One of the raging debates of late across multiple geographies has been the increasing health insurance costs. This coupled with low penetration levels means there is a large part of the population that may not be able to afford it now, even more than before.
Health Insurance in Malaysia and S-E Asia is fundamentally flawed on several counts. 4 reasons for it in my personal view:1. Medical cost inflation ranging between 13 to 14.5% in Malaysia as an example. No skin in the game for hospitals to control costs. And we have hardly any control over it. Not a single product launched today takes into consideration this kind of medical inflation. If they did, it will become unaffordable at launch itself. Hence, the need to constantly re-price causing a lot of consumer pain.
Doctor fees and room & board charges havent changed much over the last few years. But the investigation, procedures and related costs have sky rocketed.
2. Products are built on a comprehensive basis and distributors tend to play one over the other and as we add features (many of it so irrelevant and purely marketing), it adds cost. Further, "as charged" products are significantly more costly than "inner limit" products and more likely to be abused.
This quest for whose product is the most comprehensive one can end only one way! And we as insurers are to blame for this. We just havent done enough to challenge this model till it broke down.
3. High distribution costs. Life Agents earn around 40% commission first year (including over rides) on ILP products where health is the primary product albeit it is sold as a rider.
Add around 70% claims ratio + expense ratio of companies. It cannot be profitable for the 1st 2 years at least and then another 2-3 yrs more to make money if persistency and other factors stack up. My own view - health insurance will become a more stand alone product with lower distribution costs to survive in the times to come. And they will be distributed directly, digitally by intermediaries (low touch) or through affinity partners.
More comprehensive products will be distributed through face-to-face channels. For e.g. HNW cover, comprehensive covers at a justifiable price, etc.
4. On the group side, something has to give. Employees mis-use the system as we are on a defined benefits system in most of Asia. Co-pay and deductibles have to be introduced to put more skin in the game to avoid using hospitals like a break away zone.
And this is tricky as today it is an entitlement in this part of the world and the 1st company to not give it, will lose out on talents. But, like in the west, that is the only way out.
My own view - Mass market health insurance plans have to become modular with inner limits and mandatory co-pay.
And customers can earn more liberties like "as charged" options when their experience demands it. And data should drive that!
This kind of an engagement ensures more people are covered, more data to cover more and less of the complaints we hear in the market that insurers are becoming more and more restrictive on dealing with claims in the 1st two years.
5 comments:
To me, the insurance industry are aware of the medical inflation and over-treatment/charging problem that has been created by their own product features but doing little to address this. Getting rid of deductable and excess were the start of the problem. Our children and grand children will suffer as medical insurance will be no longer affordable. So the insurance industry is a major part of the problem. The problem can't then be the solution. In addition the expensive distribution cost makes insurance unaffordable to those who need it the most. We need an out of the box solution by experience industry veterans who are passionate enough to want to make a difference now.
@ Unknown - I question your assumption that the insurance industry got rid of deductibles. If you bother to survey insurance companies today, many actually still have medical policies with and/or without deductibles, at customers choice. Policies with co-insurance are still around. It didn't stop the 13%-14.5% yearly medical inflation that Rohit mentioned.
The major problem is how differently private hospitals charge, when you have an insurance policy, vs when you don't. They have gotten bolder over the years. The simple truth is that for the same medical condition, your private hospital bill today is clearly larger when you have insurance, vs when you don't have insurance. As Rohit said, private hospitals have no skin in the game. The role of insurance companies is to pool risks via an insurance fund, but unfortunately, that pooled insurance fund appears to have increasingly, becoming a convenient tool for private hospitals to maximise revenues/profits! Obviously, if the patient don't have insurance, the hospitals can't bill excessively, and so, they limit the costs (e.g. limit the investigations, or focus on minimum necessary treatments), but the moment you have an insurance policy, no stones are left unturned! Great for private hospital to increase revenues per the same patient - but super bad for our children and grandchildren when they need medical insurance in the future! If you want to blame someone for the sky-rocketing bills, then, blame the private hospitals. Highly doubtful any retired experienced industry veterans can make any difference today when private hospitals are increasingly greedy!
Even in advanced countries like US, the charges are exorbitant. The hospitals are the culprits in my opinion. Every insured patient is considered as an opportunity for the hospitals to make money, it is a business. The doctors and hospitals strictly follow the protocol to avoid any litigation due to professional negligence. The patients should trust the doctors.
Secondly the fraudulent claims and exaggerated claims lead to higher claim cost and consequent increase in the premium rates. Roughly it is in the region of 15 to 20 percent.
Third aspect is huge commission rate of 40%. It shall be reduced to 15% so that the insurance cover is affordable resulting in increased volume of business.
Analysis of the huge available data through advanced technologies like Machine Learning, artificial intelligence etc will help to monitor the performance and improve operational efficiency.
Please let me clarify my initial comments.
1. Most medical products don't have excess or deductible or even co-payment. Consequence no reason for consumer to be first and most critical gate keeper of excessive treatment and charging. Situation similar to giving hospitals blank cheque from "rich insurance companies". Any solution must empower consumers to ensure less abuse. This is critical.
2. Every stakeholder blaming others. Time to look in the mirror for part of the solution. I work and speak for the longterm good of the insurance industry and say we have to get our house in order first. Products design where consumer care they receive best treatment at FAIR price is a must.
3. Yes hospitals too can be better. My dream is hospitals have to disclose the "hotel like grading", 3* or 5* etc. But not on grandness but pricing basis. I will never visit 5* pricing or even 6* pricing hospitals. At the most 3* will do. Will seek the best hospital offering 3* pricing. So hospitals can charge based on their disclosed "pricing rating" probably set by Ministry of Health. 6* hospitals got no guidelines on pricing and can charge what they wish.
4. Side comment....the current cost of insurance industry is too high for todays new Covid norm. Similar to banks. Can do without half the real estate and staff. Go digital or even virtual. The 50% cost saving can go to lower insurance premium to make insurance products more affordable and address the uninsured and under-insured. Having affordable insurance is a human right. Not just product for the rich. Time the industry cares for the little guy who need the product even more.
@Unknown - your statement that "most medical products don't have excess or deductible" is not true. I revalidated at AXA's website which is Rohit's ex company and the first 2 medical product both have deductible. I revalidated against other AXA competitors like AIA's website, and their first 2 medical products also have deductible. So, 4 out of 4 samples revalidated today have deductible - can you please count the number of medical products that don't have deductible vs those that have? Maybe times have changed - deductibles are very common in Malaysia today, although consumers probably hate them and probably most policies still don't have deductible. Hence, it's not insurer's fault.
Look at the pricing too. For someone who hardly goes to hospital, one would think deductible pricing is cheaper i.e. it could appeal to many healthy people.
Yet, 15% p.a. inflation every year - that's ridiculous.
Time the private hospitals care more about giving medical access to entire Malaysians, today and the future generations, than just their pockets today.
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