Higher claims, new player could squeeze insurer returns on Integrated Shield Plans

Singapore

UNDERWRITING profits from the Integrated Shield Plan (IP) business in Singapore could narrow further amid significantly higher claims and the likely addition of a new player.

Based on the existing five IP insurers' returns from 2010 to 2014, only two managed to record profits every year during that period, while business was not as brisk for the others.

AIA Singapore and Prudential Singapore were the only two IP insurers who posted profits every year for that five-year period.

Between 2010 and 2014, AIA recorded profits of between S$12 million and S$42 million. However, its IP profit skyrocketed to S$142 million in 2014.

The anomaly is due to the way the insurer did its sums. Insurers typically conduct annual experience reviews to reflect the latest forecast in their reserves.

"The 2014 underwriting profit on AIA Singapore's individual medical portfolio, as reported in MAS (Monetary Authority of Singapore) Form 7, includes the impact of a one-off reserving change, which followed a review of reserving methodology. Excluding the effect of this technical change, AIA Singapore's individual medical business is profitable with experience, which is in line with the industry."

Prudential, which made profits of between S$2 million and S$17 million during the same period, has declined comment.

Two of the three remaining insurers - NTUC Income and Great Eastern Life - recorded a mix of profits and losses.

NTUC Income said that claims, which have risen substantially due to larger medical bills, greater healthcare consumption and newer and costlier procedures, was the primary culprit for the results recorded over the last five years.

"During the period of 2010 to 2014, our total claims payout was more than double. We expect these numbers to be higher in the coming years given the rising cost of healthcare.

Echoing similar sentiments was Great Eastern, who said that a large part of the results is influenced by claims. "Our results show that we are stable in the last two years despite holding the premium constant since the last repricing in 2013. We will continue to manage claims properly and fairly so that we can ensure that premium is affordable in the long run."

Aviva Singapore, the only IP insurer that posted losses of between S$5 million and S$26 million during the five-year period, has declined comment.

The underwriting profit margin for the IP sector had shrunk from 17.9 per cent in 2009 to 3.5 per cent 2013, before jumping to 13.8 per cent in 2014, attributable to the 2013 premium hike.

Correspondingly, claims ratio jumped from 46.1 per cent in 2009 to 68.6 per cent in 2013, before dipping to 63.5 per cent in 2014.

From 2009 to 2013, the distribution-costs ratio comprising mainly net commissions incurred, together with management expense ratio, made up about a third of IP industry ratios. In 2014, the two components made up 22.7 per cent - the lowest - of the combined ratios in six years.

One way for the insurers to increase profit margin is to reduce their distribution and management expense costs, said observers.

But more critically, issues of escalating claims will continue to weigh in on IP insurers' sustainability, especially when a sixth player comes on board after the roll out of MediShield Life in November. MediShield Life will replace the existing basic health insurance scheme MediShield, and cover more of the claims.

Industry sources have said AXA Life Singapore is a likely new entrant to the IP market and the already competitive market will mean a less lucrative business for all players.

Based on the Health Ministry's statistics, there are about 2.4 million IP policyholders in Singapore.

Of these, 79 per cent are covered under IPs for private hospitals or public hospital Class A wards stays.

The IP penetration rate among the Singaporean population aged 1 to 50, is more than 70 per cent in each age band. The take-up of IPs among those above the age of 50 decreases progressively within the different older age bands.

This essentially means that incumbents and any new entrant will have a smaller available market they can tap.

Observers noted that this could mean the start of a price war as the insurers fight to sign up new and younger policyholders. Switching of policies, they cautioned, could also arise.

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