Tan Kin Lian's Blog: Make insurance available on fair terms

Sunday, November 08, 2009

Make insurance available on fair terms

In some countries, e.g. Australia, it is mandatory for health insurance companies to provide insurance to all eligible persons, regardless of their health condition. This also applies to a few European countries. In some of these countries, the insurance premium has to be community rated, and is the same regardless of age - quite likely within a large age band. The purpose of insurance is to make it available and to cover everyone through the principles of pooling.

In the USA and many other countries, it is possible for a motorist, who is unable to get motor insurance from the market, to get insurance from the "residual market". They have to pay a higher premium, but insurance is at least available. The residual market is a pool for those who cannot buy insurance from the normal market. In this pool, the risks are shared by the insurance companies equally or in proportion to their market share.

Singaporeans are used to the "free market" and lack of consumer protection that they are not aware that there are other arrangement that makes insurance available to all at fair rates. They can only think about underwriting for profits. They do not care about the people who cannot buy insurance,unless they are the people who are personally penalised by the system.

A journalist wrote that people who cannot get insurance due to bad claims record should not be driving on the roads. This is easy to say, but does not help the person who is penalised unfairly due to same bad luck. Reckless drivers are banned from driving, but this is decided by the court, and not by "commercial reasons" adopted by insurance companies.

America is addressing the issue of "difficulty to get insurance" by making reforms to their system. The Obama Administration wants to make insurance available through an insurance exchange, and also for a government owned enterprise to offer insurance to compete with the private sector, i.e. the "public option". This recognises the failure of the "free market" in making insurance available to people at fair rates.

Some people misinterpreted my views (stating that I am against the principles of underwriting). They are ignorant of the wider issues. Some are deliberately mischievous in misrepresenting my views.

My view is this - insurance should be underwritten, but cannot be carried too far as to deny consumers the right to get insurance at fair rates. Most commercial companies, working on commercial terms, will not be socially responsible. This is why insurance, along with other important matters in the economic life, should be properly regulated and cannot be left to the profit-driven "free market".

Tan Kin Lian

23 comments:

Anonymous said...: Dear Mr Tan,

I strongly support your suggestion. I for one think at least medical insurance should be provided universally.

Insurance Companies should not be allowed to get away with super normal profits. They have to be socially responsible.

This is not fair at all to those who are penalised by the system.

I think you are absolutely right at least on the medical insurance part.; November 08, 2009 7:43 PM
Anonymous said...: REX comments

I am finding it increasingly difficult to understand this thread.

I would like to know how is it fair, or how is it possible for an insurer to pool groups of different risk profiles, into one "melting pot" to administer the insurance system. If i understand you correcly mr tan, you said that is is feasible to pool such risks of everyone together "regardless of their health condition" in this way everyone is eligible to buy insurance.

If the above is followed, it seems logical that the insurance benefits must drop across the board, because the risk of claim against the insurer is increased due to additional components of sick people in the pool.

As for the sick person he will applaud such a move, because he is able to get insured in spite fo the fact he is sick. As for the healthy guy, is it fair to him? He will get considerably less benefits if he dies prematurely, due to the pooling effect of sick people.

I have to say, suppose i have a chronic sickness, I am not about to cry "foul!" if I am unable to find an insurer due to my sick condition.

Please help us to understand more from the point of view of the insurer, the healthy person, and the sick person, how such a system as you had described, will be win win for everyone?

REX; November 08, 2009 9:51 PM
Vincent Sear said...: I don't think that a driver who has 3 accidents and claims exceeding S$45,000 within 12 months deserve any "fair terms". A fair term would be a premium exceeding S$30,000 per year.

I'm not pre-adjudicating that he's a fraud. If he's so accident-prone and unlucky, I can't blame insurers not wanting to insure him. In any case, it's most likely that he's a fraud.

A bad driver should sell his car and use public transport. An accident-prone driver shoulde sell his car and use public transport. That's commonsense. A very rich but bad and accident-prone driver should hire a chaffeur.; November 08, 2009 10:24 PM
Tan Kin Lian said...: REX
Do you prefer that someone in poor health is left to fend on his (or her) own, i.e. that he should not be treated or have to pay the entire medical bill?

What who you feel, if you were the person in poor health?

Some countries make it mandatory that all people should be insured regardless of their health. In some cases, they should even pay the same premium rate, regardless of age or health condition.

A fair premium rate is one that can be backed by statistical evidence, and may be higher due to poorer health. But it should not be higher due to the exploitation of the insurance company in charging more than the actual experience - to generate excessive profits.

This is why some countries require the insurance companies to offer insurance on the "residual market" to people who are not accepted by the insurance companies. The rate charged on the residual market is regulated.; November 08, 2009 10:34 PM
Tan Kin Lian said...: To 7:43 pm
My purpose is to educate people that there are other arrangements, other than the "free market" that we are used to.

The "free market" is good for business - to make excessive profits - and does not produce a good outcome for the consumers.

I want to "educate" our authorities on the role that they have to play to take care of the consumers, and not just leave everything to the "free market".

I also find consumers have the view that the free market is best, until they become the people who are in poor health and cannot get insurance.

These people should also be educated about what is pooling of risk and even taking care of other people and not just taking care of their self interest.

We have grown too much in the mindset of self interest that it is difficult to go back. But I shall try.; November 08, 2009 10:39 PM
wjsim said...: "I also find consumers have the view that the free market is best, until they become the people who are in poor health and cannot get insurance."

This is the crux of the problem. Free market is not the problem.

People do not understand the importance of health insurance. Free market's solution to that is to increase commission for sales agents to get support from distribution channels. Profits and incentives ultimately is what drives people to work.

The other solution is to get up and declare mandatory health insurance for all, whether you like it or not. There is probably a reason why it is not done this way. Some people, believe it, would rather not be insured because they "don't believe in insurance". Probably the agents with more door-to-door experiences can share...; November 08, 2009 11:28 PM
wjsim said...: Missed out something in my earlier post.

Regarding motor insurance, the problem is NOT with insurers not wanting to insure reckless drivers or drivers with bad luck. The problem lies in that in Singapore, you NEED motor insurance to drive a car. That should be scrapped.

Now, this will cause the motor insurance industry to become EVEN more competitive as it is no longer compulsory. Free market will then drive fear into reckless drivers or "bad luck", causing them to willingly take public transport or drive more carefully. Now, they will have to pay for the next car they crash into from their own pocket. I feel this is only fair for the other 95% of the drivers.

Health is slightly different though. There is only so much one can do to prevent illness. Hence, mandatory coverage seems logical. However, when the state is allowed to make decisions for the individual, what is stopping the state from micromanaging any other parts of your life?

I think Singaporeans, including myself, are a rather confused bunch. Do we actually want more control over our own lives? Or do we want more state control? One end we're asking for less GST, freedom of speech, the other end we're asking for the same people to impose more laws telling us what to do with our own money.

Lastly, social responsibility is a debatable term. A corporation acting as an agent for the principal, the shareholders, can only be "socially responsible" carrying out the wills of the principal, which would most likely be to earn as much profit as possible. If an insurer were to charge someone they deem to be "risky" at "fair rates", the insurer is being socially irresponsible to the other 95% of the people whom they have charged at fair rates.

Or perhaps, a system like Social Security in America is considered socially responsible? What would the next generation say when they look at the huge budget deficits? Rob the grandchildren to pay for the premiums now?

Singapore is run like a private company and that's why I have confidence that the government will be socially responsible and balance the budget, or even at a profit. Hence the large difference in pay? :P; November 08, 2009 11:59 PM
I.H.I.S said...: I have to agree with Rex. I find this post is rather narrow-minded.

Why only scrutinise the insurance industry when this "free market" prevails across all other industries? Don't you think other commercial oligopolies like Nike/Adidas or even Apple doing the same thing? Why must only the insurance industry be dreadfully and constantly under the fire of the cynics out here?

Let's face it, the world can never be fair. Even the notion of being fair to consumers will not beget benefits to consumers in the long run. The reason is simple: Let's go back to the fundamentals of economics.

1st fundamental: Supply and demand. If today all insurers were to accept everyone without any loading and regardless of claim/medical conditions, prices will definitely RISE. Supply increases, price increases. (While I'm not referring to supply of products, I'm referring to increase supply of administration work) And because of the prices increase, demand drops. The unfortunate ones who then get kick out of this paradigm are those who cannot afford more. So herein lies my question: is it being to fair to poor people but who are in best of health? I would so rather insure a poor healthy chap than a rich sick bloke.

2nd fundamental: Economic efficiency. Assuming now insurers are being forced with a maximum price ceiling and thus keeping prices low, there are some who will eventually exit the industry and those who are left are being forced to operate with much lower profits. From here, think of cost-cutting measures how it will affect claims and administration. (Imagine everyone's salary in the claims department is being cut)

While I agree that self-interest is really bad, lets not forget the metaphor of "invisible hand" http://en.wikipedia.org/wiki/Invisible_hand) by Adam Smith. Decisions made in this free market is a result from the interaction of millions of people who are in their own self-interest. If you claim that all companies are into profit-maximising, why don't all of them increase premiums at the same time since all the companies will benefit together. Essentially, the prices are not really for them to decide.

I respect your conviction towards promoting the interest of consumers, but to shift this paradigm towards their interest is really unfeasible. IMO, although the so-called authories seemingly have power to dictate how insurers run their revenue model, they cannot do much without suffering repercussions.; November 09, 2009 2:38 AM
Anonymous said...: I support Mr. Tan's idea, everyone one has a right to get insurance at a fair rate.

Since we are on this topic, should insurers, regardless of existing ones or free market ones or residual ones, accept "pre-existing" conditions?

After all, a person might have "pre-existing" conditions and he is not sick. For example, someone had cancer last year, but healed already. Is there a residual market for this?

Hopefully, premiums is cheap cheap, since cancer patients spent quite a fair bit already on treatment. Just like any normal human being, he/she has a right to buy insurance and should be treated fairly.

Imagine cancer patient cannot buy insurance to protect himself financially from future occurrence, quite sad right?; November 09, 2009 3:41 AM
A Singaporean said...: From one angle, insurance as a business aims to make as much profit as possible. Certainly the companies will want to do underwriting and deny insurance to certain groups of people, because it just doesn't make business sense to do sure-loss business. This is where people like REX and Vincent Sear are coming from. From another angle, I think we all should agree that every Singaporean should have the right to affordable basic health care, regardless of whether they are fit people or people with many existing medical problems. So how to reconcile this paradox? I don't know the answer, but I guess probably a state-run or state-regulated insurance funded by taxpayers could be a solution.

Anyway, there seem to be a lot of reports in the U.S. media saying that insurance companies try to weasel out of medical claims by either denying them outright or delaying them by applying a lot of red tape. Examples:
http://www.huffingtonpost.com/peter-j-ognibene/your-health-insurer-emwil_b_273453.html
http://www.huffingtonpost.com/2009/09/18/in-health-care-number-of_n_291881.html
There's even an article on contesting a denied claim:
http://thyroid.about.com/cs/newsresearch/a/insurancepay.htm
I am interested to find out about the situation in Singapore. Do insurance companies try to weasel out of claims? If yes, to what extent?; November 09, 2009 4:52 AM
Anonymous said...: REX comments again

Mr Tan,

I would like to respond to your counter comment
Quote: Do you prefer that someone in poor health is left to fend on his (or her) own, i.e. that he should not be treated or have to pay the entire medical bill? UNQUOTE

Answer: Yup, if i am sick i should have a right to be able to get a reasonable price for medical treatement. However I expect the government should have some subsidies for those who are unable to afford, and they should devise schemes to ensure an affordable health care system even for the poor. A part of the GDP of the country perhaps. i find it hard to understand how an insurance company will be willing to cover someone already diagnosed with illness, much as it seems a good thing from the sick person point of view.

Surely, if the insurance compnay is willing to provide hospitalisation cover and also death benefit for ALL the already sick people (or those with history) in Singapore, this will affect the benefits-premium ratio of all the majority of healthy people in Singapore.

Is it fair to them?

IT is very nice to say, we must have "fair" premium but fair is relative. IT is not possible to be fair to everyone. If sick people are included into the same pool as healthy people, it is not being fair to the healthy people.

Fundamentally, being fair to everyone is a problem not just of "free market" system, it is a problem of ANY system of governance. Let us be fair in discussions too.

REX; November 09, 2009 8:36 AM
Vincent Sear said...: To: Rex

The compulsory part of motor insurance is only third-party insurance. It's compulsory to protect victims of motor accidents. For example, if a driver knocks down a pedestrian and break his legs, crashes into and damages another car or the gate of someone's home, the victims deserve compensation regardless of whether the driver could afford compensation or not.

Compulsory third-party insurance doesn't pay for own damages or even total loss, e.g. stolen or crashed into a heap of scrap. Comprehensive motor is another matter. It protects the owner of the vehicle against own cost of repairs and up to total loss.

If third-party motor insurance isn't compulsory, all drivers and pedestrians have to pray to that if they meet with traffic accidents, let it be a rich driver who's willing to compensate.; November 09, 2009 11:21 AM
Anonymous said...: Rex,

I think Insurance Companies make supernormal profits.

They are collecting premiums from life insurance, term insurance, accident insurance, commercial insurance, health insurance, keymans insurance, etc.

They should be socially responsible. Their profits run into billion of dollars a year.

I think every insurance companies in Singapore should cover some portion of the unhealthy ones without penalising the healthy ones.

Fairness? Do you think the Insurance Companies are fair to even the healthy people who pay insurance?

I think fairness should be return to consumers by making it compulsory by the Govt.

On our own, we healthy and unhealthy people are sitting ducks for big insurance companies with their many conditions.; November 09, 2009 11:29 AM
Anonymous said...: I think healthy people should not be so narrow-minded and be so petty as to sharing the risk in the same pool with the unhealthy people. Think charity. Think of helping others in needs.

We are living in a society and should help one another so that this community is cohesive, tolerant and inclusive. By shunning the unhealthy and sick from the same pool, we are only showing how selfish we are. By spreading the risk, the unhealthy and sick people need not pay so much more premiums because of loading and the healthy people doing a good deed. At the end of the day, it's a win-win situation.

Remember that healthy people has something that unhealthy and the sick doesn't have, which is good healthy. So why not have a good heart as well?; November 09, 2009 3:02 PM
Anonymous said...: REX comments on Nov 09 posting 3:02pm

Dear sir
you seem to have made a presumption, that healthy people are rich. There are hundreds of thousands of very healthy people who are NOT rich and possibly very poor and appreciates very much, insurance money in case of catastrophe. You are suggesting they, too, be "charitable" and agree to be forced to pool themselves together with the unhealthy in an insurance scheme? I don't think that's fair. If you are very poor, in desperate need of money during accident or sudden sickness (but otherwise healthy) you would like to have low premium and high beneifits but this is jeopardised because the insurance co is pooling all the unhealthy together with the healthy.

Therefore the situation is quite complicated, and we cannot simply say, it is fair for the unhealthy without considering other stakeholder circumstance and other variables.

My view is that if sick people cannot get insurance, then the government must do its job from the charitable position to use the government reserves to help such people. It is the government's job NOT THE INSURANCE COMPANY to take help poor people who cannot pay and are sick. Because the govt reserves comes from taxes (especially taxing rich people) and cigarette taxes, all sorts of taxes, why can't govt. spare a thought. Just reduce the Defence budget for example!

In summary I don't agree to pool the poor health people with the healthy people otherwise it is grossly unfair to the excellent health but dead-broke fella.

REX

PS Vincent Sear>your post crossed. I never made any comment on car insurance, i dont understand your comments in your 11.29 am post.; November 09, 2009 7:46 PM
Vincent Sear said...: Rex, cross or no cross about motor insurance, I think that we're in agreement about health insurance. Healthy people shouldn't be forced to subsidise unhealthy people, just like wealthy people shouldn't be forced to share their wealth.

So, what happen to unhealthy and poor people who needs healthcare but can't afford it? It's a social and political problem. Not insurance company or agent problem. The government pay themselves millions of dollars and then support charities to spurt thr likes of T.T. Durai and Shi Minyi. It's the government's problem. Not charity or insurance. If the government continues to win and there's no alternative government, it's the people's problem, still not charity or insurance. The people not vote, they can also stand. So don't complain if there's a walkover.; November 09, 2009 8:50 PM
wjsim said...: If we really want to walk the talk...

All insured healthy people! Find out among your healthy friends who are UNINSURED and get them insured for health before they become unhealthy and wind up in some newspaper or online forum whining about insurance companies being unfair. 'nuff said.; November 10, 2009 8:49 AM
Anonymous said...: Dear All,

Me thinks Govt and Insurance Companies should share the burden of covering unhealthy people.

If not, what is the govt for?

If Insurance Companies does not want to cover part of the unhealthy people, why should they operate in Singapore and make huge supernormal profits?

The Insurance Company's business should be closed down and sold to another Insurance Company who is willing to cross subsidise partially.

Don't forget the Insurance Company is making huge profits at the ordinary people's expense.; November 10, 2009 10:30 AM
Vincent Sear said...: To some earlier commentators. There's no such thing as anyone deserving insurance as of rights. You have to apply to buy it and qualify for it. The insurers have rights to reject you if they don't want your business, but applicants don't have rights to insist on buying. That's commonsense.

I don't understand what's the sympathy for multi-accidents per year driver all about? What if you or your loved one is the next victim? I'd say get them off their cars out of the roads. Be a good and socially responsible man. If you can't drive safely, take public transport.

Insurance companies, even co-operatives, have shareholders and boards of directors to answer to. The shareholders, even co-operative shareholders are not buying shares as charity. They're investing in a business which they think is good for general public and can make some returns for themselves. Is that an evil motivation? If anyone think it is, go check your bank accounts, stockbroking accounts etc. before you cast the first stone.; November 10, 2009 12:31 PM
Anonymous said...: "Free Market" is supposed to allow competition in the market, hence bring about more efficient use of resources ie. lower prices. However, it is now seen as a way for insurers to make more profit, I'm not sure if this view is correct.

For a long time I was advised to buy insurance at young age to ensure my insurability. I have been paying reasonable premiums (since I started young)so far.

If insurers are required to take in the "bad risks" at a "fair rate", I'm sure the fair rate will escalate. For one, there is no incentive to start insurance from young, since one will only buy insurance when he's sick and need cover. Would this be fair to the rest who are paying premiums to support these free-loaders?

I feel for those who are unable to get insurance, they should be supported by the govt social network, incl our medisave.

As for motor insurance, I've been driving for more than 10 years with only one accident - which I was not at fault. I'm sure there are many more motorists out there like me who are good drivers. I understand accidents do happen, but if someone has more than 2 claims in a year, he's simply not a good driver and I think it is not wrong for insurer to decline insuring such bad drivers. What is the % of such bad drivers in the market? I think it is small and we should not allow a small group to drive up premium for the rest of us.

KJ; November 10, 2009 1:52 PM
Vincent Sear said...: Those who are unable to get motor insurance at whatever rate should take a look at the roads. There're millions who could get it.; November 10, 2009 2:59 PM
Anonymous said...: If you are not happy in Singapore, migrate.

There is no such thing as fainess in this world as long as somebody is on the top of you.; November 12, 2009 1:34 PM
Unknown said...: From anon1030pm
"If not, what is the govt for?"

The main role of the government is to maintain foreign diplomacy and national defense. If one defines the law to be under the government, then it will include the preservation of individual rights.

Other than that, get out of my life.; November 13, 2009 7:02 AM

Sunday, November 08, 2009

Make insurance available on fair terms

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