The SME health insurance opportunity

Within PMI, SME has been an area of huge growth, driven in large part by the red-hot job market in the UK and other countries. We’ve seen a surge in job vacancies (a 20-year high in the UK), with some industries seeing astronomic real salary increases of up to 16.4%. 

Unable to compete with corporates on salaries, many companies have been revisiting their employee benefits to seek out means of attracting and retaining top talent. The What Workers Want 2021 survey highlighted that the most demanded benefit by employees was for health insurance—57% of employees put health insurance as one of their top three most desired benefits. Closer to home, a poll we ran within our Founders Factory portfolio showed that 100% of respondents (of an albeit small data set) were looking at adding health benefits and cover for employees. 

COVID-19 has driven a shift in priorities by SMEs on what they look for more generally in insurance:

Source: McKinsey

There’s also been a shift towards digital — 10% more SMEs believe they won’t use a broker this year whilst there was a 16% increase in those looking to contact their insurer through more digital channels. 

Few offerings meet these demands. Low-cost, digital-first, flexible, and enjoyable health insurance propositions are few and far between. The UK health insurance market is heavily weighted towards corporate customers (60% of the 8 million PMI customers in the UK receive it through corporate schemes) with 90% of the market held by the big four (BUPA, AXA, Aviva and Prudential). The outcome of this market consolidation has not been positive: two-thirds of consumers believe that insurers deliberately make it hard for them to claim, whilst 70% say it hasn’t gotten any easier to engage with their insurer in recent years. 

Some insurtechs and insurers have entered the arena recently, but none successfully solve the problems outlined above:

• Vitality - an exciting and appealing brand built around cashback, benefits, and data tracking, yet falls far from the SME desire for ‘back to basics’ - less than half of the premium you pay to Vitality actually goes towards paying for your health treatment

• Collective Benefits (raised $4.3m) - an innovative proposition targeting underserved gig and contract workers, yet repurposes existing health insurance products from legacy players

• Equipsme (raised £3.1m) - has a focus on SMEs, but is similarly based on legacy technology, using AXA's paper, provider network and claims, and GENSYS’ technology

This is contrasted with some breakout success stories in other geographies. The European star is of course Alan, which raised $361m at a unicorn valuation, as well as unicorns Oscar Health and Bright Healthcare in the USA. So why hasn’t someone been able to fill this demand in the UK?

Moving towards preventative healthcare

We’re getting older and older. In the UK, our population over 85 is expected to double by mid-2045 whilst those of pensionable age will increase to 15.2m, up by 28%. As life expectancy increases, so does the prevalence and cost of chronic illness:

Current healthcare systems are not set to deal with this incoming tidal wave. Chronic diseases require long-term and complex treatment, involving different health professionals in a number of different settings. Healthcare today is largely structured around reacting to and treating acute episodes with less emphasis on healthier living and more proactive and preemptive diagnostics and checkups. In 2015, only 8% of US adults aged 35 or older received all recommended, high-priority, appropriate clinical preventive services. 

Widespread usage of diagnostic tools like MRIs have the potential to not only increase effectiveness but also drastically reduce illness from breast and prostate cancer to musculoskeletal fractures and breaks to acute strokes and dementia.

There are still barriers to this form of healthcare: 

• Cost - Budget deficits and lack of healthcare mean many doctors don’t have time to focus on preventative care for patients. Low capacity at scanning facilities mean markups to ensure reasonable ROI, resulting in a high cost burden for patients (in the US, around $4384 per scan)

• Institutional barriers to healthcare - Certain communities face significant barriers and discrimination to healthcare. Rural communities experience higher rates of mortality and disability than urban communities. Women make fewer visits to the GP, receive less health monitoring, and take more potentially harmful medication. Ethnic minorities on average report worse health outcomes than white individuals. LGBTQ+ people are less likely to have a regular health care provider and thus higher rates of breast and cervical cancer, heart disease and mental health conditions.

• Tech stack deficit - Failures in healthcare to adopt digital infrastructure are well-recorded. Digital transformation in the NHS was recently described as using ‘expensive and unproven strategies’ that ‘don’t deliver’. Outdated IT systems force NHS staff to use up to 15 different computer logins, while the national programme for IT cost £10 billion and failed. In the US, 91% of hospital boards rely entirely on consultants for healthcare IT strategy and advice whilst many long-term care facilities still rely on paper records for patient information and coordinating care.

Recent years have simultaneously seen a heightened awareness around health, as well as turbocharged response through technology to enhance access and delivery of healthcare. We’re excited about the potential of technology to transform people’s ability to access the right type of care frictionlessly, as well as renewing their confidence that there is a health insurance system that works for them.