Private medical insurance: is it worth it?
Neil investigates private medical insurance to see if it's worth getting.
My favourite measure of an insurance's worth is nice and simple. If you are looking at a type of insurance that you've not bought before, but it sounds interesting, the first question you should ask is: 'What is the claims ratio?' This is the first question I asked when I began my research into private medical insurance.
Claims ratios explained
A claims ratio tells you how much of what is paid to an insurer in premiums is then paid out in claims. Motor insurance, for example, has one of best claims ratios in the industry; about 75% of premiums are paid out in claims. This means that if the average premium was £100 – if only – then insurers are paying out about £75 per policy. Compare this with payment protection insurance, where the ratio is estimated to be more like a disgusting 15 to 20%!
The great thing about the claims ratio measure is that it doesn't matter what the insurance covers, you can see immediately if it's worth the cost of the premium. It might be that the insurance policy covers everything you dreamed of, but costs five times more than it should. Alternatively, the policy may be rife with exclusions, but the profit margin might be small. To me, the latter policy is far better, provided the cover is still useful to you and you understand what is covered.
Sadly, claims ratio statistics can be hard to find and it's proving to be no different with private medical insurance. At present, I still can't find reliable data, although I can have a pretty good guess based on other figures I've found.
The Association of British Insurers pointed me in the direction of Laing & Buisson, the independent healthcare analysts. Laing & Buisson reckons that, in 2003, the private medical insurance market was worth £3bn and total claims cost £2.3bn. This indicates that the claims ratio is a fantastic 77%, beating even motor insurance. This is supported by the Private Health Partnership's claim that the "private medical insurance market has the highest claims ratio in the industry".
What about your circumstances?
The second measure of an insurance has to be a personal one: is it worth it for you? The value of an insurance to each of us depends on our attitudes to risk and the level of risk we face. Therefore, we should use our own judgement.
Before buying private medical insurance (or PMI):
- Check with your employer to see if you're covered through a company scheme. Ensure the level of cover is adequate for you.
- Consider what your risks are. Do you need or want this peace of mind? Is it worth the price you're being quoted? How much will it cost you if you have an accident or illness and you don't have cover?
- Ask yourself: are you mostly concerned about illness or injury that happens abroad? If so, does your travel insurance cover you adequately enough anyway?
- Consider if it would be better just to save the money. Perhaps you feel that your savings will cover you for the most likely medical problems (although don't forget that many such problems are very expensive).
I'm in my company's private medical insurance scheme and I've used it twice in the past six months. If my employer did not have a scheme, I would probably pay for it myself. My reasons are that I'm highly active and therefore much more likely to injure myself than many others. The point is that it's an individual decision.