Two major private medical insurers, AXA PPP healthcare and Standard Life Healthcare, offer policies including a no claims discount structure.
The concept of no claims discounts, familiar from car insurance, has certain attractions and potential benefits. Subscribers who do not claim pay significantly lower premiums than those who do. Subscribers who do not claim over long periods will make substantial savings compared to non-claiming subscribers on standard policies (without no claims discounts).
However, the way medical insurers operate and promote their no claims discount policies carries a real risk of confusing consumers. Consumers may take out such a policy without fully understanding what will happen to their premiums should they require hospital treatment and actually use the policy. Also, the frequently quoted potential for 'up to 50% no claims discountî applies in practice in a way which consumers may find less beneficial than first appears.
Although there is potential for misunderstanding the operation of no claims discount policies, CareHealth does not intend to imply that such policies cannot represent good value or a wise choice. This depends very much on the cover provided and the overall levels of premiums. It is therefore essential to compare premiums.
AXA PPP healthcare offers a no claims discount version of its five main policies: Premier Choice, Classic Choice, Ideal Choice, Key Choice and Assure Choice. There are also standard versions of these policies without no claims discounts.
Standard Life Healthcare's five versions of its Primecare policies all have no claims discount structures. The company does not offer alternative versions of these policies without the no claims discount.
The structures of the no claims discount policies operated by AXA PPP healthcare and Standard Life Healthcare are illustrated below, with typical premiums shown for someone aged 50.
This is a comprehensive policy, with additional benefits.
| No claims discount level | Discount | Monthly premium (£) |
|---|---|---|
| 0 | 0% | 201 |
| 1 | 10% | 181 |
| 2 | 20% | 161 |
| 3 - entry level | 27.5% | 146 |
| 4 | 35% | 131 |
| 5 | 40% | 121 |
| 6 | 45% | 111 |
| 7 | 50% | 101 |
For comparison, the premium for exactly the same policy (Premier) without a no claims discount and irrespective of how many claims are made is £149 per month.
For each year without a claim the subscriber moves one level higher on the discount scale.
For each claim relating to a separate illness or condition the subscriber loses three levels of discount at the next renewal of the policy.
The publicity material for this policy emphasises that subscribers who remain claim free over time can obtain 50% no claims discounts. The potential for confusion comes from the fact that new joiners are given a 27.5% discount on the zero discount rate.
The maximum discount a subscriber can obtain on the premium they pay when they join is 31% not 50% ( by paying £101 a month at level 7 rather than £146 at level 3).
But, more important, is the fact that should a new subscriber make one claim in the first year, or two unrelated claims during the first few years, they will end up paying a surcharge of 38% on the rate they started paying on joining (£201 a month at level 0 rather than £146 at level 3). It will then take a further three consecutive claim free years to return to the discount level they received on joining.
Because AXA PPP healthcare offers the identical Premier policy without a no claims discount structure, the pricing approach can be seen quite clearly.
Monthly premiums for the Premier policy without a no claims discount are £123. This remains constant however many claims are made on the policy (leaving aside age and inflation related increases).
Monthly premiums for Premier Choices with a no claims discount structure at zero discount are £159. In other words the range of premiums starts at a higher level than for the scheme without no claims discounts. Choosing a no claims discount policy can result in a 35% lower premium than one with the discount, (£80 a month rather than £123), but if subscribers are unlucky they will pay 29% more than with the no claims discount plan (£159 a month rather than £123).
The percentages quoted above (but not the premiums) apply to all of AXA PPP healthcare's Choices policies. The facts and figures concerning the operation of AXA PPP healthcare's Choices policies are made perfectly clear in the company's literature. However, we feel the true implications could escape potential subscribers who fail to study the literature closely or are not good mathematicians.
Examples are given for Standard Life Healthcare's Primecare policies below. Three versions are shown because of different entry level no claims discounts. Primecare, Primecare Plus and Primecare Gold all have entry level discounts of 25%. Primecare Saver has a discount of 30% and Primecare SuperSaver 35%. There are no alternative versions of the Primecare policies, without no claims discount structures.
As with AXA PPP healthcare, the facts and figures concerning the operation of Standard Life Healthcare Primecare's no claims discount policies are made clear in the company's detailed product literature.
This is a comprehensive policy, with additional benefits.
| No claims discount level | Discount | Monthly premium (£) |
|---|---|---|
| 0 | 0% | 131 |
| 1 | 10% | 118 |
| 2 | 20% | 105 |
| 3 - entry level | 25% | 99 |
| 4 | 30% | 92 |
| 5 | 35% | 85 |
| 6 | 40% | 79 |
| 7 | 45% | 72 |
| 8 | 50% | 66 |
For each year without a claim the subscriber moves one level higher on the discount scale.
For each unrelated claim the subscriber loses two levels of discount at the next renewal of the policy. Therefore the rate at which discount is lost should claims be made is approximately one third lower than for the AXA PPP healthcare policies described above. The Standard Life Healthcare schemes also have one additional level within the structure, which reduces the range of variation in premiums to some extent in comparison.
The maximum discount a subscriber can obtain on the premium they pay when they join is 33% not 50% (£66 a month rather than £99).
The maximum surcharge a subscriber could pay above the rate they started paying on joining should they make a number of claims is also 33% (£131 a month rather than £99). It will then take a further three consecutive claim free years to return to the discount level they received on joining.
The percentages quoted above (but not the premiums) apply to all versions of Primecare, Primecare Plus and Primecare Gold.
This is a comprehensive policy.
The no claims discount structure is the same as for Primecare, illustrated above, except that new subscribers join at level 4, with 30% no claims discount.
The consequence is that maximum discount a subscriber can obtain on the premium they pay when they join is 29% not 50% and the maximum surcharge a subscriber could pay above the rate they started paying on joining should they make a number of claims is 42%. It will then take a further four consecutive claim free years to return to the discount level they received on joining.
This is a budget policy.
The no claims discount structure is the same as for Primecare, illustrated above, except that new subscribers join at level 5, with 35% no claims discount.
The maximum discount a subscriber can obtain on the premium they pay when they join is 23% not 50% and the maximum surcharge a subscriber could pay above the rate they started paying on joining should they make a number of claims is 53%. It will then take a further five consecutive claim free years to return to the discount level they received on joining.
There is a danger that consumers may be sold a no claims discount policy partly because it offers competitively low premiums at the time of joining and partly because of the potential for even further savings if they do not claim, without properly understanding the financial consequences if they start to claim on the policy. While insurers' publicity material emphasises the potential for savings, it does not give the same prominence to explaining the higher charges which can be incurred.
A no claims discount policy could be purchased by someone in their thirties or forties, who does not claim and therefore benefits from lower premiums. However, if as they grow older, they start to claim, their premiums may increase substantially. They might then compare the rates they are paying with those from policies without no claims discounts and discover that their premiums would be lower on a policy without the no claims discount structure.
However, there are potentially serious disadvantages from changing policy for someone who has developed a history which includes periods of hospital treatment. If they move to a new policy, they will be underwritten as a new subscriber or join on a moratorium basis. Either way they will almost certainly lose cover in relation to conditions which they have experienced in the past.
The consequence is that they may find themselves effectively trapped in the no claims discount policy with its higher premiums if they do not want to lose their existing level of cover. There may be an unwelcome choice between higher premiums and diminished cover, which may lead them to consider a third option: ending their insurance altogether.
Whether this scenario could apply in practice with a specific no claims discount policy depends entirely on the relative premium levels. It is possible that a no claims discount policy even with zero discount is competitive against policies without no claims discount. In such a case, there is no risk from choosing the no claims discount option. It is essential therefore to compare zero discount premiums for no claims discount policies against other policies before making a choice. The final choice may depend on the level of risk the subscriber is happy to take.