Two week ago, Prudential announced that it will be introducing a new price structure to its insurance premium for private integrated shield plan coverage in Singapore.
The new price structure would see premiums for riders adjusted based on how much claims policyholders have made, rather than a flat fee based on age as it’s being currently used today.
How Will Premiums Be Affected By The Changes?
Here’s a summary of the changes.
# 1 Rider Renewal Might Be Three Times More Expensive
Most private integrated shield plan would be sold along with a rider. The rider, which can only be paid using cash, covers the deductibles and co-insurance components of a hospital bill. This enables policyholders with a rider to not have to fork out any cash when they are hospitalised.
With the new changes, policyholders who make private hospital claims on their policy may expect to see an increase in their premiums. This is a significant shift from the previous method, where policyholders pay the same amount regardless of whether or not they have make claims.
# 2 No Claim Discount
At the same time, policyholders who have not made claims in the past three years will be entitled to a no claim discount of 10%. This works in a similar way to how car insurance premiums are structured in Singapore today.
A Step Towards Keeping Private Healthcare Cost Sustainable
Some people (including the insurance company themselves) would trump the changes as a more practical way to price policies going forward.
Instead of a flat fee that encourages people to consume as much private healthcare services as they possibly can, the insurance company is now taking a carrot and stick approach towards getting policyholders to be more responsible in managing their own healthcare cost.
In the long run, what the insurance company hopes to achieve is a situation where the overall cost of providing private healthcare service is managed and kept at a sustainable level, rather than for it to be escalating out of control because policyholders are over consuming as they do not have to worry about the cost, or their premiums increasing.
This Isn’t Fair!
Some people may feel that this new pricing structure is unfair, as it defies the original purpose of why people are buying insurance in the first place.
The argument here is that people buy insurance because they want to insure themselves against the risk of falling ill, and having to deal with high medical cost. In fact, this could be how we were sold the policies in the first place. We were told that we wouldn’t want to worry about medical cost when we fall ill, and hence, we wisely bought insurance.
Yet this new price structure seems to contradict what we were told when we first bought the policy. We now know that insurers can (and will) charge us more for coverage if we are found to be sick and making private healthcare claims on our policy.
Solving The Moral Hazard Issue
Moral hazard issues are a common problem when it comes to insurance. Moral hazard refers to the situation where policyholders, knowing that they are already covered by insurance, are likely to be less vigilant in taking measures to minimise the cost of healthcare claims.
We are not suggesting that people would actively try to get themselves hospitalised just so they can make claims from their policies. However, it’s possible that a person in hospital, knowing that he or she is already covered by insurance, would not care about the cost being incurred since the person is fully covered by insurance.
For example, they would go ahead for expensive treatments recommended by their doctors since they are not the ones that have to pay for it. The new pricing structure hopes to reduce some of these moral hazard problems.
Our View – It Takes More Than One Party To Make This Work
While we do not disagree with what Prudential is doing to manage the escalating cost of healthcare in Singapore, we think that for this to work, more have to be done. Otherwise, the new price structure would just be a way to get more money out from customers.
For example, agents need to change the way they are selling private integrated shield plan to their clients. Agents will now need to remind their clients that even though they already have insurance coverage, they still need be responsible in not over consuming private healthcare services, as this would ultimately impact their premiums during renewal.
While Prudential is the only insurance company to have introduced a different pricing structure thus far, it’s our belief that other companies will follow suit in time to come.
Is this a move in the right direction for the industry? Or will consumers once again be drawing the short end of the stick as they pay higher premiums while getting similar coverage? Discuss your views with us on the open Facebook SG Insurance Discussion Group.