English
Jan
09
The Recession and Insurance
Posted on Jan 09, 2009 by Sergio Ulloa (G+)
With news outlets broadcasting dire predictions about the financial downturn like a frothy-mouthed preacher on the apocalypse, we feel it's time to take a look at how people think the recession will affect insurance. With this in mind, we'll take a look at projections about how insurers may fare, how your premium could shape up, and other worries and notable points to keep in your head moving forward.
Views on how the insurance industry will deal with the financial climate are a decidedly mixed bag. Larger, more established insurance companies are expected to do well, such as more diversified health insurers. Their size, balance sheets, and diversity of both product and geography are believed to allow a degree of protection from the need to boost operating earnings during the down times. Considering that the international private medical insurance market posted growth rates of around 20% or more for 2008 it's hard to imagine some of the larger companies needing to start penny-pinching policies which would drive away customers. Combining their growth rates with their long-running operational stability and ratings agencies' inclination to keep decently performing insurance companies at a favorable rating, and we will hopefully see some benefits for policyholders, not just shareholders. After all, the acceptable balance sheets and relative operating stability mean that your insurer stays in business and keeps offering your plan, plus there's always the hope that with less of a need to increase earnings and squeeze margins, there may be less pressure to increase your premiums. However, given that insurance premiums have gone up 119% in the last 9 years, don't hold your breath.
There are also those who believe that the world's financial nose dive will be a boon to insurers in the international health insurance markets, and their reason is that during recessions, people are more open to traveling to other countries in order to find job openings. With more and more businesses extending their operations into new geographic areas, not only are people more willing to travel to foreign countries for jobs, but companies embracing globalization are increasingly opening branch offices and sending out local staff to manage new operations. This is seen as a potential spike in demand for expatriate insurance products both for individuals and companies. If this is indeed the case, then there are a number of ways this could affect your current policy or your plan to get one. One worry is that the increased demand for international health insurance will lead to increased premiums due to a burgeoning number of clients and the need to cover the increase in claims. I find this assertion extremely dubious, but resisted the temptation to file it under wild conjecture and speculation.
Most international health insurance products are community-rated, which means that their premiums are based on your age and area of cover, and the factors calculated for your premium such as medical inflation, claims ratios from the previous year's age group are not linked to the number of policyholders in the plan. Simply put, an increase in people paying premiums does not alter the cost of care, or your likelihood of making a claim, and therefore is a highly unlikely reason for an increase in your premiums, so you can rest easy on that count.
Another issue that was raised by some spectators, such as those at the web publication for expatriates, Shelter Offshore, also think that with increased demand for insurance products geared towards expatriates, insurers may become a little choosier about who they will accept for coverage. In contrast with the other claim, this may actually be possible, but then again with tighter budgets all around it would be hard to imagine insurers becoming overly-picky and denying coverage to reasonable applicants who can always look for another policy.
So if the insurance companies seem to at least be lurching by in these troubled days, what about the prospects for your ever increasing premiums? One piece of good news is that with the recession in full swing, it has effectively put a damper on the inflating cost of care. With costs for medical treatments, tests and drugs falling in line with the downward turn in the economy, it should mean that these items won't be consuming an increasingly large chunk out of insurers' margins, alleviating some of the need to push up the cost of premiums. Although one problem in at least some sectors has been that during the financial debacle some private insurers' more risky investments have taken a hit in the market downturn, effectively reducing the amount of cash and assets they have on hand to help pay out claims.
For example, Australia's private medical insurers have put in a request to the government to allow them to raise their premiums on private health policies. Some of the investments made by the private health funds took a large hit, and the funds now say they will need to find $600 million Australian dollars to make up for the losses, and the plan is to do it through premiums. One firm, HBF is said to have lost approximately $56 million Australian dollars, while another company, MBF, lost about half of that. While this just highlights one geographic sector's issues, it is seen to be fairly widespread given that at least some private insurers from every walk of life around the globe have taken a hit on their investments with AIG probably being hit the hardest. All in all it's hard to say for sure whether or not the recession will have a direct and immediate effect on premium rates. While investments were hit, it's difficult to see how much the decreased rate of medical inflation will contribute to staying the rise of premiums. Add into the equation the fact that many countries are deciding to invest large amounts of money in their public health systems and infrastructure could have interesting effects on premium rates as well.
One thing that has been made clear from reading recent news and stories is that healthcare systems and rules around the world are in a state of change. Highlighting the cases of Bahrain and the UAE, there is a growing trend in some countries to consider enacting rules that make health insurance for expatriates compulsory, meaning that if you are traveling into the country, you must have health insurance. If you do not, you must buy an insurance policy on the spot or possibly be refused entrance into the country, and standing in an airport is not the optimal place to shop for insurance. Additionally, in some countries like Germany, if you do not have health insurance, you may not be able to receive treatment. With this in mind, it is important that even in the tough times it is, at best, inadvisable to neglect paying your health insurance premiums. While the payments may be hard to part with if money is tight, should your cover lapse and there is an accident or an illness, depending on where you are, the best case scenario may end up being financial bankruptcy from medical bills. As for the worst case, it really is no fun having your health disintegrate and possibly die because your lack of insurance precluded you from receiving treatment.
Should you be looking for insurance, I cannot possibly stress the importance of shopping around for the best comparison in quotes. With the shifting sands of business and finance, there are subtle changes in the major insurers which will affect how they will be pricing their insurance products, so it is in your best interests to either canvas the major insurers to find competitive quotes and coverage details or contact a broker who deals with a wide variety of insurers' products.