The Health Insurance Model is Broken

| 13 Oct 2020

One of the raging debates of late across multiple geographies has been the increasing health insurance costs. This coupled with low penetration levels, means there is a large part of the population that may not be able to afford it now, even more than before. Rohit Nambiar, an experienced senior executive in the insurance industry, shares his insights.

Health Insurance in Malaysia and Southeast Asia is fundamentally flawed on several counts.


There are four reasons in his personal view:

  1. Medical cost inflation ranging between 13 and 14.5% in Malaysia as an example. There is no skin in the game for hospitals to control costs. And we have hardly any control over it. Not a single product launched today takes into consideration this kind of medical inflation. If they did, it would become unaffordable at the launch itself. Hence, the need to constantly re-price, causing a lot of consumer pain.

    Doctor fees and room & board charges haven't changed much over the last few years. But the investigation, procedures, and related costs have skyrocketed.

  2. Products are built on a comprehensive basis, and distributors tend to play one over the other. And as we add features (many of it irrelevant and purely marketing), it adds cost. Further, "as charged" products are significantly more costly than "inner limit" products and more likely to be abused.

    This quest for whose product is the most comprehensive can end only one way! And we as insurers are to blame for this. We just haven't done enough to challenge this model until it broke down.

  3. High distribution costs. Life agents earn around 40% commission first year (including overrides) on ILP products where health is the primary product, albeit it is sold as a rider.

    Add around 70% claims ratio + expense ratio of companies. It cannot be profitable for the first two years at least and then another 2-3 yrs more to make money if persistency and other factors stack up.

    My own view - health insurance will become a more stand-alone product with lower distribution costs to survive in the times to come. And they will be distributed directly, digitally by intermediaries (low touch) or through affinity partners. More comprehensive products will be distributed through face-to-face channels. For example, HNW cover, comprehensive covers at a justifiable price, etc.

  4. On the group side, something has to give. Employees misuse the system as we are on a defined benefits system in most of Asia. Co-pay and deductibles have to be introduced to put more skin in the game to avoid using hospitals like a breakaway zone.

    And this is tricky as today it is an entitlement in this part of the world and the first company to not give it, will lose out on talents. But, like in the west, that is the only way out.

    My personal view - Mass market health insurance plans have to become modular with inner limits and mandatory co-pay.

    And customers can earn more liberties like "as charged" options when their experience demands it. And data should drive that!


This kind of engagement ensures more people are covered, more data to cover more and less of the complaints we hear in the market that insurers are becoming more and more restrictive on dealing with claims in the first two years.


Rohit Nambiar is an experienced senior leader with over 17 years of experience in the insurance industry. He was most recently CEO of AXA AFFIN Life Insurance in Malaysia and is currently on gardening leave.


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