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The European voluntary health insurance (VHI) market is diverse (both in terms of penetration and interaction with public healthcare systems) and plays a relatively marginal role in European healthcare funding (Figure 1). However, despite this relative insignificance, VHI has become a major discussion point for many European governments. For instance, in 2002, the interaction between VHI and statutory health insurance was a prominent election issue in both Germany and the Netherlands.
The historical developments of European healthcare systems has led to a rather disparate array of VHI markets and, despite the introduction of the European Union's third non-life insurance directive, cross-border insurer activity can be challenging and potentially ineffective, if choosing to rely on 'Freedom to Provide Services' legislation.
Universal, or near-universal, healthcare provision funded by the state or social insurance, is an underlying principle in the vast majority of European countries. High levels of public expenditure and clear strategic objectives all contribute to a rather comprehensive, and at times impressive, public healthcare offering. As a result, European VHI markets have tended to be modelled around established public healthcare systems.
Essentally, three European VHI models exist (Figure 2):
Complementary and supplementary VHI are the dominant models in Europe and, as illustrated in Figure 2, a degree of overlap often exists. The substitution model only operates in a limited number of European countries and is restricted to certain population groups, for example, the self employed in Belgium and Germany. As can be expected, the level of VHI penetration is influenced by the model adopted. In France, where the complementary model dominates, VHI penetration runs at over 90 per cent (aided by the establishment of the Couverture Maladie Universelle, a universal health insurance coverage in 1999, and the introduction of free complementary cover to residents on low incomes in 2000). However, in countries where the supplementary model dominates, or as in the UK where it is the only model, VHI penetration typically runs at 10 per cent.
EU regulation has undoubtedly impacted the dynamics of member state VHI markets. The third non-life insurance directive that was established in 1992 seeks to promote competition, enhance consumer choice and, in some capacity, drive down premiums, predominantly through increased competition. Essentially, the directive allows EU domiciled insurers to conduct non-life insurance activities, subject to the 'general good' requirement, an exemption that member state governments can rely upon in limited circumstances in any EU member state. The success of achieving these objectives is, however, mixed.
The ever increasing costs of supplementary VHI is well reported and is driven by numerous factors, not least of all medical inflation. Competition has certainly increased in a number of VHI markets, however only a limited number of insurers operate (to a significant extent) on a cross-border basis. A high degree of product differentiation exists in many supplementary VHI markets (providing, in theory, enhanced consumer choice) and is often a core strategy for competing in the market. However the frequent introduction of 'new benefits' can potentially create confusion for consumers wishing to rank and compare offerings. A key question to therefore consider is whether VHI consumers actually benefit from a vast selection of products at the expense of clear understanding and ease of comparison?
Demand for VHI has been increasing in a number of European markets and, driven by continued economic growth, ageing populations and European health reforms, this situation is unlikely to change in the short to medium term. Indeed, VHI is likely to play an important role in future European health reforms due to its perceived benefits in easing the burden on public finances, improving efficiency and enhancing choice. It is, however, debatable whether it addresses the equity issues of improved access and quality. A number of European governments, including those of Germany and Greece, provide tax incentives benefiting both individuals and employers to encourage the purchase of complementary and supplementary VHI.
Demand is obviously influenced by a number of factors and insurer innovation will no doubt play a part. For instance, it is anticipated that 'preventative' and 'lifestyle' benefits will increase in prominence in a number of supplementary VHI markets. As competitive intensity grows, innovation could be a powerful tool for insurers, although this does create a slight paradox when considering ease of comparison. However, true innovation goes beyond benefit 'tweaks' and enhancements.
Almost by definition, supplementary VHI faces greater challenges in generating significant and sustainable growth. In some European markets it appears supplementary VHI has reached a maximum level of market penetration with static (or negative) growth being reported. It is therefore reasonable to assume that supplementary VHI insurers operating in such markets will look with increasing interest at developing European VHI markets, in particular Eastern European markets where it is understood a number of insurers are looking to introduce VHI products. Factors such as increasingly stable and growing economies, increasing consumer sophistication and wealth, expanding private healthcare facilities and social security/healthcare reforms are all contributing to this growing interest. It cannot be disputed, however, that Eastern European VHI markets are typically at an evolutionary stage of development, for instance, in some markets foreign nationals ineligible for public treatment may be the only significant purchasers of supplementary VHI. Products such as 'cash plans' and accident insurance are distributed in many Eastern European markets and, given the lower levels of per capita income, could prove an unwelcome 'competitor' for VHI insurers irrespective of the differences in needs that are being addressed.
Despite the obvious challenges, many Europeans seem likely to take greater control and interest in their healthcare needs and, coupled with growing dissatisfaction with public healthcare services and on-going healthcare reform, supplementary VHI could increasingly become an attractive, and credible, alternative.
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