Lee Gerry, group manager of Expatriate Health, an employee-owned, UK-based MGA that provides accident and health protection policies for expatriates, discusses rating and renewal trends and strategies within the international A&H market.
How would you describe the state of the international healthcare/accident and health market at the moment?
The market is becoming a lot more buoyant following a fairly fallow period during the global recession where multinational corporate companies were being less aggressive with their overseas investment. At that time companies looked inward at cost savings and efficiencies rather than investing in longer-term strategies. This meant we saw a number of our groups take stock of their employee benefits, recruitment and movement of staff across international offices.
However, over the past six to 12 months companies have demonstrated a much greater degree of confidence in the future by reversing this strategy and actively seeking to invest overseas as part of a sustained growth strategy.
Customers should have enjoyed a long period of low premium increases in the past few years, reflecting much lower global medical inflation. Indeed, as a result of low inflationary measures and thanks to our commitment to sustainable underwriting, we believe our customers have benefited from the lowest premium growth in the market in the past decade.
Customers who have been with Expatriate for the past 10 years have enjoyed average annual rate increases of 3.68% and that is a figure of which we are extremely proud. That is not to say that medical inflation is not still outpacing normal CPI inflation across the world, but the sustained period of low inflation and, in some areas, deflation, should protect customer against the swingeing increases they have seen from some providers when medical inflation was consistently double-digit.
How significant an issue is regulatory developments in the international medical healthcare market in terms of premium rating?
A lack of regulatory standardisation across the market, especially in Europe, does create some problems. For instance, in Germany you can offer international medical products on a freedom of services basis, but local rules mean an element of long-term (nursing home) care has to be provided as part of that offering. This is completely irrelevant to your average seconded employee or transient expat, serving only to make a protectionist environment for the local insurance providers.
Similar vagaries exist for the different EU countries, moving us towards a similar system to the US, where there are different rules and regulations for each state and the free market does not exist per the original intention. But regulation has to be welcomed. Customers want to know they have the protection of strong capacity providers and the products and services offered are subject to regulatory scrutiny. With a UK head office we are under the spotlight more than some, perhaps, but this results in greater customer confidence.
How have you managed to maintain an average annual rate increases of 3.68% over the past 10 years?
When we established Expatriate we acknowledged customers had varying expectations from their medical policy and we wanted to allow insureds to be able to take out a policy that met with these expectations. While high net-worth and corporate entities have a tendency to want to use their benefits more frequently, individuals and families often just want a policy that is more competitively priced and that they can rely on in emergencies
or for higher cost treatments.
Incorporating a no-claims bonus allowed us to create a product that rewarded customers with a low claims frequency, without penalising them for increased use of those who wanted to use their products in a different way. This has resulted in an excellent renewal retention rate across all business lines as the customer expectations and, where appropriate, rewards are commensurate with expectations. Of course, the lower than 4% average premium increase over 10 years has not done us any harm.
To what extent is Expatriate’s ability to discount its premium rates supported by the fact the company’s focus has been on individuals and families?
As part of our commitment to ensuring we offer best service to customers, we took a decision very early on to stay away from large corporate business. These have a tendency to be moved from provider to provider each year so you do not get the opportunity to develop a relationship with your customer and servicing requirements can be unpredictable. Large corporate accounts have a tendency to be money-swapping exercises and can be prestige quick earners for sales teams.
While you can ring-fence these accounts financially, they are ultimately going to affect your ability to service your book-rated account and take away from the personality of the company, so it is just not on our radar. We have a large proportion of individuals and families – many of our customers have been with us for years and many we are on first-name terms with.
We have extremely low churn in our book and even one of our largest clients, E.on, has been with us for more than eight years now. This is important to us and the foundation of the customer base, high renewal retention and the right kind of growth breeds consistency and predictability. It is boring but, as an underwriter, that is the stuff dreams are made of – and the people who benefit most are our customers.
How significant a factor will rate discounting be in terms of growing your presence in the corporate and affinity group markets?
First of all we need to be clear by what we mean by corporate and affinity groups. Our target audience will have five to 50 employees and we are absolutely not going to consider any new business with more than 150 – so we are very much in the SME market. We have recently reduced our group discounts, which we have been able to achieve on the back of another excellent year of account. We never posted anything close to an underwriting loss and this year is right on track for our targets too.
The intention here is really to communicate with brokers a lot more than we have done in the past, with whom the corporate business sits. About 90% of our customer base is direct and that has been entirely intentional. But what we have grown over the past 10 years has put us on an excellent footing to grow our core customer base beyond that, which we have achieved directly.
What we are not looking to do is increase the book by another £10m in a few weeks, but rather to use our existing underwriting methodology to work with the right partners to continue building the right kind of book of business, which benefits all of the parties involved. We are never going to be all things to all people. Too many of our peers have tried to do this and failed.