Every year health insurers undertake a product and premium review. They need to ensure that their products are still meeting their customers’ needs, are up to speed with the latest developments in the health industry and are performing as expected commercially.
In undertaking their reviews, there are three key drivers of premium increases that insurers have to consider. They are:
- The overall claiming behaviour of ALL customers
For most health insurance customers, the claims risk is shared amongst all policyholders on a particular product. By sharing the risk amongst the ‘community’, individual customers are not penalised when they need to make a claim; the claim cost does not directly affect their premium because rather it is shared amongst everyone. But to remain commercially viable each insurer does have to ensure that the total premiums for a product cover the cost of all claims from all policyholders.
- The rising cost of medical treatment
Medical inflation is associated with the different types, utilisation and price of medical treatments. It is affected by advances in medical technology, the increased prevalence of chronic conditions (such as diabetes and heart disease) and cancers associated with ageing populations and unhealthy lifestyles.
According to the AON 2020 Global Medical Trend Rates Report, the global average rate for 2020 is 8% although in Africa the rate is much higher, ranging from 20% in Ghana, 16.4% in Nigeria to 10% in both Kenya and South Africa. Historically medical inflation rises faster than general inflation and 2020 is no exception.
In many ways medical inflation is good news because it reflects the fact that medicine continues to advance year on year. Access to new treatments and technologies is great for patients; the downside is that developments in cancer drugs, radiotherapy and surgical techniques are often expensive. For example, according to Bupa, monoclonal antibody drugs for cancer can cost between $19K and $60K per patient per year, whilst new types of radiotherapy the costs are between $53K and $126K per patient per year. Although the incidence of these treatments will be low, the very high cost will inevitably impact premiums.
Over recent decades the tremendous progress in sanitation, education, and better medical care have all contributed to a massive drop in communicable diseases such as tuberculosis, HIV and malaria. But worryingly, at the same time, the incidence of chronic, long term, non-communicable diseases such as cardiovascular disease and cancers has risen dramatically which means there are now many more claims for the treatment of these conditions that need to be covered by health insurance premiums.
- Each individual customer’s age
The third key driver of premium increases is age. Age is the main personal risk factor that affects premiums because, quite simply, as customers get older, they are much more likely to require treatment and make a claim. Some insurers have single year age bands which means premiums increase every year; other insurers have five-year age bands which means premiums increase every 5 years. Either way the simple fact is that health insurance premiums increase with age.
At JWS we are seeing rate increases come through from various insurers for 2021, but the good news so far is that they are below the rate of medical inflation. We understand that no one likes to see their health insurance premium increase year on year but hopefully in understanding what’s driving the increase it will help to soften the pill.
If you have any questions at all on any of the above please do not hesitate to contact your Client Relationship Manager or another member of the healthcare team on [email protected] or + 254 (0) 709 455 000.