Wanted: Covid coverage


As Covid-19 figures continue to rise daily, there is mounting pressure on insurance companies to cover treatment costs. How will this pan out eventually?

THE winners and losers of the Covid-19 pandemic are rather clear. Rubber glove makers dominated the top of the profit hierarchy, followed by tech companies, electronic manufacturing services (EMS) companies and those in the stockbroking business.

Somewhere along that line, there is an industry that has been scooping up profits on the sidelines. Enter the insurance sector.

The industry players have been recording healthy profits despite the turbulent 2020 and a rocky first quarter of 2021.

Some trading and investment portfolios of insurance companies have recorded strong gains last year from the spectacular runs in the financial markets.

Both of Malaysia’s equity and bonds markets had their fair share of bullish moments last year.

Claims, being the greatest expense for any insurance firm, have also decreased, especially motor insurance claims, due to the movement control order (MCO) preventing interstate and interdistrict travels and also physical workforce reduction.

This led to a reduction in vehicles on the road daily, which in turn, led to a reduction in road accidents.

Road accidents dipped 26.3% to 418.237 cases in 2020 while road fatality cases have gone down 24.9% to 4,634 deaths in the same period.

Interestingly, vehicle thefts recorded a decline of 37% to 7,400 cases last year.

The lower risks, coupled with the phased liberalisation of the motor insurance industry, should have seen greater reductions in premiums but they remained high. But that is a topic for another day.

The factors above are among those that have led to a rise in revenue and earnings of insurance companies, some even hitting their all time highs.

And as the figures of new Covid-19 figures continue to peak at new highs everyday, there is a mounting pressure on them once again to cover treatment costs at private hospitals as public facilities continue being overstretched.

To be fair, it is a general practice for insurers not to cover pandemics, of which Covid-19 is one, due to a risk of its nature, just like war.

Like many arguments, there are always two schools of thought and in this case - whether a patient should shoulder the entire cost for Covid-19 treatment at a private hospital and whether such a insurance coverage would set a precedent to cover any other pandemics or disasters.

But the hard truth at the very end is, this is a capitalist world and it will only come back to hit the consumers, unless there is regulatory intervention.

Some insurance companies have actually come up with some form of assistance for its policyholders, such as cash reliefs and hospitalisation payments due to Covid-19 but not the treatment.

Association of Private Hospitals Malaysia (APHM) president Datuk Dr Kuljit Singh tells StarBizWeek that it is the policy of most insurance companies for covering pandemics.

He points out that some have since come up with policies that cover Covid-19 but these are limited to particular amounts and the policies do not come with cashless facilities, meaning that patients will have to fork out their own money for the Covid-19 medical bills first, before applying for reimbursement. “This can be difficult because some patients may not have the means of paying upfront especially during tough times like this where patients may not have the cash flow.

“At the end of the day, it’s actually very difficult for those who have insurance to get anything out of this to cover them if they contract the virus.

“But we also understand the concerns from the point of view of the insurance companies in terms of computing their risks because risk management for Covid-19 can be very dicey, ” he says.

Kuljit adds that when insurers do not have a predictable end point for the reimbursement or a payment, they will become sceptical to cover.

“No one is able to calculate how many people will get Covid-19, no one can predict whether a patient is in category one, two or three. And when they turn to category five, the patients will require treatment at intensive care units (ICUs) and the bills can go really high, ” he says.

Leading insurance firms in the country have also initiated coverage of medical treatments for their policyholders should they develop complications post-vaccination which requires hospital admission.

This is actually negligible in terms of risk to the insurers because there is already a fund set up by the Government in March for such a purpose, with an allocation of RM10mil.A sum of RM50,000 will be paid to those who encounter serious side effects and have to under long-term hospitalisation while RM500,000 will be paid out in the event of permanent disability or death.

“We totally understand the issues faced by insurers but maybe something more innovative, more than what they are doing right now can be done.

“If they can subsidise to a certain extent and also make the coverage cashless, I think that will be quite encouraging to see, ” Kuljit says, adding that the idea of having extra insurance riders can also be considered.

Meanwhile, an insurance sector analyst disagrees that insurance firms should cover Covid-19, considering the future liabilities that they might have to undertake in future.

“Technically, by volunteering to cover Covid-19, it actually opens up a pandora’s box with regards to pandemics.

“Then the next question would be why do they only cover Covid-19 and not other pandemic and other natural disasters?

“None of them are going to. That is the main reason why insurance companies don’t cover Covid-19 treatments, ” he said.

The analyst stresses that the reality boils down to the nature of the business.

Once an insurance firm starts bending the rule just for Covid-19, there will be many other rules that they might be forced to bend on in terms of coverage.

“No insurance company will step in and say they volunteer to cover Covid-19, which is ridiculous because you won’t know what kind of liabilities you are opening yourself up to.

“And one thing that people always forget to realise, is that these are commercial enterprises. If you start giving out from one end, someone else loses out on the other end.

“By getting insurers to provide coverage on Covid-19, it will not be just Covid-19, they will have to cover all pandemics as a whole and at the end of the day, you are depriving the companies from the funds to maintain the insurance costs through other policyholders, ” he says.

He notes that medical claims in Malaysia are very high and that medical insurance is actually a loss-making business for most insurance companies.

“At the end of the day if insurers have to cover Covid-19 and other pandemics, at some point in time premiums will have to go up for all policies, ” he says.

A good example is the Affordable Care Act or Obamacare in the United States which sought to make healthcare affordable for everyone. The less fortunate benefited from the scheme, at the expense of existing policyholders that suddenly saw a surge in their policy premiums.

An actuary of a bank’s insurance arm said the financial modelling for a pandemic in terms of the pricing and reserves were not as straightforward.

“Firstly, there’s no data or pricing and figures that we can work around with. It is almost impossible for use to compute the risk or exposure if we were to cover Covid-19 but one thing that’s definite is, the pricing for each policy will go up.

“There have been no health complications or diseases such as Covid-19, which makes the modelling even harder. Even with our own assumptions, it is still very tough to make any predictions and price it, ” she says. She adds that there might be a need to have extra reserves per policy, which may not be favourable for a firm’s investment income.

“It’s hard to price if we don’t exclude the risk and the risk is something that we still can’t determine.

“It’s better if insurance firms can predict your claims because they will then know exactly how much to place in their reserves for the claims and the rest will be placed into long term investments, ” she says.

Just earlier this year, insurers have also begun to raise premiums on health and medical premiums, citing the rise in healthcare costs, much to the dissatisfaction of policyholders.

The Federation of Malaysian Consumers Association (Fomca), which highlighted its concerns recently, said it was wrong and unacceptable that insurance companies raise premium prices at a time like this to make excessive profits when consumers were already suffering.

A fuming Datuk Dr Marimuthu Nadason, the Fomca president, does not mince his words when he tells StarBizWeek that the Malaysian insurance industry is not competitive enough for consumers and that it was lopsided to the point that the industry players were taking advantage of consumers.

Initial findings from the complaints shows that medical premiums have been increased, some by as high as 60%, which mainly affected senior citizens.

“This is as if it is to discourage policyholders, so that the policies will lapse and the insurance companies can make whatever premium that has been paid all the years.

“I urge consumers at large not to take your insurance plans for granted.

“You may have a good agent but please pay attention to the finer details, ” he says.

Fomca is expected to present its findings next week, together with a memorandum to related parties.

Asked if there is a need for insurance firms to provide coverage for Covid-19, Marimuthu said it was not the time yet, because doing so would push the premiums even higher.

“Back then when you buy a medical insurance, there were only 36 critical illnesses (that are usually not covered).

“New disease or names are added every few years and the insurers are hiding behind these. But rest assured that Fomca is not giving up on this issue. We want to make sure that the word illness covers everything, not just Covid-19, ” he says.

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