Private health hit as costly claims boost premiums

The number of people taking out private medical insurance has fallen sharply because "escalating" premiums have made policies too expensive, market analysts have found.

A survey by Datamonitor showed that since 1996 the number of people paying for private health care had fallen by 191,000 to a total of 1.1 million by 2001. Yesterday the company blamed the cost of premiums, which it said had risen by nearly 60 per cent over the same period – from an average of £715-a-year to £1,135 by 2001.

Insurers raised their prices because they were spending more to settle claims from individual policyholders, who include a large number of people aged over 60 who tend to have greater healthcare needs. Because of that, the cost of claims had risen, on average, by more than 10 per cent, with a mean annual claim of £758 in 2000 and £850 last year.

The cost of premiums for group policies had risen more slowly – from £439 in 1996 to £480 – because members had a lower average age and claimed lower amounts and less often than individuals. The mean annual claim from members of group schemes was £383, the company said.

Fiona O'Regan, the author of Datamonitor's report, said private insurance had suffered low growth for a number of years, largely because of a decline in individual policies "due to escalating premiums, which have rendered private medical insurance too expensive".

She said insurers were trying to develop new products to appeal to a broader range of people, including policies with lower premiums but higher excess charges where customers pay for low-cost medical procedures themselves.

She added that insurers were not worried about losing business from the huge amounts of government money pouring into the National Health Service. "They do not believe that the increased investment in the NHS will lead to dramatic improvements," she said. "Many believe that merely investing vast quantities might not be enough to overcome the fundamental problems crippling this service."

Philip Blackburn, an economist for the independent healthcare analysts Laing & Buisson, said the total market for private medical insurance actually grew by 1 per cent in 2001 because more companies were taking out policies for their employees.