Strong profits for most insurers’ Integrated Shield portfolios, but brace for premium hikes

DESPITE markedly stronger underwriting results for 2021, most insurers with Integrated Shield (IP) plans will raise premiums this year, mostly of private-hospital base plans and riders.

Of the 7 insurers in the IP scheme, 5 are raising premiums in varying degrees. These are Income, AIA, AXA, Prudential and Singlife with Aviva. The exceptions for now are Great Eastern and Raffles Health Insurance (RHI).

GE said: “However, we will review and evaluate the situation for the good of our policyholders and the long-term sustainability of Shield plans.’’

RHI, which launched its Shield offering in 2018, said its expenses still include set-up and operational costs, resulting in the underwriting loss. “This is within our expectation. Our claims ratio is healthy, and our business continues to grow… As part of an integrated healthcare group, our priority is to take care of policyholders and provide value and options for those who require comprehensive healthcare coverage. We believe in making our plans affordable, and continuously review our solutions and value proposition.’’

A slew of measures helped to boost insurers’ 2021 underwriting results. These include riders with a co-payment feature implemented in 2018; increased use of a pre-approval system and doctor panels; and claims-based pricing for some insurers.

Claims-based pricing is a framework applied to riders to help contain costs and drive more prudent consumption of healthcare. Broadly, policyholders who do not make a claim enjoy a discount on rider premiums. For those who do make a claim, an escalation factor is applied to premiums depending on the claim size. Prudential was the first with claims-based pricing in 2017. Its results were the first to turn around in 2018.

This year, BT understands that Prudential is making single-digit percentage adjustments in premiums across most plans, but there will be no premium increases for those of age 71 and older. “Every year we review how Singapore’s healthcare costs and our claims experience are trending when determining premium levels for our PRUShield and PRUExtra policies. Our aim is to keep premiums affordable,’’ said Sidharth Kachroo, Prudential medical director and head (medical portfolio management).

Last year, GE and AIA also applied claims-based pricing on their riders. GE’s underwriting profit nearly doubled to S$42.3 million. GE said the introduction of co-payment and claims-adjusted pricing for riders were “well considered measures to help our customers make informed and prudent healthcare choices, encourage responsible consumption of medical services, while rewarding those customers who stay healthy’’.

 AIA reported an underwriting profit of S$9 million, compared to a loss in 2020. It said it was too early to form a conclusion on the impact of claims-based pricing. AIA will raise the premiums of its private-hospital Shield base plan by 9 per cent, and by 9 to 18 per cent for riders.

Singlife with Aviva said it will not implement claims-based pricing for now. In April, it rolled out a “no-claims discount’’ scheme, where policyholders get a 15 per cent discount on their rider premiums should they have a maximum claim of S$1,000 in the prior 2 years. It adjusted premiums for certain plans in April, but said that due to the no-claims discount scheme, “most policyholders will still be able to enjoy lower premiums should they meet the eligibility criteria’’.

Singlife reported an underwriting profit of S$32 million compared to about S$680,000 in 2020. It said the higher profit was due to a one-off release in reserves that was kept to cater for Covid-related costs. “Adjusting for the one-off reserves, underwriting profits in 2021 remain in line with earlier years and industry trends.’’

Insurers cite a number of challenges in the quest to keep IPs sustainable, including an ageing population and rising medical inflation which is significantly higher in private hospitals compared to public or restructured hospitals.

AIA said medical inflation in Singapore is expected to clock in at 9.5 per cent, and even higher in the private sector. “Cost per claim has gone up in 2020 and 2021 compared to previous years, as more patients look towards the private sector for treatment, with private hospital bills averaging about 2 to 5 times the size of public hospital A- or B1-class bills.’’

It also sees greater healthcare consumption partly due to ageing, and “increased use of newer and costlier treatments have resulted in an increase in both the frequency and severity of claims’’.

Jeremy Lim, director of the Leadership Institute for Global Health Transformation at the National University of Singapore’s Saw Swee Hock School of Public Health, says the challenge of ensuring IPs’ long-term financial sustainability has 2 components: “Premiums should always exceed claims and administrative expenses, and secondly, annual premium increases (should not be) so dramatic that policyholders choose to discontinue.’’

“Hence, despite improving economics as reflected by the latest numbers, insurers would still want to maintain premium increases to improve their profit margins and also keep policyholders ‘used’ to regular premium increases. In theory, insurers can reprice year on year to keep premiums well-paced to payouts. However, this runs the risk of lumpy premium raises which insurers would want to avoid. Hopefully, even in particularly bad years, insurers will take the profits from previous years and use these to offset what would otherwise be actuarially warranted higher premiums.’’

Meanwhile, most insurers are braced for new rules to take effect on coverage for cancer therapies. To rein in the soaring cost of cancer drugs, the MOH last year created the Cancer Drug List which allows insurance to cover only effective and cost-effective drugs and treatments. From September, withdrawals from Medisave and coverage under MediShield will be limited to the drugs on the list. IP insurers are expected to follow suit from April 2023.

AIA said it was “in the process of ongoing discussions with MOH and reviewing our rider designs to manage this’’. AXA said it expects “only a small number’’ of customers to be impacted by the drug list. “Off-label cancer drugs make up just a fraction of our cancer claims.’’ “We do recognise that cancer drugs are expensive and plan to adjust the coverage limit of our base plan and rider to ensure it is sufficient to cover most cancer drug bills while at the same time help keep claims cost manageable,’‘ said AXA.

Theresa Nai, chief operating officer of Income, said compliance with the cancer drug list is a challenge as it is a marked shift from how cancer is currently covered. “Whilst we understand the need to manage cost, we are also reviewing our IncomeShield benefits to meet the gaps in our customers’ needs while ensuring that they do not induce cost shifting too much. While we hope drug prices will be moderated, during this transition period, we foresee the need to manage claims while juggling to manage our customers’ expectations and their treatment needs. Overall, we expect healthcare inflation to continue to be one of the challenges for most insurers in the near term.’’