Funding PMI excess with cash plans unsustainable – Engage
Provider says trend will push up premiums as providers cotton on to claims behaviour
A developing trend of using cash plans to cover the excess on private medical insurance (PMI) will push up premiums has taken hold, an insurer has said.
David Castling, commercial sales manager at Engage Mutual, said advisers are recommending individuals take out both a cash plan and PMI, with the cash plan having an option to cover the excess payable on the PMI.
“We have seen a trend of brokers underpinning PMI with a cash plan,” he said. This is done because it makes the PMI cost cheaper for the individual, Castling added, as a larger excess can be selected.
“You mitigate the claims behaviour so that makes it cheaper for the client,” he said.
But Castling warned this coverage model has its shortcomings because lower premiums are being put toward a PMI policy that comes with a greater excess even though providers are still having to foot the ultimate cost of treatment.
“I don’t think it’s very sustainable, it’s a short-term fix,” he said.
As shown in the Money Management cash plans survey, published in the July 2012 issue, there are 26 plans available direct to individuals from 19 providers. While costs vary hugely, cash plans are typically cheaper than PMI and have more basic cover, such as dental and optical.
Health Shield has an option on its policies to cover a PMI excess, which is contained within its consultation benefits, and marketing manager Lara Rendell said the trend is not a problem for the company.
“Because [cash plans] have got things like physiotherapy, it could actually reduce the need to claim on a PMI plan because you have had therapy beforehand,” she said, adding that this may reduce the cost to the PMI insurer in the long run.
However, Castling said the trend is likely to push up the cost of PMI as insurers try to cover their costs.