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Six IP insurers stung by underwriting losses as claims surge

Based on mandatory financial filings, five insurers - AIA, Aviva, Great Eastern, Income and Prudential - last year recorded underwriting losses ranging from S$7.3 million for Aviva, to S$29.2 million for AIA.


FOR the first time in 12 years since the market's first as-charged Integrated Shield Plan (IP) was rolled out, the insurers all clocked underwriting losses in 2016, despite hikes in IP and rider premiums.

Based on mandatory financial filings, five insurers - AIA, Aviva, Great Eastern, Income and Prudential - last year recorded underwriting losses ranging from S$7.3 million for Aviva, to S$29.2 million for AIA.

The sixth player, AXA, only started selling IPs - a yearly renewable product - in May 2016 but has already recorded a stinging loss of S$5.1 million, mainly due to the hefty distribution expenses of nearly S$5.7 million. The insurer declined comment when approached.

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Of the five, Income and Prudential widened their underwriting loss margins for a second consecutive year in 2016.

In particular, AIA also widened its losses in 2016, chalking up the highest underwriting loss margin last year at 19.7 per cent. The insurer's 2015 ratios were distorted by a one-off reinsurance item. Excluding this, AIA had said its claims ratio for 2015 would have been about 90 per cent and it would have made a loss margin, though further details were not given.

Aviva, which has been in the red since 2010, managed to narrow its loss margin last year to 6.2 per cent - about half of that recorded in the year-ago period. This, as the insurer sought to rein in its management expenses that tended to be higher than its peers. Between 2005 and 2014, Aviva's management expense ratio averaged 36 per cent, but this slid to 24.1 per cent in 2015 and improved further to 15.7 per cent last year.

When asked about the improvement in costs, Aviva attributed it to efforts to digitise and automate some processes that have resulted in some expense efficiency.

Faint pulse

Perhaps, at the start of an unhealthy streak, the industry chalked up an underwriting loss margin of 9.4 per cent in 2016. Excluding AIA and AXA's data, the industry clocked a loss margin of 7.2 per cent last year, more than double that of the 3.2 per cent in 2015.

The individual and industry underwriting losses posted in 2016 come at a time when net claims incurred by the IP insurers rose faster compared with premiums earned. Not helping are claims for treatments in private hospitals which remain a thorny issue for the insurers.

Industry's combined ratios

Between 2005 and 2016, the industry's claims ratios grew quickly from 42.6 per cent to 84.1 per cent.

Rising claims have prompted rounds of hikes in both IP and related rider premiums.

Industry players had reviewed the IP premiums in 2013.

Then in June 2015, they agreed to freeze premiums for a year from November when MediShield Life was rolled out. If it were any indication, the players had noted that the moratorium only applied to IP premiums and not that of riders.

In November 2015, Prudential made the first move to raise its private hospital rider premiums by 5 to 35 per cent across all age bands. In April the next year, AIA's went up by 13 to 35 per cent, while Aviva's rose by 30 to 60 per cent. Income joined the move in October while Great Eastern held back from making any adjustment to its private hospital rider premiums in 2016.

Shortly after the one-year freeze on IP premiums expired, Prudential, Aviva and AIA went on to raise prices for their IPs covering private hospital treatments and stays.

Including the MediShield Life component, Prudential's hike ranged from 5.6 to 13.4 per cent, Aviva's rose by between 10 and 25 per cent, while AIA introduced increases of 2 to 23 per cent.

Not long after, both Income and Great Eastern revised their premiums together with enhanced benefits.

Andrew Yeo, general manager of the life and health business at Income said the insurer raised its private hospital IP premiums by between 5 and 15 per cent for various age groups in March. The prices of a related rider also went up by between 10 and 30 per cent, he said.

Great Eastern moved in May to raise premiums by 2 to 4.2 per cent across all its IPs, except for the Standard B1 plan.

If it is anything to go by, the rounds of increases in the past few years are largely focused on plans covering private hospital treatments and stays. In the latest round of hikes, AIA raised the premiums of its private hospital rider by between 18 and 54 per cent in July, while Mr Yeo said Income is increasing its private hospital rider in October by 8 to 35 per cent - a year after the last hike.