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The rise of Healthcare insurance costs in Hong Kong: An opportunity for insurers to innovate

We as a society are living longer than any time during our history, but we are also spending more on health insurance than ever before. Healthcare cost inflation was brought sharply in focus during Amazon, Berkshire Hathaway and JP Morgan’s announcement of a new venture to focus on cutting healthcare costs and improve services for employees. Who’s currently paying the increasing bill?

The inflation of healthcare costs urges insurers to re-think their operating models

Hong Kong is the 2nd most expensive location globally world for international private insurance and health premium inflation is significantly higher than Hong Kong’s general inflation.

As justly spotted by Ralph Waldo Emerson, We learn geology the morning after the earthquake. The tremors of very high healthcare inflation are already being felt, it’s up to the insurers now to take measure and plan for the earthquake or be swept away by it. This is why the Insurance Authority has repeatedly encouraged insurers and intermediaries to apply insurance technology innovations to improve data analysis, and ease pressure on premiums paid by consumers.[1] The increase in healthcare costs has led the Insurance Authority to create the Voluntary Health Insurance Scheme (VHIS), that’s s sets the minimum requirements for all individual indemnity hospital insurance.

If times are good for Health insurers, who are earning record profits globally and in Asia, one thing we know from history is that its companies generally find it difficult to tighten the belt during the boom times but are forced to trim down and innovate during the tough periods, but that is exactly what is required today.

Demography and technology pressuring the healthcare industry

Some of the major factors contributing to Healthcare cost inflation in Asia and specifically in Hong Kong are:

      1.Hong Kong has an ageing population and public health sector is inundated, public sector is taking care of 90% of Hong Kong’s patients, but only employing 40% of the city’s doctors.[2]

     2. With public sector being inundated, private healthcare is experiencing increased demand driving up costs.

     3. With advances in medical technology[3], medical equipment costs are increasing

     4. Compensation for doctors in Hong Kong extremely high and increasing

To these cost drivers, insurers have to face additional factors weighting on the premiums paid by their customers, such as:

     1. Cost to comply with regulations is increasing with the VHIS, various IA guidance notes, IA tax levy, GDPR, IFRS 17 and other regional and global regulations. Insurance companies also need to spend on complying with regulatory topics like enforcing premium transparency / appropriate communication, adapting processes to ensure portability, revamp coverages, etc. In addition in the next few years, compliance with regulations like RBC (Risk based capital) framework will increase costs.

     2. High fraud rates[4]: Globally about 28% frauds by volume are related to health and critical illness (CI)[5]. In Asia the fraud rate across LOB’s is 4.16%[6], compared to 3.58% global average. Recently the USD 900 million[7][8] fraud in US further highlights just how significant the problem of health care fraud has become. Coalition against Insurance Fraud [9]estimates that healthcare fraud amounts to tens of billions of dollars a year.

As a result, insurers will have to improve their operations, create innovative products, induce the customers to have a healthier lifestyle and be good at early detection to reduce claims payouts if they want to lighten the premium costs for their policyholders.

This article illustrates how a handful of insurers and banks are already engaged in solving some of the core issues to reduce healthcare premium, thus offering better products and user experience for insurance customers and increase the % of people insured. How to go one step further?

To understand the reasons for inflation, we first need to understand the components that go into pricing the healthcare premium. The bulk of the health insurance premium is composed of the technical premium (i.e. covers the loss experience) and the operating costs, the former being the biggest contributor.

The insurer’s set of keys to reduce healthcare premiums

Disclaimer: The above examples are only a small selection of innovations and use cases, not a comprehensive list.

  • Decipher your unstructured data

4.48 Million customers of Citibank in Asia, and 30% customers in Hong Kong are using voice authentication to identify themselves shaving off an average of 45 seconds per call, with technology identifying the customer as he/she explains the reason for calling.

  • Improve your fraud detection rates

During a recent pilot using 21 months of PRO BTP data, IBM SOLON platform was able to identify suspicious activity in 9 percent of optical and 14 percent of dental insurance claims, amounting to 14 million[10] ($17.7 million) in potential losses.

  • Deploy predictive analytics for early diagnosis

A study at Georgia Tech demonstrated that with machine-learning algorithms looking at many more factors in patients’ charts than doctors, there was a substantial increase in the ability of the model to distinguish people who have CHF (cognitive heart failure) from people who don’t[11] thus reducing claims and payouts through early diagnosis.

  • Understand your customer's lifestyles better

MetLife offers lower premiums to customers who manage their diabetes better through Health2Sync. This helps the insurer build value for the client and reduce payouts through better management of health and reduction in probability of clients falling sick.

  • Straight Through Processing

RPA adoption has been increasing amongst traditional insurers. An insurance company recently was able to reduce the handling period for premium advice notes from brokers/agents from 2 days to 30 minutes only.

  • Leverage claims data

Most insurance companies in Hong Kong still rely on proven claims systems but with outdated data collection capabilities. There is a missed opportunity here. Insurers can have access to a fantastic volume of value-added data through the claims processes: injury/illness details, service provider costs and turnaround time, causes of loss, detailed loss assessments, claim handler’s performance and reporting on assignment rules, etc. All it takes is to structure the data collection within the claims system(s) and to make sure the framework is consistent across Entities (if more than one). Ultimately this will materialize in a combined ratio decrease.

Next steps

These examples illustrate that some insurers globally are trying to leverage the existing/emerging technologies and applying them in new ways to bring down the costs in different parts of the insurance value chain. This is a good start but a more comprehensive strategy is required for long term success.

With Amazon’s[12] new health insurance venture and tech giants like Google[13] partnering with Insurtechs focussing on specialized products/niche customer segments, for the first time in many decades’ insurance companies are on the verge of losing market shares to non-traditional actors, the innovation game is on to protect customer best.

About Sia Partners As part of our unique Consulting 4.0 approach and Cognitive Leap, Sia Partners has developed a strong expertise and supports its clients on data analytics (DataLab), AI and RPA programmes, from assessing maturities and designing strategies, to deploying programmes and leading the cultural change.

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