Medical & Health Insurance is Key Note's analysis of the demand for health-related insurance. An NOP consumer survey was commissioned for this report, covering the use of and attitudes towards health and medical insurance. The report is concerned with several types of both long-term and general insurance. Income protection, critical-illness cover, long-term-care insurance and mortgage protection are classed as long-term products, while private medical insurance (PMI), personal accident insurance, mortgage indemnities and the legal-fees insurance that underpins the accident compensation industry, are general insurance. The distinction between long-term and general insurance can be confusing for consumers.

Medical and health insurances are of minor significance in the insurance sector generally. PMI, which pays for private treatment and is the largest subsector within illness and injury cover, is a minority purchase. Company directors account for more than one in eight of those for whom employers provide private medical insurance as a 'perk'. Premium levels are high and rising rapidly. The NOP survey conducted for this report indicates that the take-up of private medical insurance has risen since April 2000, but the rise is due more to expansion in employers' schemes than to a rise in the number of individual policyholders.

Around 1.8 million people a year take time off work because of stress, and a significant minority of these are away for more than 100 days. These are the people who, if it is proven that they are unable to work normally, would benefit from income protection policies, which are generally triggered after 90 or 180 days of illness. The main providers of income-protection insurance in the UK include a subsidiary of the American company Unum, and Abbey National's Scottish Provident and Scottish Mutual. Critical-illness cover provides income or a lump sum when a policyholder is affected by one of a specified range of conditions. The Association of British Insurers' (ABI) critical-illness working party will be reviewing policies in May 2002, and is expected to exclude conditions that are not life threatening or do not significantly alter the sufferers' quality of life. Insurers argue that they must redefine policies to keep pace with medical discoveries, or risk increasingly large pay-outs. UK commercial insurers will have a tough job combating the large and innovative European and US companies on one hand, and the not-for-profit societies on the other, in a market needing heavy promotional spending to make consumers aware of the limitations of the welfare state. Insurers also need to consider the risk that the UK may follow the Western European trend rather than the US way, and expand the scope and generosity of welfare benefits, financed by higher taxation and greater government borrowing.

Between 1996 and 2026, there could be a rise of 76.6 percent in the number of men aged over 75, and 33 percent more women of the same age. Many of the very elderly will need care, and insurance has a potentially large role in funding it. As yet, however, very few care policies are in force. Residential care for the elderly is free at the point of service in Scotland. In England, Wales and Northern Ireland, the nursing element of care is now covered broadly by the State, but those pensioners who can afford it must continue to pay for the accommodation portion of care. The socialisation of care in Scotland dramatically curtails the long-term-care insurance market there. Both BUPA (the dominant force in private medical insurance) and Norwich Union (the brand name used for healthcare insurance by CGNU) are working to expand the long-term-care market.

PMI stagnated in the 1990s and continued in the doldrums until 2000, when the sector grew relatively strongly. However, the expansion is wholly within group schemes run on behalf of employers. Companies get a better deal than individuals when purchasing PMI. Growing numbers of individuals pay for private treatments themselves, rather than take out insurance. The number of cash-plan subscribers, entitled to receive payments towards specified healthcare costs, is also rising.

The UK Government has set the ambitious target for the UK to reach European levels of health spending by 2005. A better-funded NHS would curtail demand for PMI. In terms of public spending on health as a percentage of GDP (gross domestic product), the UK currently ranks with Hungary, Italy and Spain, and not far ahead of Poland, Portugal and Greece, according to Organisation for Economic Co-operation and Development (OECD) figures.

In October 2001, insurers agreed not to use information from genetic testing for at least 5 years (until 2006), except for very high-value policies and for specified inherited conditions such as Huntington's chorea. After 2006, another agreement will be needed if genetic testing is not to become routine. Testing would discriminate against customers with genetic defects. Meanwhile, innovative lower-cost products are coming onto the market from both mutuals and commercial companies. BUPA's leadership in medical insurance and private treatment and care is likely to continue.

Other not-for-profit organisations will retain strong positions, particularly in low-margin sectors. Commercial involvement in limited-liability insurance, such as cash plans and time-capped mortgage-indemnity insurance, should grow. The PMI sector should expand steadily, with most of the growth in products designed to compensate for gaps in NHS treatment, not to replace it

. Income-protection and mortgage-protection premium income should rise at similar rates to medical insurance overall. Long-term-care insurance has the potential to more than double by 2006. Personal accident insurance will be sluggish, with barely any real growth, as more people opt to wait until an accident happens and then try a compensation claim.