How has Covid-19 Impacted Medical Claims Trend?

KUALA LUMPUR (Sept 29): Last year, close to seven million individual medical reimbursement policies/certificates were written by life insurers and family takaful operators, accounting for 68% of total protection insurance and takaful claims.

Medical reimbursement insurance/takaful cover in Malaysia is typically designed to cover or reimburse, either fully or partially, the expenses arising from inpatient and certain outpatient medical treatments.

In its Financial Stability Review report for the first half of 2021 (1H21) released on Wednesday, Bank Negara Malaysia (BNM) said in 2020, the combined ratios of the medical portfolios of insurers and takaful operators decreased compared with 2019.

“It was observed that the lower claims were driven primarily by temporary factors, such as movement restrictions, reduced social contact due to the implementation of remote working and learning, and hesitation to seek non-critical medical treatment at hospitals during the pandemic,” it said.

It is worth noting that most claims came from critical treatments that could not be deferred.

“However, the reduction in the number of claims during the Covid-19 pandemic period was partially offset by the increase in the average cost per treatment of 14% for non-surgical treatments and 15% for surgical treatments, which exceeded the respective long-term trends of 8% and 9% per year.

“This was partly attributable to the more severe and urgent nature of illnesses being treated and claimed for, as well as additional costs arising from pandemic-related protocols such as lab tests for Covid-19 and higher utilisation of disposable medical supplies including personal protective equipment,” said BNM. Similar to other countries, the cost of medical services in Malaysia has been increasing at a much faster pace than general price inflation.

The central bank expects the number of claims to normalise once the pandemic abates and movement restrictions are gradually lifted.

“Incidences of hospitalisation from common non-surgical treatments such as stomach flu and dengue fever are expected to return to past trends. Although the extent of the rebound in medical claims post-pandemic is uncertain, observations from other markets suggest the possibility of a temporary increase in utilisation of healthcare services. This can be contributed by a sharp increase in the number of claims compared to the pandemic period due to delayed non-critical treatments, and diagnoses from postponed medical visits by individuals who had earlier avoided going to hospitals due to Covid-19 concerns,” it said.

In the short term, the average treatment cost could also increase due to poorer health conditions, worsened by delays in seeking treatment, according to BNM.

“Demand-supply dynamics may also push costs higher, particularly for hospital supplies and services that may increase due to higher demand. Based on 2018 claims data, hospital supplies and services accounted for 60% and 70% of claimable surgical and non-surgical treatment costs respectively in Malaysia.

“Further, higher charges from pandemic-related protocols are likely to persist in the foreseeable future,” it said.

Over the longer term, it is uncertain how the pandemic will affect underlying medical trends.

“The accelerated adoption of telehealth services by international insurers during the pandemic has been a notable development that could improve the efficiency of providing healthcare and reduce cost. However, balanced against this is the yet unknown effects of Covid-19 in the insured population, which could increase the utilisation of healthcare services,” said BNM.

Better managing the re-pricing of medical insurance/takaful business

Most insurers and takaful operators had agreed to defer any earlier planned re-pricing exercises in 2020 to preserve the affordability of medical covers.

Still, prior to the pandemic, the central bank said it was concerned when insurers and takaful operators delayed re-pricing exercises for too long as a competitive strategy. That’s because lengthy delays are likely to result in sharp and unexpected premium adjustments subsequently to catch up with claims inflation.

“This may leave policyholders who are unable to afford the higher premiums with limited options to obtain replacement coverage due to advancement in age or changes in their health status,” it said.

To avoid this, insurers and takaful operators are required to establish an internal policy to govern the medical re-pricing exercise, which includes setting out objective indicators and thresholds used by them to trigger re-pricing, as well as the methodology used to determine the new price.

“The implementation of these policies must be monitored and reviewed to ensure that it is applied consistently and with due regard to the fair treatment of policyholders,” BNM said, adding that it is also reviewing existing regulations to allow more flexibility for insurers and takaful operators to moderate the extent of re-pricing required for smaller product portfolios that may be more likely to experience greater volatility in claims experience.

Nevertheless, following earlier signs of improvements in the economy in 2021, some insurers and takaful operators have resumed re-pricing recently.

“These insurers and takaful operators have put in place measures to support medical policyholders who may have difficulties maintaining higher premium payments given the current exceptional circumstances. The measures aim to ease cash flows of policyholders without forgoing protection, allowing them time to financially recover,” said BNM.

Options made available to policyholders include enabling them to maintain premiums at the original amount before re-pricing, by temporarily switching to a cheaper plan or product. Policyholders exercising this option would be able to revert to their original coverage within a specified period without new or additional underwriting. This is in addition to the existing option for affected policyholders to temporarily defer premium payments.

BNM noted that over the longer term, containing medical claims inflation, which is a major driver of re-pricing, remains a key priority to preserve sustainable access to medical reimbursement coverage from private insurers and takaful operators. “This requires a concerted effort from multiple stakeholders — including healthcare providers, regulators, insurers and takaful operators, support service providers, and end consumers — to deliver longer-term reforms in the delivery and consumption of private healthcare services.”


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