Do we need private health insurers?
This week I participated in a webinar hosted by the International Federation of Health Plans (iFHP), the main global trade body for private health insurers. The purpose of this was to present and discuss the Special Report we published on private medical insurance (PMI) in February, to an audience of iFHP’s members.
After a brief explanation of the report’s purpose and main findings, we went into a panel discussion centred around a few questions related to topics it covered. Two of the contributors to the report, Chris Watney, iFHP’s CEO, and James McGrigor, who runs a consultancy advising on international health insurance, participated in this and offered their views.
McGrigor was keen to talk about the need for the industry to get much better at attracting top tech talent, an essential prerequisite if big insurers want to replace clunky legacy systems with better tech stacks, develop more consumer-friendly digital interfaces, and become ‘AI-native’.
I asked if smaller insurers that have built more tech-enabled and innovative offerings such as French insurer Alan or UK insurer Vitality (both of which are case studied in the report), who seem to have no problem attracting tech talent, might end up actually outcompeting the larger incumbents. The answer was a resounding ‘no’.
It’s not hard to see why. The structural dynamics of the PMI market lean heavily against this kind of product-innovation-driven competition. Switching costs are high, and the economics of risk pooling strongly favour incumbents with scale. The incumbents therefore don’t worry about being supplanted and the pace of innovation across most of the industry remains slow.
A fair question to ask given this is whether private medical insurers, in aggregate, actually provide a net benefit to health systems. Many health economists have argued that, at least in a US-context (which is by far the largest market), they do not.
As is so often the case in healthcare, however, what goes for the US doesn’t necessarily apply elsewhere. Whilst the US’ notoriously expensive healthcare system would likely be improved even on a pure cost efficiency basis (not to mention equity and access) if industry lobbyists weren’t so effective at stopping attempts to introduce single-payor statutory insurance, for countries which already have such systems such as France, or which have nationalised healthcare such as the UK, private insurers clearly provide something of value to their members not provided by the national system.
And product-driven competition arguably works better in these markets, because the public or statutory system already does most of the heavy lifting on risk pooling for catastrophic risk at a national level and private insurance is an optional luxury, so private insurers have to compete more to attract customers on convenience, service and consumer-friendly digital interfaces. The answer to the question I posed to panellists might actually be closer to being ‘yes’ if it is restricted to the UK and France: both Vitality and Alan have managed to capture at least some market share from larger incumbents in their respective home markets by offering better products.
But it’s in emerging markets where private insurers and innovative PMI products provide most value. People in countries which don’t yet have comprehensive universal coverage end up spending much more out-of-pocket on healthcare, or not being able to access essential healthcare services at all. Well-designed affordable PMI products tailored for and targeted at these specific markets can help prevent catastrophic financial costs and improve access to basic care for these people. This part of the market may not offer the most lucrative margins for insurers, but the growth opportunity for those able to design and effectively roll out the right products is nonetheless enormous.
We would welcome your thoughts on this story. Email your views to Martin De Benito Gellner or call 0207 183 3779.
