Insurers’ Shield portfolios mostly in the black; premiums of private hospital riders rise

POLICYHOLDERS of Integrated Shield (IP) plans can heave a sigh of relief – underwriting results of IP insurers’ portfolios are mostly in the black in 2022.

Insurers, however, are watchful.

IP results for 2022 are partially distorted by Covid conditions early in the year, which dampened claims.

Still, as the pandemic crisis abated, previously deferred non-critical procedures resumed during the year, and claims rose. For some insurers, the inherently higher medical inflation rate conspired with the overall higher inflationary environment to add pressure on costs.

For now, policyholders enjoy a respite from premium hikes for IP base plans. Life Insurance Association (LIA) executive director Chan Wai Kit reiterated the industry commitment not to raise premiums for IP base plans for two years between September 2022 and end-August 2024.

This undertaking supports policyholders during the transition period as the Cancer Drug List (CDL) took effect. The CDL comprises cancer treatments eligible for IP claims; they must be clinically proven and cost effective. Insurers have opted to provide some cover for non-CDL drugs via their riders.

Premiums rise for private hospital riders

Riders are not part of the undertaking to freeze premium rates. Some insurers raised private-hospital rider premiums this year, including Great Eastern, Prudential and Singlife.

An exception is HSBC Life, which did not raise it “to provide our customers additional stability”.

LIA’s Chan said: “IP insurers continue to face increases in costs due to increases in claims attributable to numerous factors such as Singapore’s ageing population, as well as advancements in medical treatment and technologies. Some fee benchmarks have been adjusted upwards for inflation, and new fee benchmarks are also added to guide private sector charges.”

Insurers are providing transitional support for patients whose cancer treatments are affected by the CDL. Chan said it will take time for the list to be fully reflected in IP claims experience.

IP insurers’ underwriting results are extracted from their accounts filed with the Monetary Authority of Singapore. In the latest set for 2022, four insurers’ medical expense portfolios where IP plans sit are in the black.

The wrinkle in the 2022 accounts is that most insurers’ investment incomes were negative.

Investment income represents the portion of premiums that is invested in fixed income assets, which last year suffered a record rout, thanks to the US Federal Reserve’s series of rate hikes to quell inflation. According to Credit Suisse’s Global Investment Returns Yearbook, global bonds lost 31 per cent in 2022, the worst on record for fixed income for more than a century.

AIA Singapore said its IP portfolio sits within its non-participating life fund. For the purpose of regulatory filing, “we attributed a proportionate amount of the total non-par fund investment performance based on relative liability exposure of the IP portfolio to the rest of the non-par fund”.

“In general, the market value of our fixed income holdings was negatively impacted due to the large increase in interest rates over the period, which caused a negative unrealised loss,” it said.

Fixed income valuations have since recovered, and high-quality bonds are today seen as a must-have anchor for portfolios due to attractive yields and credit strength. Hence, the impact on insurers’ IP portfolios is most likely temporary.

For some insurers, the 2022 results are not comparable to 2021 due to a one-off transfer of reserves. This transfer occurred for Singlife in 2021 to help buffer the portfolio amid the Covid emergency. The reserve release in 2021 “led to higher underwriting profits specifically for that year”, said Helen Shen, Singlife’s group head of health.

Great Eastern also said higher underwriting profit in 2021 was “largely driven by a one-off release in reserves due to compulsory migration from first-dollar coverage rider to rider with compulsory co-payment”.

It said that efforts to manage the portfolio in terms of claims and profitability are ongoing. “On a proactive basis, we will evolve the benefit design to ensure the long-term sustainability of the portfolio.”

Claims-adjusted pricing

The underwriting profits of Prudential and AIA are among the strongest. Prudential was the first to implement a claims-based approach for its IP plans. Hence, it was the first in 2018 to stage a turnaround from operating losses in prior years.

AIA and GE began to implement claim-based pricing – also termed claims-adjusted pricing (CAP) – in 2021. Under this framework, healthy policyholders enjoy a premium discount. Those who make a claim may have to pay higher premiums depending on the size of the claim.

AIA said other factors may explain the rise in underwriting profits from S$9 million in 2021 to S$41.5 million in 2022. “We’re not yet able to ascertain fully the impact of claims-based pricing due to the distorting effect of limited hospital and doctor capacity during the waves of Covid-19 infections which affected Singapore intermittently throughout 2022.”

It said the deferment of elective procedures also helped to dampen claims. “There has been an increase in claims since the second half of 2022, and this trend appears to continue in 2023. As of now, the claims experience does not appear to have fully normalised yet.’’

Here are highlights of some insurers who have raised premiums of private hospital riders or supplementary plans. Most cited medical inflation and “higher utilisation’’ as reasons.

• GE repriced IP supplementary plans for private hospitals by 15 to 38 per cent.
• Singlife said 60 per cent of IP policyholders did not experience premium increases. For some younger policyholders (age 40 and below), private hospital rider premiums were reduced by an average of 19 per cent. For a “small” group of policyholders with private hospital riders (Singlife Health Plus – Private Lite and Private Prime), premiums were raised by 15 to 18 per cent.
• Raffles Health Insurance raised rider premiums by around 15 per cent. Deputy managing director Juliet Khew said the firm has kept base IP premiums consistent since 2018, “with no plans to increase them in the future”. The firm plans to roll out a new rider this year to “effectively address the key issues revolving around CDL”.

For Singlife, Shen said the underwriting loss in 2022 of S$3.9 million was due to the rise in medical and expense inflation. “During this period, we witnessed an increase in medical costs, leading to higher claims payouts and putting pressure on underwriting reserves.”

Singlife has rolled out Singlife Shield Starter, an IP with the Health Plus Starter rider, which requires only a nominal S$1 cash outlay a year.

Shen said that this design helps young adults entering the workforce and encourages early takeup of health cover.

The plan’s annual claim limit is capped at S$20,000 instead of the typically high “as-charged’‘ limits. “This approach helps to mitigate the ‘buffet syndrome’ and gradually leads to more sustainable premiums for young Singaporeans,’‘ said Shen.

She said the firm is monitoring trends in its IP portfolio. “We’re proactively analysing the various contributing factors and actively devising strategies to mitigate the impact of rising medical costs on our underwriting results and overall financial performance.”