our report to you 2008 - health & dental plans
TRANSCRIPT
our report to you2008
where you can find it
our highlights 2008 01
who we are 03
where we are going 05
helping our customers 11
helping our people deliver 21
supporting our communities 25
how our board helps 29
our financial performance 35
What did Simplyhealth do for our customers in 2008?
> HSA introduced ‘welcome calls’ to new customers showing them how to use the Healthplan right from the start.
> Greater clarity brought to 20,000 HealthSure customers by moving them to an annual benefit system which is much easier to understand.
> The next phase of PULSE was launched to cover our Private Medical Insurance business and allow us to improve functionality for our brokers and corporate clients.
> Simplyhealth opened its first high street store in Andover to help customers with their mobility and disability needs.
> We launched two new Healthplans, the Chiropractic Plan and the Osteopathy Plan, for customers who particularly make use of these services.
> Working with Healthcare at Home, we gave Private Medical Insurance customers access to chemotherapy treatment in their own home, rather than having to go to hospital.
What happened behind the scenes?
> One Voice, One Purpose, One Flag – Des Benjamin announced the vision to forge a united group by moving to a single brand, Simplyhealth. Work is underway to make this happen in the next 12 months.
> We brought together our three Private Medical Insurance businesses, BCWA, Medisure and Remedi, in Bristol.
> We won five major industry awards which confirms that the efforts we are putting in to improve our service for customers and wellbeing for employees is being recognised.
> We took some tough decisions to make sure Simplyhealth is in good shape for the economic challenges that lie ahead.
> We carried out a full review of our information security arrangements providing better protection of our customer and employee data.
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our highlights
BCWA offers Private Medical Insurance policies to meet the health and wellbeing needs of individuals, families, small companies and large corporate organisations throughout the UK. We currently have more than 350,000 customers, with the majority of policies being sold through brokers. We joined the Group in February 2005 and are based in Bristol, where we began in 1935. We were further strengthened by the acquisition of Remedi in 2006 and Medisure in 2007. Remedi and Medisure provide bespoke solutions for large companies wishing to self-fund their employees corporate medical plans.
HealthSure continues to hold its place as the North West’s favourite Healthplan and goes from strength to strength in its reputation as a national provider to companies who help manage their staffs’ wellbeing through access to healthcare. Pride in our 137 year heritage and excellence in service to both individuals and organisations has helped us continue to grow. We became part of Simplyhealth in 2005 and in 2008 we completed our move to new offices in Manchester, which will become a strategic base for Simplyhealth in the future.
HSA is dedicated to further developing a range of low-cost affordable Healthplans for individuals, families and companies across the UK. Originating in London, we have been serving our customers since 1922, a history which pre-dates the NHS, and more recently, our home has been Andover in Hampshire. HSA exists purely for the benefit of our customers which allows us to place them at the heart of everything we do.
LHF has been built upon a continued dedication to offer products and services that provide value for money, relevance and understanding of people’s needs and those of the local community. We have helped a high proportion of the Yorkshire population, especially in Leeds, for more than a century. LHF joined forces with HSA in 2002 to begin the creation of Simplyhealth.
Totally Active joined Simplyhealth in 2006 and is based in Andover, Hampshire. Now known as Simplyhealth, we offer a range of high quality mobility aids and household essentials to improve daily living. Our goal is to serve our customers and the wider community with the value and reliability people have come to expect from Simplyhealth. See our full product range at www.simplyhealthstore.co.uk
Our Trading Divisions – soon to be Simplyhealth
As a member you make me feel that I am an integral part of the company and its ethos, this is important in any organisation
“
”Mr Barringer – Voting Member
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Financially, we have been driven backwards by a combination of external factors such as the economy and stock markets. We have defended against these to the best of our ability. Additionally, however, we have also been disappointed in the financial results for two of our core products, Private Medical Insurance and Dental Insurance, where we have paid out more in claims than we budgeted for during the year. Most importantly we have remained prudently focused on holding sufficient reserves and on managing risk effectively, lessons that other financial service providers have learned the hard way. In particular our continued financial prudence, strong reserves and a clean balance sheet are key strengths of our business and in 2009 we expect to be able to put the organisation back onto an even keel and, economy willing, to strengthen our reserves again.
The best of Simplyhealth in 2008 was reflected both in the efforts of our employees to develop some excellent new products and services for our customers, and also in the number of industry awards we won. We are rightly proud of these and you will read more about them later in this report. My thanks go to the many people in Simplyhealth who work with great fortitude to make good things happen.
It gives me great pleasure to acknowledge the significant contribution of our former Chairman, Major General Brian Pennicott, who retired at the end of 2008. Brian has been responsible not only for enabling the successes of this and previous years but over the last ten years, has also overseen the bringing
together of our Group of companies to form Simplyhealth. His vision and leadership are what enable us to stand today at the moment in our history when we launch Simplyhealth to the wider public, and whatever it achieves in the future will, in no small part, be due to the enormous contribution Brian has made. My sincere personal thanks go to Brian, and I will be proud to work as part of the Simplyhealth Board to further develop his legacy over the next few years.
In taking on this role, I am focused on leading the Board to ensure that Simplyhealth continues to lead the market in the standards with which we serve our customers. This has always been our key differentiator, and it is now more important than ever that we get it right on all fronts and do not succumb to market pressures that might reduce our performance for our customers.
As we emerge from this difficult economic period it will be our reputation and the confidence our customers have in us to do the right thing for them that matters. You can be sure that alongside continued financial prudence and the drive for profitability, these are the things that your Board will focus on, and be held accountable for.
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who we areKen Piggott, our acting Chairman, reflects on leading Simplyhealth in a changing world, while remaining true to our values.
Recognising the extraordinary times that we are all experiencing, in my first report to you as acting Chairman, it is unfortunate yet unsurprising that I must confirm a difficult trading year for Simplyhealth. Yet, while it was, without doubt, a disappointing year financially, it was also a very successful year for serving our customers. So perhaps Charles Dickens’ famous phrase ‘It was the best of times, it was the worst of times’, aptly describes Simplyhealth’s fortunes in 2008.
“It was the best of times, it was the worst of times”
Charles Dickens
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Simplyhealth – who we areWe have often described ourselves as a ‘mutual organisation’ but that label doesn’t adequately explain who we are. Although we do share a number of characteristics with mutual, provident and friendly societies; strictly speaking we do not fall neatly into any one of those categories. We prefer to think that what we do and the values that we stand for define us better than any legal term or label ever could.
We are run for the benefit of our customers and clients. But what does this mean in practice? To put it simply our goal is to deliver the best possible service and the best value products to our customers and clients. With no shareholders, we are not diverted from this goal by the need to make short term decisions that support a share price or shareholder dividend. We are able to focus on things like increasing the claims we pay to our customers, or investing in IT systems to enable us to give better service to our customers and clients.
This does not, of course, mean that we do not need to generate a profit from our operations; it just means that we do not seek to maximise those profits but to optimise them. The profits that we make are reinvested back into the business for the benefit of our customers and clients and to ensure that the organisation remains safe and secure now and in the future.
We also use some of our profits to support the communities where our customers and clients live and where we operate. This is as fundamental to our reason for being, as the delivery of our best possible service to our customers and clients. It is not a PR tool but is part of our DNA and enshrined in our Constitution.
These are our goals and the values that we have been acting on and putting into practice for over 137 years since
Manchester and Salford Hospital Saturday Fund was established. This is our heritage, our reason for being and what we care about. They are things that will not change and which we judge ourselves against.
So how have we done in 2008?In reporting to you over the last couple of years, I have advised that profit would be flat for a few years because we were deliberately choosing to make a number of investments in order to be able to serve our customers and clients better. Examples of these investments are PULSE, our customer administration computer system, which helps us serve over a million people. We have launched a Dental Plan which is now helping over 70,000 customers manage their dental health and we invested a further £4.5 million in our screening and occupational health business, Vitality Healthcare. We also invested further in our Private Medical Insurance business with the acquisition of Medisure, which has strengthened our offering to clients.
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where we are goingDes Benjamin, our Chief Executive, reports on the harsh realities of 2008 for Simplyhealth.
Over the last twelve months there have been many column inches devoted to the global financial crisis. There have, however, been few people or organisations who have been willing to give an account of themselves. In ‘Our report to you 2008’ this is exactly what we are going to do because we believe trust matters.
I would like to start with our reason for being, and the values that guide us and shape our duties to our customers, clients and communities.
“The values we stand for define us”
1millionfewer adults able to access an NHS dentist in England since April 2006
The Dental Benefit Plan market share exceeded
£500million
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These decisions were not taken lightly and they do not reflect the contribution and commitment of our employees. I would like to thank all of them for their hard work and professionalism in what has been a challenging year for all of us.
We have however put ourselves in a good position to be able to work our way through the economic downturn – something many businesses are struggling to do at this time.
2008 was not all doom and gloomIt would be wrong to assume because of all the external factors affecting the economy, that 2008 was a poor year all around. That certainly was not the case for Simplyhealth.
One voice, one purpose and under one flagThe businesses within Simplyhealth have previously been trading under the names of BCWA, HealthSure, HSA, LHF, Medisure, Remedi and Totally Active. In July we took the decision to change the names of all of the businesses in our Group to Simplyhealth.
The Simplyhealth name is an appropriate and obvious choice as it says more about us, our focus and our aspirations. This re-branding will not change who we are or what we care about. It will, however, make us stronger and more effective, and the awareness of us as one company, with our customers, clients and
the healthcare industry, will be greater. The move to Simplyhealth ends one period of our history which goes back over 137 years and I would like to pay great respect to the individual businesses that got us to where we are today.
Serving youOur customer service is shaped by our belief that the health of our customers is vital and that the quality of our service reflects this. The values of respect, reliability, helping people and making things as straightforward as possible have always been part of the fabric of Simplyhealth. I am therefore pleased to tell you that we won a number of awards in 2008. At the annual Health Insurance Awards, HealthSure won ‘Best Healthcare Cash Plan Provider’, while BCWA’s triumph of winning the award for ‘Best Customer Service’ was capped when they also won the accolade of ‘Health Insurance Company of the Year’. At the Personal Finance Awards, HSA won ‘Best Health Related Insurer’.
Simplyhealth hits the high streetTotally Active opened its first high street shop in Andover in October under the new Simplyhealth name. The philosophy behind the store is to offer people with disabilities a range of products that help them maintain their lifestyle, enable them to live life their way and to give a positive and practical shopping experience.
where we are going
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The cost of these investments adds up and therefore we were expecting profits to be flat but I am disappointed to report that we have, in 2008, made a retained loss of £33 million which includes investment losses caused by stock market collapses. This loss is more than we expected and does mean that our reserves will reduce in 2008. Keith Blacker, our Finance Director, explains later in this report how our business has performed and what lies behind the figures.
Difficult decisions for challenging timesWhen I reported to you in 2007, there was no way of knowing that the financial system was increasingly fragile or that the banks would not survive without government support. I did assure you that I would keep a watchful eye on events and adjust our programmes and goals to meet the changing environment and that is exactly what we have done.
The impact of the economic downturn on Simplyhealth became clear during 2008 with lower than expected sales across all products and our customers claiming at much higher levels than we expected, particularly on our Private Medical Insurance and Dental Plan.
We therefore took some decisions to minimise our losses and deal with the difficult trading conditions:
> Due to continuing losses, we could not sustain our investment in Vitality Healthcare and closed the business after completing our client work at the end of 2008.
> With much higher than predicted claiming levels, our Dental Plan was reviewed to reduce some benefits to a level that gave our customers good value while providing enough of a return that pays for us to administer the product.
> We took a number of steps to manage and reduce our expenses and regrettably this led to us having to lose 43 jobs across Simplyhealth.
> We decided that, while charitable giving is at the core of what we do, we can only do this if we are making money. So we have reduced the amount we will be giving to charity in 2009 to £1 million, recognising it is likely to be a challenging year.
> We reviewed our approach to pay and bonus to reflect our business performance. The Executive Team’s Long Term Incentive Plan was cut by about 25% and their 2008 pay rise was removed. They will also not be receiving a bonus for 2008 or a pay rise in 2009. We also decided not to award pay rises for senior employees and less than 10% of employees overall received a bonus in 2008. We believe that this is the right and responsible thing to do.
where we are going
“We are run for the benefit of our customers and clients”
31.3%The amount FTSE 100 share index fell compared to 2007
1.5millioncalls taken on our freephone number
1 million+new visitors to Group websites
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A thank youLast but by no means least, I would like to add my personal thanks to Brian Pennicott. Over the last nine years he has steered me, the Board and Simplyhealth towards achieving our shared vision of making a difference for our customers and communities with a care and dexterity which I believe has greatly contributed to our chances of success. Thank you, Brian.
Looking aheadAs a consequence of all our actions in 2008, we are fitter and stronger and prepared to take on the challenges that face us over the next few years. We are conscious that many of our customers and clients are also facing challenges. We therefore continue to work hard at keeping our value for customers high and our service personal and convenient by uniting all of our employees, customers and clients under the Simplyhealth banner – a new and trusted name in healthcare.
Take care
The Healthplan business continues to developInnovation does not stop even in tough times. After nearly a year of research and development we have launched two Healthplans aimed at the complementary and alternative therapy market, the Chiropractic Plan and the Osteopathy Plan. To ensure we are launching Plans that are genuinely desired by customers, and also to ensure we minimise the risk to us, we are only test launching at this stage. The Plans will be available through 60 practices and our website, and we will carefully monitor both sales and customer behaviour to ensure we get the right balance between claims and income.
PULSEThis will probably be the last year I report on our customer administration computer system, PULSE, and that is because we successfully launched the upgraded version into our Healthplan and Private Medical Insurance businesses in November.
The promise has always been that we will be better able to serve our customers in the ‘digital’ future using PULSE. We will also be able to innovate new products that bring together different combinations of our Healthplans, Private Medical Insurance, Dental Plans and more, to better suit the changing needs of our customers and companies. This has always been the goal for PULSE and we remain on track to deliver it.
Bristol and Private Medical Insurance operations – a year of integration and learningIn 2008 we integrated our three Private Medical businesses, BCWA, Remedi and Medisure, into one unit in Bristol. I am delighted with the way in which this integration has been achieved and as with any integration we had some difficult decisions to make. In moving our Remedi business to Bristol from Reading, most of the Remedi employees chose to take redundancy rather than relocate. I would not want to miss the opportunity of saying thank you for the very professional way in which they all handled the transition.
Meanwhile the teams in Bristol can congratulate themselves on a smooth integration. Our customer feedback to date has been that service standards have been maintained and indeed, in some instances, already improved by the extra skill and knowledge of our combined Bristol team.
where we are goingwhere we are going
1 in 10of the UK population regularly spend on complementary and alternative medicines
1 million+total customers now served through PULSE
“As a consequence of all our actions in 2008, we are fitter and stronger and prepared to take on the challenges that face us over the next few years”
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The troubled economic climate encouraged our Healthplans businesses of HealthSure, HSA and LHF to go ‘back to basics’ when thinking about how to serve our customers last year. Inevitably in difficult times some people chose to prioritise other expenditures over their health. Also as the size of the UK workforce decreased through redundancy and company closure, the number of employees on corporate health schemes fell.
These realities became apparent early in 2008 when fewer customers joined or stayed with us. We reacted swiftly and responsibly to introduce some proactive measures that would really help all our customers, and help to show them that a Healthplan is invaluable.
Looking after customer needs as individualsHSA tested ‘welcome calls’ with new customers to confirm they really understood their new Healthplan, who to contact if they had a query and how to claim. In general, this resulted in customers making better use of their Healthplan and therefore getting real value from it from the start. Subsequently, fewer chose to cancel.
With people watching their money more closely, our customer service enquiries and claims levels were overall far higher than anticipated. Despite this we worked hard to look after our customers individually and in a timely fashion. At HealthSure we kept on top of the additional work by training our Customer Operations staff across a number of roles so that we could deploy them according to customer need. Across Healthplans, we paid on
average 15,000 claims per working day – more than ever before.
To refund customers’ claims quickly, plus save them a trip to the bank or the cost of a stamp, within HSA we switched many more customers onto direct credit in 2008. The money goes straight into their bank account, so customers are refunded far quicker than if we print and post a cheque. It’s also financially and environmentally more sound.
Looking after clients, their employees, our customersAt HealthSure we made it easier for our customers to claim all the benefits available to them by making a fundamental change to our Healthplan. A trial moved 20,000 customers from a rolling benefit year, to a more typical annual benefit renewal system which most insurance products are based on. The response was enthusiastic: a more transparent Healthplan which truly benefits the customer. Further work will take place in this regard in 2009.
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helping our customersWith a move to the Simplyhealth name on the horizon, coupled with a difficult trading environment, 2008 was an opportunity to concentrate on our core business and to do what we do best – serving our customers.
Healthplans3.9 million claims paid in 2008 across Healthplans, of these:
43%dental claims,
17%optical claims,
20%complementary therapy claims
“A more transparent Healthplan” 15,000claims paid per working day across Healthplans
3.9m
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helping ourcustomers
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In November, we took another step forward for corporate customers when we successfully introduced the next phase of PULSE across Healthplans. We have run company schemes for many years, but with ever-changing employee data, they are subject to frequent administrative changes which we had previously updated manually. But the new PULSE functionality means we can electronically match the employee listings we receive from companies to the records on our system. The result for clients is up-to-the-minute, accurate data on their employees, so we can answer their queries far more effectively. Even in difficult financial times, we continued with our IT investments, as we knew they would make a difference for our customers.
Development and fairness for allWe regularly track how fairly we treat our customers through Simplyhealth’s customer value chain, a set of measures we assess ourselves against to ensure we remain fair and consistent in our practices. As part of this, we strive to develop a range of affordable Healthplans for a broad range of customers, so much of our focus is on development and innovation in order to better respond to customer need.
In 2006 we launched our first ever Dental Plan. It proved very popular, and by 2008 we were helping 56,000 individuals, families and corporates with their dental care. However, by early 2008, patterns of high claims on certain benefits and levels were becoming evident, which as a responsible business working for all our customers, we needed to address.
So during the year, we reviewed pricing and benefit levels, which has resulted in a more sustainable level of claims. In other words a good value Dental Plan that looks after customers consistently, while being sustainable for us as a business.
In order to help a new group of customers access better healthcare, this time with complementary and alternative medicines, we built on our knowledge of developing the Dental Plan and in December, HSA began testing two new types of Plan: the Chiropractic Plan and Osteopathy Plan. We developed these in association with the British Chiropractic Association and the British Osteopath Association, together with their members and customers.
As these were new types of Healthplans for HSA and the market, we wanted to get it right for our customers and for us, so have begun by piloting them before fully marketing and rolling them out nationally.
helping ourcustomers
Feedback from the professionals involved in the trial has been really encouraging and we look forward to helping more people with their back and neck health in 2009.
Becoming more efficient for our customers By working as one Healthplan company, rather than as separate businesses, we can reduce our costs, share our knowledge, eradicate duplication and most importantly, serve our customers more efficiently.
The area that most benefited from this collaboration last year was our Worksite Sales Team – our employees who sell direct to customers in their workplace. Simplyhealth’s model for this is special in the market because the size of our team enables us to service large clients on a truly national scale. For our customers, this means we can introduce Healthplans to them at a time and place that is convenient for them. This is proving really appealing for bigger companies with widespread workforces, such as ASDA. LHF attracted ASDA because it was local to their head-office, yet could visit and service their nationwide spread of locations. In the first month, we introduced 1,000 new customers to the benefits of a Healthplan, and since ASDA joined us, we have visited every one of its 350+ stores.
Following an extensive review triggered by a change in regulation, we decided early in 2008 to sell our Irish operation, working hard to ensure that the impact on our customers was minimal and the service they received during the transfer was seamless.
Your seal of approvalAcross Healthplans we monitored the impact of our focus on our customers in 2008 via a monthly telephone-based survey. This surveyed a broad cross section of our customers and included those who had recently joined us, left us or claimed. We are delighted to report that across Healthplans, 2008 demonstrated our highest customer satisfaction scores to date, This tells us that, even in difficult times we kept our promise, paid claims and offered a valued service.
In addition we were delighted to win two highly-rated awards towards the end of the year:
1. HealthSure won the title of ‘Best Cash Plan Provider’ at the Health Insurance Awards. It was a fitting testament to all the effort we continually undertake to improve our Plans and services for customers through brokers.
2. In November, the Personal Finance Awards recognised HSA as the ‘Best Health Related Insurer in the UK’ which demonstrates to our customers and the UK public, that we are ‘top notch’ when it comes to value, innovation and customer service.
These awards are a true reflection of our hard-working and dedicated teams of people who have tried their hardest, and given their best for their customers.
The Chiropractic Plan
HealthSure wins ‘Best Cash Plan Provider’
HSA recognised as ‘Best Health Related Insurer in the UK’
The Osteopathy Plan
Our two new Plans:
83%of LHF customers are completely satisfied with all aspects of product and service received
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With the acquisition of Remedi in 2006 and Medisure in 2007, BCWA took on a healthy slice of the Third Party Administration market and this, coupled with our already significant hospital spend, put us in a really strong position to negotiate even better prices for our customers.
Running three businesses individually was proving costly, time consuming and confusing for our brokers and customers alike. So to develop our products and services further we decided to consolidate our three businesses into one, based in Bristol, and closed our Remedi office in Reading in the summer.
In our determination to make healthcare better for our customers, we began to offer all those needing chemotherapy an alternative to traditional hospital treatment. By partnering with ‘Healthcare at Home’, our customers can now receive treatment in the comfort of their own homes, delivered and administered by nurses, rather than making a long journey to hospital. This is all covered by our customers’ standard policy.
But it is the introduction of our Clinical Care Advisors that has really taken off. Each of our customers with an oncology claim is given their own personal advisor to act as the link between the patient and their treatment. The Clinical Care Advisors can make a real difference to our customers’ wellbeing, providing a
trained and sympathetic ear to discuss the treatment options that are open to them. A grateful customer writing in praise of the Clinical Care Advisors speaks for many customers they have helped, “I found this extremely comforting. She calmly listened to all my concerns on my cover and treatments. She dispelled all my concerns and I was able to focus on my treatment without external anxiety. I shall never forget that kind and personal touch, unusual for a large company these days – thank you”. We are delighted to be making a difference to the lives of our customers and that we are here to help them when they need us most.
helping ourcustomers
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In spite of these achievements, as Des noted earlier, our medical insurance claims for the year were higher than we anticipated. To help minimise the losses incurred, we have developed an approach to pricing which takes into account the claims experience of individual customers, which we believe will be fairer in the long run for all our customers and should help to achieve a return to profitability. Some of this increased claims incidence may be, in part, due to the effects of the recession and we will keep a watchful eye on this during 2009.
In April, a data tape containing Medisure customer information was stolen while en route to our secure storage depot. Simplyhealth rallied and rose to the challenge of thoroughly supporting our clients – we always kept them informed, assisted them to advise their employees about the situation and ensured that nobody suffered adversely as a result. As a business we have subsequently reviewed and updated our security approach to ensure our customers and their personal information are even better protected in the future.
The economic climate naturally took its toll on the Private Medical Insurance market too, so it was our commitment to excellence which was the constant and most uplifting theme for BCWA in 2008. It was this that achieved so much for us later in the year at the Health Insurance Awards where BCWA was recognised with two awards: ‘Best Customer Service’ and ‘Health Insurer of the Year’.
helping ourcustomers
Private Medical Insurance and Trust
“I shall never forget that kind and personal touch, unusual for a large company these days – thank you”
97%of customers recommend BCWA as an insurer
62customers received chemotherapy treatment from Healthcare at Home
BCWA wins two awards: ‘Best Customer Service’ and ‘Health Insurer of the Year’
BCWA Customer Service employees with their awards
“Our customers can now receive treatment in the comfort of their own homes”
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Vitality HealthcareWe stated in previous reports the long term nature of our wellbeing strategy and this is what we continued to pursue during 2008. It is widely accepted that the occupational health market and associated services are little understood and poorly supported – clients continue to seek a comprehensive professional service for the health and wellbeing of their employees.
As we reported to you in 2007 we recognised this demand and had set a long term plan to deliver to this need. Indeed during 2008 a number of public papers were produced, including Dame Carol Black’s report on Health in the Workplace, which supported the strategic aims that we had set ourselves. This gave us renewed confidence to continue to work closely with clients to simplify our services and provide quality programmes that genuinely delivered. We established a working model which was well received and ensured that we retained the majority of our clients, despite significant price undercutting by competitors. A key part of this development process was to continue to recruit and retain the right professionals to deliver our services. This was our key differentiator in the market place but as a result was a heavy ongoing investment for Simplyhealth. You will recall this has been a core element of our delivery aims from the early days of our wellbeing strategy.
As we are all aware, the economy started to deteriorate significantly during 2008 and many organisations started to feel the immediate impact on both the cost base and spending plans. Simplyhealth was no exception and our results were less than forecast. As a result, in June, all management teams across Simplyhealth were asked to review and reduce their expenses for the rest of 2008. The Board considered these thoroughly and reluctantly concluded that, in the best financial interest of the Group and the majority of its customers and staff, Simplyhealth would end its investment in Vitality at the end of the year.
We investigated a number of options to sell the Vitality business but unfortunately were not successful in achieving a sale that was appropriate for both our staff and our clients. We therefore decided to close the business. Due to the nature of occupational health we had to work closely with clients and competitors to ensure that all activities and medical records were transferred in line with current best practice and regulatory guidelines for the industry. This was achieved successfully down to the professional commitment from our team in Vitality and the rest of Simplyhealth.
While the Vitality chapter may now be closed, our drive to pursue a wellbeing strategy continues and we will take the learnings from this experience when developing future healthcare options for all of our clients. In the meantime we will continue to deliver to our clients and customers occupational health and screening services through carefully selected partnerships.
helping ourcustomers
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Totally ActiveThe high street welcomed the opening of the first Simplyhealth store in Andover in October. The red ribbon was cut by the Mayor and Mayoress and one of our long-standing customers. Within a few minutes, the first purchase had been made.
It was a fulfilling moment for Simplyhealth and made the previous nine months of research and planning feel very worthwhile. We had started by thoroughly investigating how mobility equipment and daily living aids are typically sold in the UK. We then spoke to some of our customers with disabilities who confirmed that products which helped them maintain their lifestyle, and gave them the ability to live life in their way,
were what they wanted. They were also looking for uplifting, positive and ‘normal’ shopping experiences where they could browse through products and rely on expert advice when they needed it. Through these conversations, we also discovered that people were often unaware of how and where to buy the products they needed, let alone knowing that they even existed.
2008 was destined to be the year in which we made a pioneering difference to the way disability products are sold to customers – and that is exactly what we did.
“Live your life your way”We designed the shop to specifically answer the needs of the very same customers we spoke to. There is a lift to get people to the first floor and plenty of space around shop fittings to make wheelchair access easier. But above all the shop is bright and cheery and in the main part of Andover’s shopping centre. In other words, a ‘normal’ shopping experience that is considerably different to the industry standard.
Professionally-trained staff provide a reassuring level of experience and understanding in mobility and healthcare, and there are hundreds of good ideas to help customers live life their way.
“What a good idea for …”We identified four main areas that were essential for us to support: Getting Around, Everyday Living, Kitchen and Bathroom and we categorised our products under these headings. These now cover everything from power chairs and scooters (including servicing and repairs) to talking alarm clocks and easy-grip knives and forks.
The feedback so far has been fantastic – customers are thrilled to have a store like this in their town centre which promises to only recommend products that are genuinely right for individuals. So assuming we can make this work financially, and for customers, this could be the first of many ‘Simplyhealths’ on our high streets.
helping ourcustomers
Wellbeing Services
“…hundreds of good ideas”
A shift in attitudes is necessary to ensure that employers and employees recognise not only the importance of preventing ill-health, but also the key role the workplace can play in promoting health and wellbeing* * Working for a healthier tomorrow – Dame Carol Black’s review of the health of Britain’s working age population March 2008
Inside Simplyhealth’s store
Our Customer Promise
helping you feel confident
“
”that you have made the right choice
We will only suggest the products that we believe to be right for you,
Simplyhealth opens its first high street store in Andover providing a range of high quality mobility aids and daily living equipment.
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Whether you were receiving the news that your job was at risk, whether you had to deliver such news, or whether you were simply concerned for friends and colleagues, 2008 was, as Des has reported, at the very least tough and demanding on us all. I am however, proud of the way that everyone pulled together throughout and continued as always to work as one team.
Supporting our employees through difficult timesAt a time of change, the words and sentiment are important, but it’s the actions that define us and make the difference for our employees.
Last year this was particularly pronounced around our support for our Remedi and Vitality employees following their office and business closures; our Irish-based employees following the transfer of their business and those employees from our central departments of HR, Facilities, IT, Finance and Corporate Affairs that we made redundant at the end of the year.
Helping our employees personally and individually through these changes was not optional; it was essential and critical for all, whether they were directly affected or not. We stand for ‘doing the right thing’ and therefore had to do it consistently, for everyone, however difficult. So for example, we communicated each move as openly and as quickly as possible, and ensured we did more than simply meet legal requirements. In many cases we exceeded them, with our redundancy payments and outplacement support, which included employment workshops and 1:1 consultations to help with job searches, CV writing and interview techniques.
Recognising that change can be hardUnderstandably however, and as I began to outline in ‘Our report to you 2007’, these recent changes and other factors have had an adverse impact on how our employees feel about working for Simplyhealth. In our April staff survey, our employees told us that their engagement with Simplyhealth had dropped when compared with 2007 scores, and even more when compared to 2006, with their views on leadership particularly affecting this decline.
Our results meant that when benchmarked against other companies, we were no longer considered a high performing organisation in terms of employee engagement. So overall, our results were disappointing and demonstrated the toll the previous 18 months had taken – our employees weren’t as happy and engaged as before.
21
helping our people deliverMark Day, Executive Director, HR and Private Medical Insurance, describes 2008 as a year of listening to our employees and putting plans in place to support them during a difficult time.
84%of employees fully support Simplyhealth’s values
Staff ratio Male : Female31% : 69%
Age ratio -35yrs : +35yrs46% : 54%
Salary levels -£35k : +£35k84% : 16%
3.4% 3.5% 3.3%% Work days lost to sickness
2008 2007 2006
22.1% 22.8% 20.2%Voluntary staff attrition rates
2008 2007 2006
People Measures for 2008
24
In addition, the economic downturn led us to consider how we could raise awareness and better support our employees’ financial wellbeing. We designed a campaign of ways that employees could save money:
> Citizens Advice Bureau (CAB) – we set up CAB information points in our offices for 1:1 confidential advice meetings.
> Car share – the incentive of an office car parking space made employees think twice before doing the journey to work alone, saving them parking and fuel costs.
> Travel loans – helped employees with the cost of season and parking tickets.
> ‘Bike to Work Week’ – encouraged employees to see how much money they could save on travel and parking costs (and improved their health too!)
> Swap Shop – employees swapped items like books, rather than buying from new.
For the very same reason we also extended our suite of employee benefits to include Childcare Vouchers, Salary exchange on pension payments, a new Student Loan Matching Scheme and a programme of events and activities to help people prepare for their retirement.
These new employee benefits (most of which are tax efficient) were well promoted internally and proved very popular with employees (with 209 employees already signed up to one or more new benefits). They were designed to help them lead the lifestyles that they value, and help us to attract, recruit and retain the very best talent.
Standing out from the crowdWe chose to support our employees in this way because it is the right thing to do for them and for the company. I personally believe that this approach is a key element to creating an environment that motivates and engages employees. In turn, they are then encouraged to do the right thing for our customers.
We weren’t alone in thinking our approach was unique. We were approached and consequently wrote a number of articles for various HR magazines and journals and in November we were extremely proud to collect the ‘Best Reward Programme’ award from Pay Magazine. It was an excellent and well deserved addition to our growing employer credentials that proved, by doing the right thing for employees we do stand out from the crowd as a leading employer.
helping our people deliver
23
It is really important that the Executive team and I recognise and accept responsibility for such results – be they good or bad. Last year, we knew that there wasn’t a quick fix to the issues raised. Instead, we needed to work with employees over time, in order to make Simplyhealth a great place to work once again. We were heartened by the majority of employees giving their views through the survey and telling us that it was our actions in relation to corporate social responsibility, people development and communication that really motivates and drives their engagement in Simplyhealth. They gave us something to go on, so we took their lead and made Leadership and Engagement our immediate focus.
Leadership for allAt Simplyhealth, it is our ambition for everyone to have the opportunity to lead in order to help push through our ambitious plans for growth from all angles. Whether they are based in the Boardroom or the post room is irrelevant; we need people to lead others in the right direction for Simplyhealth, and to feel part of something bigger and better as a result.
We created a Leadership Development Board to oversee and take responsibility for our approach. Their first move was to audit what the organisation thought of leadership within Simplyhealth in more detail than provided by our annual staff survey. We held focus groups, 1:1 interviews and issued questionnaires to seek people’s opinion and to find out what they needed to help them become effective leaders.
This was followed by our first Leadership Conference in October which signalled to everyone the importance of leadership at Simplyhealth. Over one hundred of our senior managers attended and learnt more about our leadership strategy and framework, how effective great leadership can be from a range of esteemed external speakers, and what was expected from them as leaders of this business, particularly around motivating staff.
We also launched an ‘Aspiring and Developing Team Leader’ course giving our budding people managers a more rounded perspective of the business. We wanted them to understand the part they play in leading at Simplyhealth, and feel encouraged by the future potential in their careers with us.
Making a tangible difference Once again, Corporate Social Responsibility was highlighted as a main driver of engagement, so we created a number of new community-based opportunities for employees to get involved and make a difference (turn to page 25 to find out more).
helping our people deliver
Delighted to be winner for ‘Best Reward Programme’
Recognising our staff at the Pay Awards 2008
92%of employees agreed that Simplyhealth is socially responsible in the community
“Leadership demands different qualities at different times and to suit the situation, we must all be able to adapt our styles appropriately”
76%of employees believe Simplyhealth promotes the health & wellbeing of employees
26
Supporting local economiesSimplyhealth is based in a number of locations around the UK. We are focused on supporting the economy in local areas to our offices, and recognise that the growth of Simplyhealth leads to a positive long term impact on our surrounding communities. This year we have cemented our commitment to the Manchester area moving out of our Lever Street offices into new larger premises at Didsbury. Known as Simplyhealth House, this will become a strategic base for us in the future and will result in considerable investment over the coming years for both staff and the surrounding area. We have also sought out opportunities to get involved in local projects, such as Andover Vision, which plans to regenerate this Hampshire town.
With just one exception, all our suppliers are UK based and many of them local to where we work, particularly those engaged to help with our general office needs such as security and cleaning. In challenging times, we are proud to be able to give our suppliers the comfort that comes from having the highest possible Dunn and Bradstreet rating for viability. We also have an internal process that assures them we will follow our published tendering process, will not exert any unnecessary influence and will aim to pay them within the terms we set out. Suppliers then feel secure and positive about doing business with us – we are not a risk to them.
To reduce our impact on the people and environments we operate around, Simplyhealth is committed to carrying out all aspects of our business safely. We are pleased to report in 2008 there were no accidents that needed to be notified to any external regulatory body. In fact, just 30 minor incidents were recorded, mainly office trips or slips, that were dealt with effectively by our trained First Aiders. We naturally take our employees’ health and safety very seriously and so last year took this to new heights with the introduction of Workstation Safety Plus. This is a user-friendly, online system that helps individuals to make changes to their working environment and the company to assess their workstation against benchmarked health and safety standards. This also serves to make employees better informed about the need to have a safe working environment.
Another influential factor in people’s perception of Simplyhealth as an employer is of course career path and salary. We seek to offer staff opportunities to develop and progress their careers within Simplyhealth, and of our senior management appointments last year, 40% of these were internal promotions. We benchmark our salaries against outside of London ratings and ensure we pay consistently across the company, regardless of whether someone works in Andover, Bristol, Leeds or Manchester.
25
supporting our communitiesCorporate Social Responsibility (CSR) means different things to different people.
It is fundamental to our ethos as an organisation that we make a positive difference to the geographical areas that we work in, as well as the various groups of people that we affect and influence. Here at Simplyhealth, we best articulate this as supporting our communities in the most responsible and sustainable way we can.
Simplyhealth House
28
So each year we plan to create projects that revolve around our communities, and give staff the opportunity to be involved:
> Throughout the year there was a steady internal focus on ‘doing the right thing’ for each other, customers and communities. We encouraged our staff to continually ask themselves: “Am I dealing with this in the right way, or am I just ticking the box?”
> For Pants in the Park, our employees blew up balloons, erected gazebos, registered runners and marshalled the route. Then stood at the finishing line to present medals and goodie bags and award prizes.
> With Memory Walks, we directed staff to their nearest event and many took part with their friends and families.
> 10 employees, plus their supporters raised £20,000 by pedalling 463 miles round our Simplyhealth communities in aid of Help the Hospices. We encouraged them to do this by matching their two days holiday taken to complete the ride, with two free days each.
But it was our ‘Being the Difference’ Awards that were the jewel in our ‘making a difference’ crown. These were launched in 2007 and ran for nine months to search out and celebrate the exceptional difference our colleagues make to each other and their communities in their personal time, which frequently goes unnoticed.
A thousand staff and their partners attended a ball in Bournemouth for the finale of these Awards where our 10 winners were announced. We chose to reward them with a trip to Brazil for international community work and a fantastic experience. We wanted to create something sustainable that would live on past the trip, something for both the winners and Simplyhealth, so we decided to invest £20,000 in a much needed health centre in a remote region. Our 10 staff spent five days under canvas there, soaking up the village atmosphere and putting the finishing touches to the health centre before its opening celebration.
Our winners described their prize as ‘a life changing experience’ and were delighted to share their time away in pictures and presentations with their colleagues.
In December, Simplyhealth featured in ‘Our CSR stars’, an article for HR Magazine. We were seen to be “…working hard to make a difference” and it was recognised that our community projects and programmes had “…resulted from leadership and support from the top, unleashing talent, and commitment from employees.”
supporting our communities
27
Building effective charitable partnershipsOnce again we donated £350,000 through the Community Funds based in our Trading Divisions. These committees are made up of staff volunteers who seek, consider and agree requests for health and wellbeing-related funding in their local areas.
We donated a further £1 million to various national charities: SANE, Motor Neurone Disease Association, Mind, Wellchild, Dreams Come True, The Macular Disease Society and Tommy’s The Baby Charity. This money was allocated through the Simplyhealth Charitable Committee, which is led by Ken Piggott, our acting Chairman.
As part of our national approach, we continued to support our two strategic relationships with Prostate UK and Alzheimer’s Society. Simplyhealth is passionate about health and these charities give us the opportunity to openly demonstrate this, while helping to raise vital funds and awareness for their causes.
For Prostate UK, we established a partnership between Simplyhealth and Prostate UK to manage ‘Pants in the Park’. This is a 5km fun run, which the charity had held annually in London for several years. We were able to support them in extending this to take place throughout Simplyhealth’s communities of Andover, Bristol, Leeds and Manchester on Father’s Day. It was a resounding success and generated 500 new runners who could ‘spread the word’ and raise funds. In addition, it encouraged our employees, our customers and the general public in
our towns and cities to participate in a health-related activity.
Prostate UK was then delighted to receive further funding from our Charitable Committee to support ‘Pants in the Park’ in 2009.
Memory Walks is the flagship fundraising event of the Alzheimer’s Society and supports the work of the Society in local communities. Memory Walks took place across England, Wales and Northern Ireland in September to coincide with World Alzheimer’s Day. Simplyhealth sponsored Memory Walks for the second year running; thirteen thousand walkers took part and raised an incredible £400,000 between them.
However, 2008 was a year for spending wisely and while charitable giving is fundamental to Simplyhealth, how much it was appropriate to give in light of staff redundancies and our business performance, was carefully considered. Instead of the planned £2 million, we settled for less and donated £1.3 million in 2008.
Making a difference to our employeesThe results of our annual employee survey tell us what engages and motivates our staff. In 2008 their top driver was CSR – the way we treat our customers, our staff and our communities is very important to them. We have to be commercial, but we also need to treat people fairly.
supporting our communities
Enjoying ‘Pants in the Park’ in Leeds
Logo designed by Craig Hurford, Internal Communications, Simplyhealth
Our ‘Being the Difference’ winners
Entertainment at the ‘Being the Difference’ Ball 2008
30
The recent turbulence we have seen in the UK (and worldwide) economy, and particularly in financial services, has rightly triggered questions about the value of corporate governance. There are examples almost daily in the press of failing companies, and understandably trust in companies and their management is low. Yet, the truth is that well-governed companies do perform better than those that are poorly governed.
At Simplyhealth, we pride ourselves on having a strong governance framework. This does not stop us from getting some things wrong. On the contrary, Des in his report earlier outlined several lessons we have learned this year. What it does is act as a safety net, helping us identify potential problems so we can make things right before they get out of hand. Central to this framework, and which would not work without it, is our culture. Making sure we follow regulations is one thing; but looking beyond these to deliver value with honesty, integrity and reflection is what sets us out from the crowd.
So, governance at Simplyhealth is better described as “the way we do things ’round here”. It is about providing check points and challenge that help us to be confident our business is run in a way that does good things for all our stakeholders. Des outlined earlier how Simplyhealth is run for the benefit of our customers, with the best possible service and products. Our governance framework plays a key role in enabling us to deliver on this promise. It is founded on three cornerstones – local management accountability for internal controls, our assurance teams and our governance
committee structure. This framework complies with our regulatory obligations, but also goes further, complying with rules that do not actually apply to us. However, we see these as best practice and feel that it is the right thing to do to follow them.
The diagram shows how this all works, outlining the lines of defence we have in place. The Board lays down the parameters in which decision making at a local level can operate, by setting the company’s attitude to risk and the values of our business, and then the three tiers of our framework ensure that these are followed.
With local controls and systems the responsibility of management teams, the second ‘line of defence’, Simplyhealth’s strong team of assurance professionals, challenges the business areas on decisions they have taken and confirms that controls put in place are working. While this team, which includes our Internal Audit function, Compliance team and Risk management, primarily provides oversight on the effectiveness of business controls, a fundamental part of their role is to work with business areas to develop systems and knowledge that help staff get things right first time. This collaborative approach is extremely effective and fosters the culture I mentioned earlier where staff are happy to ask for help where they need it, and escalate issues that arise.
29
how our board helpsRomana Abdin, Company Secretary, talks about how governance at Simplyhealth is better described as “the way we do things ’round here”.
The recent turbulence we have seen in the UK (and worldwide) economy, and particularly in financial services, has rightly triggered questions about the value of corporate governance. There are examples almost daily in the press of failing companies, and understandably trust in companies and their management is low. Yet, the truth is that well-governed companies do perform better than those that are poorly governed.
1st line of defence
2nd line of d
efence3rd
line of defence
Setting Standards
Board
Day to Day Risk Management
Local Management Controls
Support & Oversight
Assurance Teams
Risk Audit Compliance
Independent Reporting
Audit Committee
Other Board Committees
Our Governance Framework
32
Fairness for customers remains high on the agenda of our regulator, the Financial Services Authority (FSA) which has reminded firms not to lose sight of this in spite of recessionary pressures. For Simplyhealth, the message remains
consistent with our ethos, and we continue to put our customers at the forefront during these turbulent times. The Compliance team has worked with business areas to successfully launch the Simplyhealth Customer Value Chain, a tool for each business to objectively monitor for themselves how fairly they are treating their customers. The results from each area are compiled to create the Simplyhealth Fairness 500 Index, which tracks fairness at Simplyhealth overall. Through this, we have identified some scope for improvements, for example in our complaints process, where we recently launched a feedback questionnaire for customers to get their views on the handling of their complaint. Results have been shared with the Simplyhealth Board and Audit Committee (as well as the FSA), who continue to monitor progress with this.
As mentioned earlier in this report, last April, we were the victims of an opportunistic theft of a tape containing some customer data, which was stolen out of a security van employed to transport our data between locations.
Having successfully dealt with the initial theft and communicated with all our affected customers, we used this incident as a trigger for a wider review of our information security arrangements. We employed the services of Deloitte to oversee our programme and provide us with specialist input, and shared progress on this work with the FSA. This review has been extremely successful, resulting in some very sound measures to protect our customer and employee information, something which we know is a very real concern for people.
how our board helps
31
Ultimately the Assurance teams feed the outcomes of their review work into the governance framework via the Simplyhealth Committee structure, particularly the Simplyhealth Audit Committee and Risk Committee. These committees are mainly made up of Non-Executive Directors, and attended by senior assurance managers, giving the Assurance team clear access to the Non-Executives to escalate concerns directly. This independent access is an important part of any governance framework, and is a fundamental part of our approach at Simplyhealth.
This year, more than ever, our strong internal governance has helped us to learn from our mistakes and make tough, but sensible, decisions. A good example of this is our Dental Plan. We did not anticipate the levels of claiming we have seen and the Audit Committee commissioned a review of lessons we have learned. This has led to changes in our product development process, which were applied to the development of this year’s newest offering, our complementary and alternative therapy Plans. Des also noted the difficult decision we took to reduce the benefits on the Dental Plan, and raise the premiums, a decision taken together by business and governance representatives to ensure sustainability for the future.
As part of its regular programme of review, the Compliance team identified some complaint trends from dental customers. Working with HSA representatives, dental claims handling principles were developed in response to these. These principles are now applied to all dental claims that we receive and empower the claims handler to settle claims we receive consistently and fairly – good news for our customers. The principles have resulted in a considerable reduction in the level of complaints, and their implementation is a great illustration of governance working alongside the business to achieve a good result for all.
how our board helps
Our AGM 2008:Simplyhealth Fairness 500 Index
Lucy Mackay, Prostate UK, thanks Simplyhealth for its support
80%of HSA customers surveyed, whose complaint was not upheld, still felt treated fairly
397500––––
“Fairness for customers remains high on the agenda”
Tracking fairness at Simplyhealth
Terry HardyNon-Executive Director
Chris HarrisonExecutive Director, Healthplans
Elisabeth BugginsNon-Executive Director> Member of the
Risk Committee> Member of
the Audit Committee
Ian Much Non-Executive Director> Chairman of the
Risk Committee> Member of
the Audit Committee
> Member of the Chairman’s Committee
Kerry RichardsonNon-Executive Director> Chairman of the
Remuneration Committee
> Member of the Audit Committee
> Member of the Charitable Committee
Major General Brian PennicottChairman until December> Chairman of
the Chairman’s Committee
> Member of the Remuneration Committee
> Member of the Charitable Committee
Mark DayExecutive Director, HR & Private Medical Insurance> Member of the
Risk Committee
James BarnardNon-Executive Director> Member of the
Risk Committee> Member of
the Audit Committee
Ian MaudeExecutive Director, IT and Facilities> Member of
the Charitable Committee
Keith BlackerExecutive Director, Group Finance> Member of the
Risk Committee
Romana AbdinExecutive Director, Corporate Affairs and Company Secretary> Member of the
Chairman’s Committee
Abhai RajguruNon-Executive Director> Chairman
of the Audit Committee
> Member of the Risk Committee
Des BenjaminChief Executive> Member of the
Chairman’s Committee
Ken PiggottActing Chairman from December> Chairman of
the Charitable Committee
> Member of the Remuneration Committee
> Member of the Chairman’s Committee
helping to run“”our customers
our business for
3433
Our Simplyhealth Board
36
The simplified profit and loss account highlights the difficulties we faced and I would like to spend a few moments explaining these figures and, more importantly, the action that we have taken to improve these results in 2009.
Income – the economic slowdown contributed to a lower than expected growth in our personal customer base as people began to re-prioritise their spending plans and activities. With our clients, however, we were pleased to see modest growth across both our Healthplan and Private Medical Insurance businesses. We have also put more effort into retaining customers so they do not lose the valuable benefits that our healthcare products bring to their lives.
Claims – despite efforts to manage claims to an appropriate level, the higher claims costs we experienced in 2007, both with our Dental Plan and our Private Medical Insurance product continued. We do, of course, recognise that paying claims represents a key way we provide value to our customers but we have to balance this with making a satisfactory return for the longer term future of the business as outlined in our customer section earlier. We completed a number of further refinements to our Dental Plan and with the Private Medical Insurance product we have developed a pricing mechanism which we believe will be fairer to all our customers by better reflecting the claims experience which they have in the price which we charge them.
2008 2007
£m £m
Income The amount we received from our customers 342.5 319.7
Claims The amount we paid back to our customers (274.6) (248.8)
Expenses The amount it costs to run the businesses on a day to day basis (80.8) (80.1)
Operating profit/(loss) before non-recurring items (12.9) (9.2)Investment income The amount we gained or lost, whether it be
realised or unrealised, from our investments in the stock market, our government securities and from property we own (16.9) 17.4
Donations The amount of charitable donations we made (1.3) (2.6)
Profit before tax & non-recurring items (31.1) 5.6 Tax The amount we paid (or the amount that we
expect to reclaim) from the taxman 6.8 (0.1)
Exceptional items The amounts that we received or paid for ad hoc items including restructuring and integrating the businesses that we acquired (5.5) 0.1
Goodwill The amount of goodwill that we can write off (the difference between the value of the businesses that we acquired and the price we paid) (2.9) (4.4)
Retained profit (32.7) 1.2
Note: This information is extracted from the Group’s audited financial statements, which set out a full account of the consolidated profit and loss account.
35
our financial performanceKeith Blacker, our Finance Director, gives a summary of Simplyhealth’s finances for the year.
There is no doubt that 2008 will go down in history as being a year of unprecedented events and challenges for governments, businesses and customers alike. You will doubtless have seen in the Press the effect that these extraordinary events have been having on the financial results of well-known and long established businesses particularly those operating, as we do, in the financial services sector. Our financial results were severely impacted by the deteriorating economic conditions with our overall result for the year being a retained loss of £32.7 million.
38
Totally Active, had a root and branch review undertaken in the early part of 2008. The net result of this review was to refocus the business by building upon the reputation and competence we have developed in the daily living aids market, relocating and transforming the Andover operation into a high street presence with a broader range of offerings and investing in a team of people to take this business forward.
You may recall from previous reports, that I have emphasised the strength of the reserves which are shown in the Simplyhealth balance sheet. Despite the large retained loss that we have suffered this year, we remain in a very strong position and hold capital well in excess of the amount required by our regulators, the FSA. As part of the 2008 planning process, we spent some time examining a range of extreme scenarios to see the effect that this would have on our reserves. The results of this stress testing exercise served to reconfirm that Simplyhealth is financially strong and well prepared to weather the economic storm ahead.
Despite the large retained loss, I am pleased to report that, in cash flow terms, we generated a positive amount from our operating activities. This is a reflection of the large amount of non-cash items that were charged to the profit and loss account in 2008, the largest element being the unrealised losses in the investment portfolio.
What can we expect in 2009?In last year’s report, I discussed the strategic investments that we had made during the last three years and how they demonstrated our commitment to becoming a broadly based healthcare company. During 2008 we ceased investing in Vitality and we moved closer to completing the investment in PULSE. Our planning for the recession has involved a close look at what we need to do to protect our financial position going forward while, at the same time, ensuring that we continue to invest in those activities that are strategically important to Simplyhealth and our customers.
Our financial priorities in 2009 will inevitably be focused on close monitoring of all the lines in our profit and loss account that I discussed at the beginning of this report. We will continue to react to changes in the external market that impact upon Simplyhealth’s finances and, where necessary, implement the contingency plans that we have in place in order to guide and steer our finances through, what promises to be, another challenging and eventful year.
our financial performance
INCOMEDeveloping top line performance
2001 2002 2003 2004 2005 2006 2007 2008
£m
450
375
300
225
150
75
0
RESERVESBuilding up our security
2001 2002 2003 2004 2005 2006 2007 2008
£m
300
250
200
150
100
50
0
OPERATING PROFITRealising our targeted figures
2001 2002 2003 2004 2005 2006 2007 2008
£m
20
15
10
5
0
-5
-10
-15
-20
37
Expenses – as has been reported by Des, reluctantly we made a decision during 2008 to reduce our headcount. This decision has so far only had a small impact on reducing expenses in 2008, but we will see the full effect in the 2009 results. The deteriorating financial performance also necessitated a reduction in other areas of our expense base. As a result of these decisions, our total expenses increased by only £0.7 million compared to 2007.
Investment returns – you may have read that the FTSE 100 fell by one third during 2008. Just over a quarter of our investments are held in UK equities with the result that this part of the portfolio saw the biggest fall in value. In addition, the dramatic fall in UK interest rates during the last quarter of 2008 impacted negatively upon the value of our index-linked gilt portfolio. In response to the deteriorating market conditions, steps were taken to move some of the portfolio into cash but the overall net impact in the 2008 profit and loss account was a fall in investment value of £26 million.
Charitable Donations – in light of the economic conditions the Board reviewed our donations policy, which has been set at £2 million per annum for several years. The net result of this review was to reduce the amount paid in 2008 to £1.3 million and in future years to calculate the amount on a formula based on retained profit with a minimum amount of £1 million.
Goodwill – 2008 saw the second full year of the £4 million charge relating to the acquisition of Remedi flow through the profit and loss account. In addition, we had the first year’s goodwill charge for Medisure, the business acquired in December 2007.
Financial highlights As I have noted above, our financial services divisions suffered both with lower than expected income and higher than expected claims. Last year, I reported that conditions in the Healthplan market remain difficult and the economic climate has only served to aggravate this situation.
As is noted in Des’ report, the integration of the trust businesses, Remedi and Medisure, went smoothly and the financial benefits of this rationalisation will flow through in 2009. Our combined trust businesses turned in a better than expected profit in 2008 following the reduction in expenses that we achieved and income was in line with expectations thanks to some encouraging new business wins.
Our non-financial services businesses, Vitality and Totally Active, lost just over £5 million, which was slightly worse than we were expecting. In July the Board decided to cease any further investment in the Vitality business. It was always our intention to review the business model by the end of 2008 but the tough economic conditions were manifesting themselves in a deteriorating financial performance and, as a result, the review was brought forward.
our financial performance
The graphs illustrate how the business has performed in six key areas since 2001. They show a group that has grown and expanded while maintaining a good solid financial performance*
EXPENSESRunning our businesses
2001 2002 2003 2004 2005 2006 2007 2008
£m
90
80
70
60
50
40
30
20
10
0
STAFF NUMBERSGrowing our talent bank
2001 2002 2003 2004 2005 2006 2007 2008
No
1500
1250
1000
750
500
250
0
*2002 was a 17-month accounting period
CLAIMSSatisfying the needs of our customers
2001 2002 2003 2004 2005 2006 2007 2008
£m
300
250
200
150
100
50
0
www.simplyhealth.co.uk