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How much would IP premiums rise by?
AS the lifting of the moratorium on freezing Integrated Shield Plan (IP) premiums draws nearer, some policyholders are likely to face premium hikes of more than 20 per cent amid ballooning medical costs and worsening claims experience, particularly in private hospitals.
This is based on a rough calculation that factors in several assumptions, market sources said.
The IP business is made up of four components - claims, distribution costs, management expenses and underwriting profit or loss.
Based on past years' data, claims incurred made up the biggest portion of an insurer's IP business and the amount is dependent on factors such as medical inflation, number of claims and hospital bill sizes.
Of the different components, management expense is the only item within the control of insurers. It explains why management expenses have been on a downward trend over the past five years as insurers find ways to cut their losses or make more profits.
For each insurer to break even, claims should not exceed 70 per cent of total premiums given that, typically, the remaining 30 per cent is attributable to management expenses and distribution costs.
For conservative illustration purposes, let's say claims are to rise by 5 percentage points per year.
In 2015, the average claims of each insurer was about 80 per cent of premiums earned.
Using this as a base, an insurer will have to raise premiums by 21 per cent if it wants to break even across the next three years (See table).
It is important to bear in mind that insurers, in reviewing IP premiums, take into account factors including the different age bands, as well as the various types of IPs such as those that cover private hospitals or those that cover Class A or B wards in public hospitals.
The increments in the younger age bands are unlikely to be as high as those of the older age bands, industry sources said.
They noted that policyholders who have riders for IPs covering private hospitals can expect greater upward adjustments as claims from private hospitals have escalated at a faster rate than expected. However, the premiums of some riders for IPs covering private hospitals were raised earlier this year, so the hike in premiums for these IPs could be moderated.
In March, The Business Times reported that of the five IP insurers, only Great Eastern and Income did not have plans to raise rider premiums. Income has now said it will do so for the rider of the IP that covers treatment in private hospitals here.