Health insurance inflation reached an overall global increase of 9.2 percent in 2016, the exact same percentage as reported in 2015 — a significant increase from the 2014 inflation rate of 7.1 percent. So, what’s driving the inflating premiums?
My company, Pacific Prime, a global insurance advisor, found when we produced our 2017 report on international private medical insurance that there are several newly emerged trends which are likely to have a large impact on international private coverage prices in the foreseeable future.
One part of the story involves global economic uncertainty, resulting in a decrease in the number of expats (a major target group for international private coverage products) living in popular expat locations such as Hong Kong and Singapore. Another part of the story involves the potential of technology to increase the overall efficiency of the insurance industry.
Long-term inflation drivers
Pacific Prime believes that the major driver of international private coverage inflation is the cost of health care, which in turn is driven by four main inflation drivers:
New medical technology: The medical industry ranks among the top in terms of demand for new technology. The costs for new medical equipment and pharmaceutical research are sky high. For example: the cost of a new CT scanner can run as high as $2.5 million. These costs are usually passed on to patients by increases in medical fees, thus leading to the inevitable inflation of premium prices.
An imbalance of health care resources: There’s also an observable increase in the imbalance of supply and demand for health are resources. In the case of Singapore, the number of beds available per 1,000 population has shown a steady decrease from 3.5 beds per 1,000 in 2003 to 3.1 beds per 1,000 in 2013, yet demand is on the rise due to a number of factors, chief among them being the aging population. Insurers will need to cover the risks from growing demand by hiking up premiums.
Increased compensation for health care professionals: Doctors are among the most highly paid skilled professionals. In the United States, for example, a primary care doctor earns an average annual salary of $200,000, and these salaries are increasing. The main reason behind this is the increase in the cost of medical school and licensing, as well as other costs once doctors begin to practice, such as practice fees and negligence insurance. These rising salaries are covered by rising health care costs and, subsequently, premium increases.
Health care overutilization: The increase in use of state-provided medical care and mandatory insurance in several regions has led to a trend towards overutilization of health care. For example, expats with enhanced insurance in the United Arab Emirates visit doctors on average 4.6 times every year, meaning that there’s an increase in the number of claims being submitted. Insurers are responding to this by increasing premiums.
The four key long-term cost drivers will continue to make up a strong part of the explanation behind international private coverage inflation, but three new trends that emerged in 2016 will also affect insurance premiums.
The United States isn’t the only country putting pressure on expats to leave. (Photo: Thinkstock)
Here are two forces that could move international private coverage prices up and, possibly, down, going forward.
1. Global economic uncertainty
Global, regional, and domestic pressures have slowed economic growth in the countries we studied. These economic pressures will influence international private coverage through flow-on effects. For example, following the Brexit referendum, British expats who are paid in pounds are finding themselves worse off, especially after the British pound hit a three-decade low in October 2016.
Low commodity prices are shrinking job opportunities for expats in countries like Indonesia; meanwhile as China’s GDP slows, resistance to foreign workers continues to rise. The nation is employing more local citizens instead.
Second-tier countries like Thailand and Kenya will also be more affected by global economic conditions, as governments continue to struggle to allocate enough resources to health infrastructure. That will lead to an inevitable increase in health care costs. This continued uncertainty is likely to have a significant impact on premium inflation in the foreseeable future, especially in countries with changing population dynamics.
2. Changing population dynamics
The past year has seen a significant movement in expat populations, the main buyers of international private coverage products. The number of expats is slowly dwindling in some of the most popular expat destinations, such as Hong Kong, where the number of British, American, and Australian foreign workers dropped in the last half of 2015 and throughout 2016 by 10.64 percent.
A similar pattern has also been identified in neighboring countries such as Japan and Singapore, and likewise in the United Arab Emirates, where an increasing cost of living has reduced the number of expats in the region.
At the same time, in many countries, the number of local high-net-worth individuals is growing. Many of those local high-net-worth individuals demand international health insurance, which explains why international private coverage price inflation is holding steady. Pacific Prime predicts that this drastic increase in demand from local high-net-worth individuals will make growth in local demand for international private coverage outpace growth in expat demand by a near-exponential factor.
3. Increasing availability of technology
Online portals and mobile apps can make it much easier for customers to interact with an insurer, and lower an insurer’s administrative costs.
Insurers are also making more use of “big data” analytical systems to predict risk, set premiums, and identify fraudulent claims. Fraudulent claims are-one of the main contributors to unprofitable underwriting.
Technology has not yet had a major impact on international health coverage prices. But, as the use of big data systems becomes increasingly sophisticated, we may see technology improve management of premium cost inflation on a global scale.
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