Medical insurance firms ailing as fraud, rising hospital bills cut margins In Summary • Escalating hospital bills and high incidence of fraud are eroding the profit margins of medical insurers as the uptake of medical covers remains relatively low. • The firms also suffer as some policyholders collude with hospitals to inflate costs. This leads to insurance firms increasing their premiums, making medical insurance even more inaccessible. • High management fees attributed to agent and broker commissions, as well as price undercutting, have also been blamed by insurers for the dwindling net revenues. Medical insurance and health insurance management companies in East Africa are under threat as the high cost of healthcare consigns more than 70 per cent of them to a perpetual loss-making cycle. Escalating hospital bills and high incidence of fraud are eroding the profit margins of medical insurers as the uptake of medical covers remains relatively low. The firms also suffer as some policyholders collude with hospitals to inflate costs. This leads to insurance firms increasing their premiums, making medical insurance even more inaccessible. In Kenya and Uganda, firms that underwrite medical insurance said medical claims have consistently exceeded the segment’s premiums. High management fees attributed to agent and broker commissions, as well as price undercutting, have also been blamed by insurers for the dwindling net revenues. Practitioners have warned that there is a need for intervention, including from governments, to avoid a fall in the supply of medical insurance services, which would directly affect the financing of the region’s healthcare services. “The biggest issue is that medical service providers are increasing their costs every year, by an average of 15-20 per cent,” said Lydia Kibaara, the chief operating officer at Jubilee Insurance in Kenya. Industry players say outpatient consultation fees and bed charges have increased by the highest margins as hospitals move to recover additional expenses. As hospitals raise their charges citing increased operating costs, insurers have responded by hiking their medical premiums by a similar cent of revenues. Five of the companies in Kenya paid more claims than the premiums they received according to data from AKI. When management fees, which include commissions to the agents and brokers and office expenses are factored in, most, if not all of the net earned premiums are wiped out. Medical care costs in Kenya grow by at least 10 per cent annually according to various reports. The inflation levels are usually double the headline inflation because most of the medical equipment and medicines are imported, a situation replicated in the rest of the EAC countries. The average consumer price index on health services in Uganda increased from nine per cent in 2012 to 16 per cent of the CPI (consumer price index) basket in 2012, according to the Uganda Bureau of Statistics. In Uganda, health membership organisations, which are essentially medical insurance management companies, grew their premiums by 22 per cent to $19.3 million in 2012 but paid premiums worth $17.8 million. This means the average claims ratio was 92.2 per cent. According to data released by the Uganda Regulatory Authority on industry performance for 2012, the management expenses increased significantly, from 12.1 per cent in 2011 to 210.6 per cent in 2012. “The Authority will consider putting in place a provision for expense caps in the law so as to enable insurers and HMOs to manage their businesses more prudently,” said the chief executive of the Insurance Regulatory Authority of Uganda, Alhaj Kaddunabbi Ibrahim Lubega. James Wambugu, the chief executive of UAP Insurance, one of the few companies that made underwriting profits last year, said medical insurance companies should utilise information technology to become more efficient and mitigate against rising medical costs and management fees. “We have reduced the cost of running our insurance scheme. Medical insurance firms ailing as fraud, rising hospital bills cut margins". Five companies in Kenya paid more claims than the premiums they received payment, where policy holders share part of the cost, like consultations fees, with the insurer. Others have established a medical care provider network management to “ring fence” their policyholders on which hospitals and doctors they can access. At UAP Insurance, policy holders who opt for doctors or hospitals outside the company’s provider network are required to pay an extra cost. The Association of Kenya Insurers (AKI) is currently engaged in discussions with doctors and hospitals to find ways of working together to manage the cost of medical care provision. In Kenya, the average claim ratio for 18 companies was 78.3 per cent in 2012, meaning that out of the net earned premiums, this percentage was directly paid as claims. The average management expense ratio for the 18 companies in Kenya was 25.5 per cent of the net earned premium, which effectively means that costs in the medical insurance sector in Kenya were 103 per cent. High management fees attributable to agent and broker commissions, as well as price undercutting have also been blamed by insurers for the dwindling net revenues. Practitioners have warned that there is a need for intervention, including from governments, to avoid a fall in the supply of medical insurance services, which would directly affect the financing of the region’s healthcare services. Difficult times In Kenya, which has the most vibrant and developed insurance market in the region, only five out of 18 insurance companies offering medical services made an underwriting profit in 2012. In Uganda, only two out of the six medical insurance management companies made an underwriting profit. 70 per cent of medical insurance firms in East Africa are in a perpetual cycle of making losses. UAP recently launched a mobile application for individual insurance customers, starting with AfyaImara, a medical cover designed for individuals. “With the application, a consumer will be able to log in, choose a cover limit, calculate the premium and pay for it directly,” said Mr Wambugu. “In Uganda, medical insurers face the challenge of low premiums because of the low number of people who buy medical insurance covers,” said Lion Assurance managing director Newton Jazire. For instance, the six health maintenance organisations have a total membership of 100,847, with two companies, AAR Health Services and IAA Ltd, controlling 89 per cent of the membership, according to an IRA-Uganda report of 2012. The companies have therefore been spending heavily on marketing to recruit more clients. Biggest risks Medical inflation, management fees, and price undercutting appear to have dislodged fraud as the biggest risk facing medical insurance companies. A few years ago, IRA-Kenya estimated that 40 per cent of claims are fraudulent. But insurance companies have now implemented stronger anti-fraud measures, mainly through the use of biometric cards. Practitioners interviewed for this story said that although fraud is still a risk, its impact on revenue has reduced. Uganda HMO International Medical Group (IMG) paid claims of 104.6 per cent of the premiums collected, despite investing in a biometric system. IMG chairman Ian Clarke attributed the large number of claims to the high cost of medical services rather than fraud. He said the industry will have to mitigate this by introducing a co payment system like the one in Kenya, where the HMOs charge a fee over that already paid for the cover. AAR Health Services Uganda spokesperson Trevor Ariho said the firm has already introduced such a system. READ: AAR eyes regional market in new plan He said a visit fee of $0.19 is charged for every person who goes to their clinics. In some cases, the employers meet this extra cost but in others individuals accessing the service pay out of their own pocket. Price undercutting has been identified as the biggest challenge facing the insurance sector in Kenya— based on a survey of 35 insurance chief executives conducted by the IRA-Kenya and released this week. The report showed that 23 cent of the CEOs interviewed said that price undercutting is the biggest challenge, followed by claims settlement; delays in premium collection and non compliance on cash and carry at nine per cent; inappropriate staff skills in some areas; fraud; quality of intermediary services and customer retention all at seven per cent. The CEOs said the most risk exposed classes of insurance for 2013 were medical, motor private, motor commercial and burglary and theft. By Steve Mbogo and Dicta Asiimwe
Posted on: Tue, 20 Aug 2013 06:52:43 +0000
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