High claims, costs hit integrated shield plans

Pressure is mounting on Singapore's Integrated Shield Plan (IP) sector to find ways to remain profitable, as rising claims and substantial management and distribution costs are chomping off chunks of its underwriting profit margin.

Already, the five IP insurers - AIA, Aviva, Great Eastern, NTUC Income and Prudential - are feeling the heat, with next year's introduction of MediShield Life, which will provide lifetime coverage for Singaporeans' subsidised bills regardless of how their life and health circumstances change.

But the sector has a more immediate concern, as reflected in the insurers' annual returns filed with the Monetary Authority of Singapore (MAS).

It is understood that more than 80 per cent of the health insurance data in Form 7 - the document through which the five insurers submit their accident and health insurance data to the MAS - represents the IP businesses in Singapore.

IPs are health insurance policies designed to provide additional coverage where the existing MediShield does not.

The underwriting profit margin for the IP sector has shrunk steadily, from 17.9 per cent in 2009 to 3.5 per cent last year.

Over the same period, regulatory filings indicated that the management expense ratio dipped slightly, to 11.3 per cent from 16.1 per cent.

The distribution-costs ratio, comprising mainly net commissions incurred, was a little lower at 16.6 per cent last year, compared with 20 per cent five years ago.

Still, both the management expense ratio and distribution costs ratio make up about a third of IP industry ratios.

The one item that bucked the trend was the claims ratio. In 2009, this was 46.1 per cent, but this rose to 68.6 per cent last year. This meant that S$506.56 million in net claims were incurred last year, more than triple the S$137.96 million in 2009.

Likewise, 316,500 claims were registered by the insurers last year, almost double that of the 172,000 in 2009.

The data does not specify whether the net claims incurred came mainly from public or private health care providers.

Vincent Ee, the president of the Association of Financial Advisers Singapore, noting that over the past four or five years insurers had rolled out medical insurance plans on an "as-charged" basis, questioned whether this has motivated health-care providers to supply services that are more costly.

"The questions to ask ourselves are whether health-care providers are more open to offering expensive services to patients, and also, whether patients are now asking for better and more costly medical services because they can now claim for them."

For the situation to improve, Mr Ee said, patients' liberal mentality in making IP claims has to change.

Khoo Kah Siang, the president of the Life Insurance Association Singapore (LIA Singapore), said in his reply to The Business Times that premiums are based on three key factors - medical inflation, doctors' fees and insurers' claims experience.

Insurers, on their part, will work with policy-makers and relevant parties to look into Singapore's rising medical inflation, he said.

"This includes improving the price transparency of professional fees within the health-care industry, reviewing how benchmarks for such fees can support the cost management efforts of IP insurers, as well as the opportunity to analyse data to allow for scrutiny of unusually high bills."

He said there is a need for more transparency in terms of hospital charges, specialists' fees and drugs.

Last year, premiums earned by the insurers were more than double that of 2009, at S$738.26 million from S$299.29 million.

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