The row pitting a tier one private hospital and a leading insurer currently playing out in the media is just a tip of the iceberg in an industrywide problem. The Covid-19 triggered reduction in patient numbers and hospital revenues notwithstanding, it is time we start interrogating this chronic underlying health system concern.
Dwindling margins for insurers, rising premiums for patients and employers, as well as constrained hospital cash-flows and liquidity. Looked at jointly, these three are the fundamentals needing scrutiny.
According to the Association of Kenya Insurers (AKI) 2019 report, growth in annual medical premiums class in 2018/2019 was at 5.3 percent. This represented 32. 4 percent of the entire general insurance class, and was valued at Sh 42.42billion.
Excerpt show medical had the highest amounts of paid claims at 36.3 percent of the general insurance business, valued at Sh20.93 billion an increase of about 300 million compared to the previous year.
“Incurred claims ratio (loss ratio) measuring claims incurred as a percentage of net earned premium income was at 74.4 percent in Q4 2019, compared to 75.7 percent for Q4 2018, a marginal decline of -0.5percent of medical claims was also noted in Q4 2019 compared to Q4 2018, representing a 35.5 percent of the general class claims.
In the underwriting ratios, where medical had a 64.8percent retention ratio, incurred claims of 74.4 percent, paid commissions of 2.7 percent and forked out management expenses of 23.2 percent.
These last four ratios in particular are the bone of contention and easily ones that need innovation around if the medical claims class is to bounce back to profitability.
While insurers blame hospitals and vice-versa, insurers are to blame for not seeking a mutual engagement with stakeholders in addressing this perennial problem. As previously advocated in this column, industry regulator IRA is also culpable.
That said, baby steps are noted especially with the recent IRA regulatory innovation sandbox launch.
However, innovation fundamentals dictate an AKI, IRA jointly funded kitty open to external enterprises to systematically explore solutions for each of these challenges.
Fraud, long claimed as a leading cause of insurance losses, noted two cases of medical fraud as reported in the Q4 2019 report, suggesting either its absence, or lack of means to identify and flag it when it occurs.
A five-year strategic plan tackling one issue at a time is needed as opposed to attempting a one-all fix.
With the top five insurers in the general class separated by less than two percentages each in overall market share, a 0.01 kitty to finance the innovation hubs is feasible and fair.
The solution is not increasing membership, it will only translate to heavier losses. Insurers need to bring sector players together to jointly explore fixing high medical costs, elimination of paper based claims processing and timely claims settlements.
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