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Higher medical costs, claims take a toll on 3 out of 5 IP insurers
RISING medical costs and higher consumption of medical services have shown no signs of abating, amid gridlock on how to resolve the escalating trend that has continued to erode the profits of some Integrated Shield Plan (IP) insurers, based on the latest financial filings.
The publicly available health insurance data, of which more than 80 per cent represents the IP and rider business here, showed that three out of five insurers - Aviva, Income and Prudential - incurred underwriting losses in 2015, while AIA and Great Eastern Life recorded profits. AXA Life - the sixth and last IP insurer here - only started offering such plans in May this year and is thus excluded from the comparisons.
Last year, Income recorded the biggest loss at S$14 million while Aviva has been in the red for the fifth consecutive year at S$10.47 million.
For the first time in five years, Prudential, which has had its profits squeezed from 2011 to 2014, dipped into the red last year at a loss of S$12.34 million.
In stark contrast, AIA, which has been in the black for four years from 2011, recorded an eye-popping profit of S$700.52 million in 2015 - more than the combined annual premiums earned from 2012 to 2014. When asked, AIA said its claims ratio for 2015, excluding a one-off item, was about 90 per cent, mirroring closely that of the industry.
"The reason for AIA Singapore's 19.6 per cent claims ratio (in 2015) is because this includes a one-off item, which is a multi-year internal risk transfer. It has no net effect on claims paid to policyholders and does not solely relate to policies written in 2015. There is an offset elsewhere that is not shown because the figures have been reported in accordance to the prescribed format of the Monetary Authority of Singapore (MAS) form."
The insurer added that over the past few years, its claims experience on its IPs business has been consistent with the increasing costs of the healthcare industry.
Excluding AIA's data, the combined claims ratios of the other four insurers crept up steadily from 59.1 per cent in 2011 to 79.4 per cent in 2015. The management expense and distribution costs ratios shrunk from 15.4 per cent to 10.5 per cent and 15.2 per cent to 13.3 per cent, respectively. In 2015, the four insurers recorded a loss margin of 3.2 per cent from a profit margin of 10.3 per cent in 2011.
It is worth noting that the last IP premium review was conducted in early 2013, as previously stated by the Life Insurance Association Singapore (LIA). The increase in premiums earned explains the dip in industry claims ratio in 2014 compared with 2013, as well as the underwriting profit in 2014 compared with the loss in the previous year.
In late June 2015, the five IP insurers agreed to hold premiums for a year from when universal healthcare MediShield Life was introduced. MediShield Life replaced MediShield in Nov 2015, so insurers are now in the midst of reviewing their IP business as the moratorium on holding premiums ends in October.
In light of the data, can policyholders expect their IP or rider premiums to go up and by what amount?
AIA, Great Eastern and Prudential have said they review their plans from time to time and would ensure that the plans are competitively priced.
Nishit Majmudar, Aviva Singapore chief executive said claims costs have gone up at a faster rate than expected, particularly from private hospitals, and that Aviva is "actively pursuing cost containment measures of our own".
Having only joined the IP market for three months, AXA said it is unlikely to introduce changes within such a short period of time.
Income is the only IP insurer to candidly say it will adjust the premiums of the Plus Rider for its Enhanced IncomeShield Preferred Plan which covers treatment in Singapore's private hospitals, "in response to the higher consumption of medical services and rising cost of healthcare in private hospitals".
Said Peter Tay, its chief operations officer: "Even with the increase, which takes effect on Oct 1, the premium of our Plus Rider combined with the Enhanced IncomeShield Preferred Plan, remains one of the most competitive in the industry.
Income will review premiums of other plans and riders to ensure they are sustainable over the long term, he said, assuring that Income is committed to ensuring the affordability and accessibility of IncomeShield to the people in Singapore.
When approached, MOH said it does not approve IP premium increases, adding that it sets the premiums for the MediShield Life component. "However, the additional private insurance premiums of IPs are decided by insurers based on commercial and actuarial considerations. Insurers will review and adjust premiums based on factors such as claims history and changes to the plans' benefits."
READ MORE: How much would IP premiums rise by?