Song-Song Liao
Steps Toward Stability?
Thus far life insurance companies have been the principal writers of health insurance business in China. The soaring market demand together with the supportive regulatory environment have greatly stimulated the interest of life insurance companies in the field of health insurance
Recently, the further movement of life companies into health insurance has been discouraged by the unfavourable experience that has developed with group health policies, especially in the area of supplemental social medical insurance products. This has led to one of the hot topics in the business - how to professionally manage health insurance to produce profitable results.
Professionally managed health insurance business begins with the understanding that life and health insurance often have diverse business management requirements and conflicting technical principles. Recognising the meaningful differences between these two kinds of coverage will help us to understand why we must manage them differently or even separately. Below are several basic characteristics of health insurance that any insurer may want to differentiate before engaging in the business.
Intensive service
One fundamental difference between life and health is the underlying insurable risks. An ideal insurable risk generally has the following four categories: 1. low frequency of occurance (the insured event does not happen often), 2. high loss or high claim (the amount insured is for a high dollar amount - hence the item/event/person is insured as it would be expensive/ almost impossible to replace) , 3. an insured that is interested in avoiding claims,(the insured does not want the event to happen where the insurance coverage comes into question) and 4. no opportunity for the insured or third party to impact the cost after a claim has started.
Life, in particular, falls into this category of insurable risk: 1. a person only dies once, 2. the claim is high when a life insurance policy is collected upon, 3. a person does not want to die and hence wants to avoid claims and 4. once a claim is made, the persons claiming cannot affect the amount of the claim. The life expectancy of a healthy person with no risk-aggravating pastimes does not materially change when that person buys a life insurance policy. Health risks, on the contrary, are not nearly as good for insurance.
In addition to relatively lower cost and higher frequency, healthcare providers know that it is easier to collect their fees from patients who have medical insurance. Further, once a claim has started, the insured and the insurer no longer share a common interest. Once treatment for a condition has begun, the insured naturally wants the most extensive care possible, demands alternatives and elective treatments, and thus enters into an adversarial relationship with the insurer. Hence, on the spectrum of insurable risk, from good to bad, health insurance falls well towards the bad end.
Due to the subjective nature of health insurance mentioned above, the insureds are not merely seeking financial protection. They are also looking for services from the insurer to direct the insureds to appropriate health providers and make available to them the best medical treatment at affordable rates at their times of need.
This would mean that health insurers need to cultivate good relationships with healthcare providers if they are not to become healthcare providers themselves. This unique characteristic of health insurance also means that we have to manage the business differently, with much more emphasis on providing value beyond traditional insurance services.
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