National Friendly Your Health Fund
National Friendly’s Your Health Fund is a private medical insurance (PMI) plan for individuals. It offers a choice of two cover levels:
Level 1: Diagnosis Plus. This pays for diagnoses and outpatient treatments. Private GP consultations, diagnostics, therapies and minor GP surgery are covered.
Level 2: Private Hospital Inpatient Cover. This adds inpatient treatment cover to the Level 1 cover and is not available on its own.
The policy has a five year term and an annual review, with premiums payable monthly. At the five year review, the plan is effectively re-underwritten, so the society could apply a medical loading or apply exclusions for the next five year period.
Underwriting is through full medical underwriting or a 5/2/2 rolling moratorium.
The plan adopts a highly innovate structure, with each Level 1 premium split into two parts. The first £25 a month goes into the customer’s personal claims fund and a multiplier is then applied to what is in that fund. National Friendly initially adds a £100 notional balance, taking the starting fund to £125. Applying the five times multiplier (which apples throughout the five year term) gives an initial claims fund from which any claims will be paid of £625. If no claims are made, the available claims fund increases by £25 x 5 (£125) every month. So, at the end of the five year period the fund would be (£100 + 60 x £25 = £1,600) x 5, or a total of £8,000 if no claims are made.
If claims are made, any claim will reduce the available claims fund. If there is not enough in the fund to meet the claim, the customer may use any remaining available claims fund and then top-up the cost themselves.
The second part of the monthly premium goes into an insurance fund to cover the claims risks. In effect this pays for the multiplier and the initial notional £100 in the claims fund plus the insurer’s costs.
At the end of the five year period, the customer may withdraw any money remaining in their claim fund, less the £100 initial notional amount.
For a Level 2 plan, the same format applies to Level 1 benefits but then inpatient treatment is added, subject to a claims limit of £25K a year. All of that is outside the claims fund, which is still there to cover the Level 1 plan benefits. The £25K limit cannot be carried over if unused or used for Level 1 benefits. In effect, if claims are made on Level 2 benefits a fresh £25K limit applies in each policy year. The treatment date, not the invoice date, determines which policy year is used to fund the treatment.
Level 2 plans cover inpatient and daypatient treatment; medical appliances and prostheses; post-surgery follow-ups and monitoring; removal of impacted wisdom teeth; private land ambulance; complications of pregnancy, and NHS cash (this is a fixed cash allowance as an alternative to private treatment for some procedures).
Clients must be between the ages of 18 and 70 at the start of the policy term and they become voting members of the society on joining.
Claims are managed by AXA PPP healthcare. Terms and conditions are explained in a 56 page document. If the policy is cancelled at any time, any money remaining in the Level 1 claims fund (less the £100 nominal initial sum) will be refunded.
Comment: National Friendly’s shock exit from the PMI new business market five years ago caused issues for brokers and lost it a lot of goodwill. Now however it has returned and, hopefully, learned lessons in the meantime. Certainly, working with a large reinsurer should help avoid a similar situation arising again, while having AXA PPP administer the claims both capitalises on its experience and should generate cost savings too.
But is that enough? The plan design remains complex and that complexity has to be explained to customers. Fundamentally though, the concept is attractive – at least to some – and holds out the prospect of significant cost savings over time.
Even so, benefit limits are relatively low and the outpatient (OP) maximum benefit only builds up over time. Perhaps the biggest drawback though is the fact that, after five years, the customer effectively has to start all over again. That’s fine if they remain in good health, but any new medical conditions could lead to ratings or exclusions. National Friendly says the default there is continuing cover for a further five years with no new exclusions (although the premium could be higher). Alternatively, it can offer exclusions but with reduced premiums.
Conventional individual PMI does not do that, so the plan must come with a health warning. But, if the customer accepts all the possible downsides, there probably remains a market. The issue is how big that market will be and how damaged National Friendly’s reputation has been by what happened in the past.
National Friendly makes the point that even after running into problems five years ago: ‘All of our existing customers have been offered continued cover under the terms and conditions of their policies since we closed to new business. Furthermore, although we did not wish to take on new customers, we did honour our contractual commitments under existing policies such as by the adding of new employees onto SME group schemes and covering partners and/or children under family policies.’ In other words, National Friendly looks to have handled a very difficult situation pretty well. The concept of the plan also remains as strong as it was before it had to close its PMI book to new business and the new plan includes improvements over the old plan such as an annual refresh.
Plus points: A different and innovative approach to affordable PMI; Benefits most those likely to claim rarely or not at all; NF is now working with a large reinsurer which should help avoid the problems of a few years back; Claims administered by the highly experienced AXA PPP.
Not so plus points: A very complex structure to achieve PMI savings; Policy effectively re-underwritten every five years, which could cause problems if health issues arise in the meantime; Relatively low cover levels; OP benefits only increase over time and assuming no or few claims are made; National Friendly withdrawing from the market five years ago lost it a lot of goodwill – can it now rebuild that?
Website: www.nationalfriendly.co.uk.
Rating (max 10): Innovation: 8. Overall: 7. Silver