairly,’ by PMI ownership, July 2014
                                                                                                                                                                                                                    • Consumer Satisfaction with the NHS

                                                                                                                                                                                                                      • Key points
                                                                                                                                                                                                                        • Consumers are, by and large, highly satisfied with all aspects of NHS healthcare
                                                                                                                                                                                                                          • Figure 57: Satisfaction with the NHS, July 2014
                                                                                                                                                                                                                        • Opinions on GP services are polarising
                                                                                                                                                                                                                          • NHS focus on older patients results in younger consumers missing out
                                                                                                                                                                                                                            • Figure 58: Satisfaction with areas of NHS care by age, July 2014
                                                                                                                                                                                                                            • Figure 59: Personal use of routine health services by age, July 2014
                                                                                                                                                                                                                          • Flexibility will be a key selling point for younger people
                                                                                                                                                                                                                            • Health-conscious consumers are the most likely to have a strong opinion on the NHS
                                                                                                                                                                                                                              • Use of services drives up satisfaction
                                                                                                                                                                                                                                • Figure 60: Personal use of routine and non-routine health services by satisfaction with NHS services, July 2014
                                                                                                                                                                                                                                • Figure 61: Personal use of non-routine health services by attitude towards the statement ‘private medical insurance is not good value for money,’ July 2014
                                                                                                                                                                                                                              • Acute and emergency care produces the highest levels of satisfaction
                                                                                                                                                                                                                                  • Figure 62: Personal use of non-routine health services, by satisfaction or dissatisfaction with access to diagnostic tests on the NHS, July 2014
                                                                                                                                                                                                                                  • Figure 63: Personal use of non-routine health services, by satisfaction or dissatisfaction with the availability of latest treatments and drugs, July 2014
                                                                                                                                                                                                                                • Waiting lists are still a concern for people who have had surgery
                                                                                                                                                                                                                                    • Figure 64: Personal use of hospital surgery by satisfaction or dissatisfaction with NHS waiting lists
                                                                                                                                                                                                                                • Consumer Interest in Additional Health Services

                                                                                                                                                                                                                                  • Key points
                                                                                                                                                                                                                                    • Lack of consumer interest in paying for services limits opportunities for innovation
                                                                                                                                                                                                                                      • Figure 65: Health services consumers would be willing to pay for, July 2014
                                                                                                                                                                                                                                      • Figure 66: Consumer interest in additional services by age and geographic location, July 2014
                                                                                                                                                                                                                                    • Demand for latest treatments risks pushing up premiums
                                                                                                                                                                                                                                      • Empowered consumers are more likely to be willing to pay for healthcare services
                                                                                                                                                                                                                                          • Figure 67: Consumer perceived state of health by interest in additional health services, July 2014
                                                                                                                                                                                                                                          • Figure 68: Personal use of routine health services by consumer interest in additional health services, July 2014
                                                                                                                                                                                                                                        • High-frequency, low-severity healthcare services provide the greatest opportunity for new business
                                                                                                                                                                                                                                            • Figure 69: Personal use of selected routine health services by consumer interest in additional health services, July 2014
                                                                                                                                                                                                                                          • Changing demographics create a need for more flexible family policies
                                                                                                                                                                                                                                              • Figure 70: Family use of non-routine health services by consumer interest in selected additional health services, July 2014
                                                                                                                                                                                                                                            • Positive experiences with private medical insurers lays the foundation for up-selling
                                                                                                                                                                                                                                              • Figure 71: Agreement with attitudinal statements about PMI Providers, by willingness to pay for additional services, July 2014
                                                                                                                                                                                                                                          • Appendix – Market Share and Forecast

                                                                                                                                                                                                                                            • Value
                                                                                                                                                                                                                                              • Figure 72: Best- and wroset-case forecast of the value of private medical insurance annual premiums, 2014-19

                                                                                                                                                                                                                                          Companies Covered

                                                                                                                                                                                                                                          • Aviva Plc
                                                                                                                                                                                                                                          • AXA
                                                                                                                                                                                                                                          • BUPA
                                                                                                                                                                                                                                          • Chartered Institute of Personnel and Development [CIPD]
                                                                                                                                                                                                                                          • SimplyHealth Group Ltd

                                                                                                                                                                                                                                          Private Medical Insurance - UK - November 2014

                                                                                                                                                                                                                                          £1,995.00 (Excl.Tax)