Good morning. Thank you to Owain for that introduction and for the opportunity to be with you today.
Last year I gave a speech which I called “The Need for Health Insurers to ‘Mind the Gaps” as I believe that there are key gaps in terms of where the health insurance industry is, relative to where it needs to be. I will come on to those a bit later but in my role as the ABI’s Director of General Insurance Policy, there is a breadth to the areas I cover – from motor and home through travel to more specialist commercial insurance products like trade credit or cyber insurance – rather than a specific focus on health insurance.
Some might say that makes me a Jack of All Trades and Master of None. But I think it offers the ability to learn lessons from working in one product area and apply those when thinking about opportunities and challenges in another. So, I wanted to start my remarks this morning with some more macro political and regulatory reflections in the context of the pandemic, in addition to considering some of the challenges that the UK’s decision to leave the European Union continues to pose in the PMI sector. I hope that in doing so I don’t create a mis-selling scandal – the agenda for today’s event suggests that Brexit would be a key focus of my remarks. In fact, although there remain some challenges, we are 18 months on from Brexit, so I wanted to share some broader reflections in the hope that they provide some food for thought for your discussions over the course of today.
Brexit and its regulatory impact
The UK’s decision to leave the European Union has been one of the most significant societal and regulatory upheavals the UK has faced in a generation and the PMI sector has not been immune from some of the challenges that Brexit has posed.
As society’s risk managers, insurers were quick to recognise and respond to the regulatory challenges Brexit represented, including thinking about how to continue to provide a service to customers in the absence of passporting arrangements. For those firms who made a strategic choice that they wanted to maintain a relationship with their non-UK based customers, this required the selection of an EU jurisdiction in which to establish a subsidiary and then undertaking the significant job of a Part VII transfer. Taking decisions early and implementing and delivering on an action plan meant customer disruption was minimised at the end of the transitional period.
A decision to leave the European Union meant insurers needed to start thinking differently about the UK’s relationship with Europe, that is, they needed to start thinking about the how the UK does business with other non-EU countries because, for the purposes of EU rules, the UK itself would be a third country. But that didn’t – and doesn’t – mean that all business would need to stop somewhere in the middle of the English Channel. Away from the high-politics of the future trading relationship of the UK and EU, health insurers were thinking about the lessons they had learned from servicing the number of corporate clients who had purchased international health policies covering employees resident in another jurisdiction.
In order to minimise regulatory upheaval and provide business continuity, the Government took the decision to on-shore EU regulations but it has always been clear that the UK and EU’s regulatory paths could diverge. To quote John Glen, the UK’s City Minister speaking at the ABI’s Annual Dinner in February “leaving the EU means that the UK can now tailor the prudential regulation of insurers to our unique circumstances [and] regulation developed to reconcile insurance markets for 28 different countries in the EU never worked well for us [and] now we’re outside the EU, this Government is determined to fix that”.
You will be pleased to hear that I have no intention of getting into the intricacies of Solvency II reform, but the key point is that 18 months after Brexiting, both the EU and UK will review old rules - indeed, the EU has already done so - and both the UK and EU will make new rules that affect insurance generally, and PMI specifically. Regulatory divergence is now a known risk, and we all need to get used to that reality and continue to serve our customers as best we can in that context.
Lessons and opportunities from the pandemic
After the upheaval of Brexit, Covid-19 posed significant additional challenges. Although the pandemic is certainly not over, we are beginning to see the public health situation improve and societies learning to live with Covid – witness us all being together today in this room, something unthinkable 12 months ago. And as we come together, it is a good time to reflect on what the PMI sector has done well over the course of the pandemic, but also what could be improved on.
There is no doubt the private health sector played its part in terms of providing hospital capacity enabling non-Covid+ patients to get the sometimes life-saving treatment they needed, leading PMI providers proactively offered premium rebates to their customers and the sector quickly adapted its service offering to meet consumer need through digital provision, especially through GP, physiotherapy and mental health services. Indeed, the need for more flexible, convenient, and accessible care was thrown into sharp relief during the pandemic. As was the need to give consumers greater access to their medical data – the NHS app was the most downloaded free app by iPhone users in 2021 and that is something that is probably here to stay.
But the experience of the wider general insurance industry over the last two years offers plenty of areas for reflection by the PMI sector. Relative to other general insurance products like motor, property or travel, health insurance is poorly understood. And for a product with sometimes very expensive premiums, partly because of the taxes imposed, it will be important for PMI providers operating in the UK to ensure that the value of the product being offered is clear, especially in the context of the FCA’s new GI Pricing rules.
The expectation gap
In addition to domestic regulatory challenges, like the general insurance market more generally, the PMI sector has long struggled with issues associated with consumer trust. The pandemic has worsened those pre-existing issues, highlighting the gap between what a customer thinks an insurance product provides and what the insurer thinks they are providing cover for. This expectation gap lies at the heart of the debate on whether insurers were liable for business interruption claims from businesses forced to close as a result of the pandemic.
You might think that the complexities of a commercial business interruption insurance policy bear little relevance to health insurance and international PMI, but I would encourage you to think again. Health insurance coverage is largely provided by employers through the workplace. While this has many advantages, the beneficiaries of that cover are much less engaged in the purchasing journey. A key question for the industry to reflect on in that context is how to ensure that the end user of the product – not necessarily the purchaser – has sufficient information available to them and that they understand the insurance product that is covering them.
And I use the word “industry” rather than insurers deliberately. Insurers, brokers, advisers and employee benefit consultants all need to work together – as an industry – to ensure that customer engagement and understanding are a priority. We need to avoid an insurance apathy trap where customers become even less engaged in understanding their insurance. Less engaged customers are less informed customers which presents a real risk to the industry.
But customers won’t engage with our sector if they don’t feel comfortable in doing so. To address this, the ABI worked with employee and wellbeing charity Rightsteps to develop a CII accredited mental health training course to improve customer experience and understanding for people living with mental illness, through targeted and relevant advice. The course is free to register for on the ABI website and helps advisers and insurers’ frontline staff gain a better understanding of mental health issues and improve the accessibility and support for customers.
The evidence gap
To change the value perception of health insurance we need to get better at improving the evidence base at our disposal to demonstrate the positive health impacts that PMI provides to the overall health of society. Frankly, the evidence base today is not good enough, which is why the ABI’s Health and Protection Board has rightly made improving this a key strategic priority.
By building a high-quality evidence base, we can better justify our public policy asks and feed those asks into Government decision making. In the UK, for example, there are significant tax disincentives on employers providing PMI as a benefit to their employees, including both IPT and the treatment of PMI as a benefit in kind. Asking for favourable tax treatment on a product that is generally seen as a product for those on higher incomes was a big ask before the pandemic. With the Government having spent hundreds of billions of pounds supporting the economy through the headwinds of Covid-19, this is an even bigger ask today.
So, the evidence required to justify any of the industry’s policy asks of Government has to be robust and comprehensive, demonstrate how health outcomes for citizens will be improved and that it will save Finance Ministries money in the medium to long term. No doubt the intermediaries in the audience today would also welcome this additional data as it could help you tell a different story to your clients about how PMI supports healthy and productive workplaces.
The health and work landscape
It is that linkage between health outcomes and employment that has become such an area of focus in recent years, not least because good quality work is one of the best indicators of life expectancy.
Healthy workforces are productive workforces which is why it is so important to get people back to work as soon as possible following any health problems an employee faces. Better yet, prevent people from falling out work in the first place. Needless to say, sickness absence also comes at significant cost both to employers and the individuals who are unable to work. This clearly demonstrates the societal and economic importance of proactively managing health, rather than treating ill-health reactively when the damage has already been done. Using data and technology to proactively manage health is something few would argue with, but it is an area fraught with challenge that we are increasingly going to need to grapple with as an industry in the years ahead.
Data science and AI
The increasing availability and use of data, the rise of artificial intelligence and the increased use of algorithms in pricing, all pose significant opportunities and risks for insurers and brokers but also significant challenges for public policy, not just here in the UK. Some argue that by 2030, insurance, and in particular the risk assessment process, could be transformed by AI which has the potential to bring new benefits to consumers through more personalised and affordable products. It also promises to benefit brokers by speeding up the underwriting process, and better enabling innovation in distribution.
These technological advances also come with risks that need to be carefully thought through. When navigating this new terrain and the possibilities it affords, it is crucial to be both proactive and transparent about the commercial as well as the ethical, regulatory and societal considerations.
In the health market, AI can already be used to analyse big data sets and to evaluate mortality risks with accuracy. As new and increasingly personalised data sets become more readily available, whether that is through increased availability of a patient’s medical records or data from wearable devices, it is important to remember that, at its heart, health insurance is a people business. Policymakers and regulators have an expectation that insurers will seek to strike the appropriate balance between human understanding, empathy and awareness of the wider factors that impact customers on the one hand, whilst harnessing the benefits of increasing data optimisation on the other.
Advances in genomics
It is in the area of genomics where I see this tension potentially posing significant challenges. The social purpose of health insurance has traditionally been about protecting people and families against the risks they face, but that is changing. A key role of the health insurance industry of today and tomorrow is much more about prevention and early intervention.
As an industry, we have long been aware of concerns about the use of genomic information by insurers. To manage this risk, we developed an ABI Code on Genetic Testing and Insurance, which is a voluntary agreement between the UK Government and the ABI. Insurers signed up to the Code will never require an applicant for insurance to undertake a predictive or diagnostic genetic test and will only consider the result of a predictive genetic test in a very small number of cases.
But as the availability of predictive genetic testing increases and the cost of those tests become ever cheaper, there is an increasing asymmetry of information between consumers and insurers. Taken to its extreme, a consumer could purchase a genetic test, discover that they are susceptible to a particular type of cancer and immediately purchase a health insurance product to protect themselves against the cost of future treatment. In that context, the ABI’s Code on Genetic Testing could come under strain.
Research commissioned by the ABI to assess the impact of genetic testing on the UK insurance market points to three key gaps where further work is required to ensure the ongoing effectiveness of the Code.
First, the poor availability of data on genetic tests and conditions, which hinders assessment of the potential risks a genetic condition presents to the insurance industry. More needs to be done to identify the areas and types of information that need to be monitored to adequately assess the risks.
Second, a lack of UK-based behavioural research on whether genetic test results impact on insurance-related behaviours and lifestyle changes. Further research on the uptake of, and motivation to use, genetic tests could help to address this gap.
Finally, there is the uncertain impact of genetic developments on healthcare and insurance. The way that individuals access information on genetic health risks is likely to change, so is important that we keep track of developments around access to genetic testing and work to develop a clearer picture of how these affect the risks posed to the industry.
I don’t pretend to have the answers to these challenges. We are aware of the threats of greater use of genomic data, potential anti-selection risks, and consumers’ lack of trust in insurers’ use of health data. As an industry we have more to do. But I do think it is important that we continue to seek to learn from other jurisdictions who are all facing the same challenges, especially in an environment where the pace of technological advancement and societal expectations are changing faster than the traditional political and regulatory machinery can keep pace. Whilst amendment to the Code is likely in the future, any change will need to be managed in partnership with the Government to provide the necessary reassurance to customers about how their data is being used, whilst allowing insurers to provide cover and accurately price risk.
Conclusion
So, in conclusion, I hope in my remarks this morning, I’ve provided some food for thought for the discussion and debate that emerges over the course of the rest of the conference. I’m not naïve enough to think that the UK PMI market has all the answers – let alone has identified all the right questions. But by looking at the world of PMI through the lens of some of the challenges and opportunities faced in other general insurance product lines, I think there are important lessons to learn and areas to reflect on. And I also think that we need to be open, honest and transparent about that with politicians, regulators and society more widely. If we are, the PMI industry will be the better for it in the long run.
Thank you.