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COVID, CAT Scans, and Cover: Our view on insurance and preventative healthcare

Insights & Trends

COVID, CAT Scans, and Cover: Our view on insurance and preventative healthcare

Words: Edward Kandel

April 20th 2022 / 10 min read

Our awareness of our health and how we access treatment has never been higher than over the past two years. 

While infection rates are lower, COVID’s impact will be felt for years to come. Over six million people are on NHS waiting lists, as of December 2021 (with 300,000+ waiting for more than 52 weeks for treatment) with these set to continue to rise until at least 2024.

We’ve seen two trends arise from this. The private medical insurance (PMI) market has boomed, with 27% of people in the UK now actively considering buying PMI, nearly double that of pre-pandemic. As a result, the UK health and medical insurance market is estimated to reach $13.8 billion by 2025. Secondly, the increasing strain felt by healthcare systems has put the spotlight back on the need to shift to preventative healthcare - a type of treatment that aims to identify and treat chronic diseases proactively.

Both of these areas have struggled with accessibility—cost and inefficiencies among the principal challenges. Read on to find out what we see as the opportunities in these areas, and two of the companies we’ve invested in as a result.

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?

Why we’re investing in…Mosaic Health

As a result, we saw an opportunity for a digital-first, low-cost, flexible, and SME-focused health insurance player. Digital-first to suit both our new hybrid world as well as fixing the awful customer experiences of many legacy brands; low-cost and flexible to fit into the razor-tight budgets of SMEs. This is where Mosaic Health comes in.

Our investment: Mosaic Health

  • Consumer need & global impact: increasing demand from SMEs and their employees for health insurance, and an inability for existing legacy providers to meet these needs

  • What are they building: a digital-first health insurance platform for SMEs, with a community trust fund that you pay into and control (rather than an opaque premium) as well as digital services and a payment card you can use anywhere.

  • Who’s building it: CEO Tom McCabe (ex-AXA, EY-Parthenon healthcare division) & CTO Guillaume Morel (ex-OnTracks)

  • Traction to date: Launched an early beta with paying customers. Supplier contracts with Livi (digital GP), Ascenti (#1 UK physio), Onebright (#1 UK psychotherapy network). Received approval to issue Mastercards to customers.

Their secret sauce
Affordability and convenience sets Mosaic apart. Their innovative trust-fund models means users have collective access to a ring-fenced fund. You don’t pay a premium: you just pay towards what the health fund paid out to its members last month (plus a super transparent 12% fee). The digital-first platform also creates a frictionless experience, one which can be cancelled with just a month’s notice. An embedded Mosaic mastercard enables you to pay wherever you want for your care - no more networks or having to pre-approve treatment.

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.

Why we’re investing in…National MRI Scan

We saw an opportunity for propositions looking to target issues of access and cost around diagnostics, particularly involved in the tech stack. 

Working alongside Aviva—our corporate partner in fintech—and we deep dived into the market opportunity for a platform facilitating access to diagnostic medical scans. This is where we came across a company called National MRI Scan (rebranding to Scan.com).

Our investment: National MRI Scan/Scan.com

  • Consumer need & global impact: High, unmet demand for preventative healthcare (high cost and friction of diagnostic medical scans)

  • What are they building: Infrastructure to book diagnostic scans, across all modalities, integrated both into the health tech stack and the digital health platforms

  • Who’s building it: CEO Charlie Bullock (Kaampus co-founder, ex Pollen), COO Oliver Knight (ex Helpling, youngest ever Rocket Internet country lead)

  • Traction to date: Bootstrapped to over £1m ARR; then raised $2.5m (investors including Oxford Capital, YZR and Tom Blomfield of Monzo); ARR has now doubled in six months to £4.5 million. Expanding to Germany and the US, imminently launching a range of new scanning modalities and diagnostics.

Their secret sauce
A team of serial operators with a big vision, operating in a white space, moving at light speed with a growing data moat. Beyond slow-moving players who own and operate diagnostic machinery, and thus have significant capital expenditure to scale, NMRI/Scan.com have first-mover advantage, building a product that both B2C and B2B customers love.

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.

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About Edward

Edward Kandel is a Fintech and Insurtech investor at Founders Factory. He was previously an investor at Campus Capital Oxford, and is leading on Proud Ventures, working to bring LGBTQ+ inclusion to VC and tech

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