PETALING JAYA: The upward repricing of healthcare insurance premiums is justified based on a combination of a spike in policy claims, substantial investment in medical technology and equipment in the face of a weaker ringgit as well as an industry underwriting loss of RM5bil in 2023 that makes the business unsustainable over the longer-term, analysts say.
Affin Hwang Investment Bank Research (Affin Hwang Research) said in a report that the repricing has to take into account medical cost inflation and cannot be based solely on the profitability of life insurers, where underwriting losses for the industry, although narrower in the first-half of 2024 at RM1bil, was RM5bil in 2023 excluding investment-linked funds.
The research house noted that investment in medical technology and equipment requiring substantial capital outlay has become more challenging over the years due to the weaker ringgit while there has been a shift in the proportion of non-surgical and surgical treatments from a ration of 32:68 in 2013 to 38:62 in 2018 due to the higher prevalence of non-communicable diseases, according to a study by the Insurance and Takaful Industry Medical Cost Containment Task Force.
The research house, which has an “overweight” rating on life insurers, said medical policies were designed with annually reviewable premium rates to reflect the changes in the cost of treatment and propensity to utilise healthcare services.
“These factors, however, are unpredictable in the long term and as such, regular re-pricing has become a standard feature to ensure sustainability of these portfolios in the long run,” it added.
Among the factors driving up medical claims were high cost of hospital supplies and services (HSS), which include laboratory and imaging, nursing, medications and medical equipment such as ventilators and dialysis machines.
According to Bank Negara, medical costs increased 47% between 2021 and 2023 whereas cumulative growth in the medical and health insurance/takaful claims cost rose by 56%. HSS charges accounted for 70% of total medical bills of non-surgical and 59% of surgical treatments.
Affin Hwang Research cited the age-curve as one of the other factors pushing up overall treatment costs and which translated into higher policy premiums as premiums usually go up when the insured gets older, alongside higher risk of hospitalisation, possibility of further complications and longer recovery time.
Besides the age-curve, it said that the repricing reflects healthier insured going to cheaper options, leaving those who cannot get coverage elsewhere within a shrinking pool of insured and higher claims.
“As the cycle continues with the smaller pool now, the repricing of the premium will be at a higher level to reflect the pool’s deteriorating experience as well as to build additional margin for future expected inflation and claims,” the research house said.
The research house has “buy” calls on Allianz Malaysia Bhd
with a target price of RM26, LPI Capital Bhd with a target price of RM15 and Syarikat Takaful Keluarga Malaysia Bhd with a target price of RM4.40.
It said that the industry’s structural reforms, such as the proposed diagnosis-related group-payment system, increased adoption of insurance co-payment products and addressing transparency in drug prices were all in favour of the life insurers.
