Jan 18, 2025 12:00 PM
COMMENT | Healthcare and insurance are essential services and should not be treated as ordinary businesses. This is particularly true for healthcare insurance. The announcement of healthcare insurance premiums increasing by 40-70 percent has understandably alarmed consumers.
In response, Bank Negara Malaysia (BNM) introduced a series of immediate measures to ensure continued access to healthcare insurance and address rising medical costs (Interim Measures to Assist Policyholders and Promote Continued Access to Suitable Medical and Health Insurance/Takaful Products, Dec 20, 2024).
These interim measures are a positive step forward. However, they lack provisions for transparency and accountability from insurers and the regulator, BNM. Transparency and accountability are critical to fostering consumer trust.
Key metrics for insurer performance
Several key metrics can help consumers evaluate insurerperformance and enable regulators to monitor the industry’s health.
> Claims ratio: The ratio of claims paid out to premiumsreceived.
> Loss ratio: The ratio of claims and adjustment expenses(including claim investigation and verification costs) topremiums received.
> Claims settlement ratio: The proportion of claims settledagainst total claims filed (both in number and value). Thisratio allows buyers to compare insurers and choose themost reliable provider.
> Expense ratio: The proportion of expenses incurred inacquiring, underwriting, and servicing premiums relativeto premiums earned, reflecting an insurer’s operationalefficiency before factoring in policy claims and investmentgains or losses.
> Combined ratio: The sum of the expense ratio and the lossratio, measuring overall financial performance.
> Complaints data: Insights from independent consumersatisfaction surveys and complaints records for eachinsurer.
Publishing such data is essential for consumers to makeinformed decisions and for regulators to ensure fair practicesand industry health. Historically, Malaysia’s director-general of insurance includedsuch data in annual reports, but this practice has been discontinued.
Regulators in other countries routinely publish similar data, and BNM should adopt this approach. Transparency would helpconsumers better understand and accept premium increases.
Current claims ratios in Malaysia
Data from Statista highlights healthy claims ratios for Malaysianmedical and health insurers.
Between 2014 and 2023, claims ratios peaked at 73.2 percent in2018 but steadily declined to 51.9 percent in 2021 before rising to61.2 percent in 2022 and 65.9 percent in 2023 (AmandaSiddharta, June 24, 2024).
In simple terms, in 2023, less than two-thirds of premiumscollected were returned to policyholders as claims. Whilemedical cost inflation is a concern, insurers’ healthy claimsratios suggest room for improvement in claims settlementpractices.
Regulatory measures for transparency, policyholder protection
If transparency and accountability do not adequately addressthese issues, regulatory interventions may become necessary.
For instance, the US Affordable Care Act (2010) introduced the following:
1.) Rate review: Insurers must publicly justify rate increasesabove a stipulated threshold before implementation.
2.) 80/20 rule: Insurers must spend at least 80 percent ofpremiums on healthcare costs and quality improvements(85 percent for large group insurers). Failure to meet thisthreshold requires insurers to rebate policyholders.
Addressing unfair practices
BNM must also monitor underwriting practices to ensure fairtreatment of policyholders. Some insurers “cannibalise” existing insurance pools to createnew pools for lower-risk customers with enhanced benefits butdisproportionately higher premiums. The “cannibalised” pool is then subject to a premium increasebecause it incurs higher claims with a smaller number in thepool. Expanding risk pools equitably is essential to maintainingfairness and avoiding such imbalances.
Controlling medical costs
BNM’s focus on addressing high medical costs is commendableand could benefit both insured and uninsured individuals.
However, this effort must be comprehensive and address allaspects of the healthcare delivery supply chain to identifyprofiteering and implement cost-containment measures.
Key areas for attention include:
> Pharmaceutical pricing, agent commissions, anddifferential pricing between government and privateentities.
> Reassessing the classification of medicines intoprescription-only and over-the-counter categories.
> Regulating drug prescription and dispensation practiceswhile providing price transparency.
> Expanding price controls to a broader range of hospitalservices.
> Curbing unnecessary investigations by medicalpractitioners.
> Preventing profit-driven performance indices at privatehealthcare providers designed to escalate investigations and treatments.
> Collaboration with healthcare regulators, associations,and knowledgeable consumer representatives is crucial toestablishing medical best practices, clinical protocols, andconducting independent medical audits, to ensure ethicalpractices.
Insurers need to also establish their own robust protocols toeliminate waste, abuse, and fraud (WAF) in insurance claims without compromising timely access to benefits.
The deployment of artificial intelligence tools such as Cutters AIRelacio which can automatically examine claims data are usefultools that can be employed by an industry-wide WAFcontainment unit.
Conclusion
While BNM’s interim measures are a welcome start, greatertransparency, accountability, and regulatory oversight arenecessary to ensure a fair and efficient healthcare insurancesystem.
Comprehensive cost-containment strategies for medicalservices and pharmaceutical pricing will further safeguardconsumers and promote equitable healthcare access for all.
SOTHI RACHAGAN is an emeritus professor who is a formerdean of the faculty of law of Universiti Malaya; vice-chancellorof Perdana University and Nilai University, and president of theInternational Association of Consumer Law. He serves onnumerous international consumer protection bodies.
The views expressed here are those of the author/contributorand do not necessarily represent the views of Malaysiakini
.
