We refer to senior health correspondent Salma Khalik's commentary (Why private health insurance practices need fixing, Dec 10) and points raised by the Insurance and Financial Practitioners Association of Singapore in its letter (Agent commissions not a cost without value, Dec 22).
We agree that costs need to be managed for healthcare to remain affordable. Some factors leading to these increased healthcare costs, such as improved access to appropriate healthcare, lead to improved health. But there are also cost increases which add minimal value to outcomes, and these need to be actively tackled.
The reintroduction of co-payment for policyholders of Integrated Shield Plans (IPs) with riders is a key step in managing healthcare costs. Co-payment for new riders took effect on April 1 last year, and policyholders who purchased existing riders from April 2018 to March last year must switch to the new co-pay riders by April 1 next year, as mandated by the Ministry of Health.
However, health claims inflation for policyholders without riders is also high, albeit lower than for those with riders. Hence, riders are not the only factor driving up healthcare costs.
Claims cost increases are the primary reason for premium increases. While management and distribution costs factor into premiums, these have remained relatively stable.
Management expense as a fraction of gross premium declined from 2010 to last year, and currently ranges from 5 per cent to 11 per cent for IP insurers with sizeable books of business. Total distribution cost also declined over the same period, ranging from 7 per cent to 16 per cent.
IP insurers have been actively implementing measures to further reduce management expenses, such as automating claims processing.
The specific insurer cited by Ms Khalik for having more than half of premiums collected go to management and distribution costs is an outlier - relatively new to the market with a smaller portfolio and may not yet have economies of scale. Its distribution costs may also be higher because commissions are higher in the first year of a policy.
Increasing healthcare costs are indeed a national concern and reintroducing co-payment is only part of the answer. Effectively addressing this issue requires a multi-stakeholder approach which brings together insurers, policyholders, healthcare providers and the Government to play their part in keeping healthcare affordable in the long term.
Life Insurance Association Singapore