This article first appeared in Forum, The Edge Malaysia Weekly on July 1, 2024 - July 7, 2024

Insurance companies in Asia face three structural challenges in healthcare that are happening all at once. (1) Asians are under-insured, with a massive US$1.8 trillion (RM8.4 trillion) annual health protection gap that must be covered somehow (Swiss Re, 2018); (2) medical costs grew about 40% faster than general consumer costs in the US between 2000 and 2024, a trend that is replicated in Asia (Kaiser Family Foundation); (3) insurance is an intrinsically conservative industry that may struggle to adapt to the rapid progress in insurance technology (insurtech), digital health, predictive analytics, genomics and precision medicine. How should insurance companies navigate these three challenges?

For insurers, closing the protection gap means underwriting more health insurance policies in two ways: more new policies (for the “uninsured”); and more coverage for existing policies (for the “under-insured”). There are excellent bene­fits for increased coverage, such as higher revenues and better cost-spreading and risk-pooling if the covered population is larger.

Private insurers closing the protection gap will deliver two public health benefits that are worthy of advocacy and public policy attention. First, public healthcare systems are decongested if healthcare is appropriately shifted to the private sector. Second, national health systems can become more financially sustainable and resilient if insurance coverage increases (because the sources of financing are more diversified and less reliant on tax-based financing and out-of-pocket cash payments).

Obviously, increasing coverage is easier said than done. The usual strategies would include lower pricing to attract the uninsured with “starter policies” that act as a gateway to more comprehensive policies, more targeted and segmented policies (for example, maternity coverage only), better education for citizens (who are potential policyholders), stronger advocacy for tax deductions for insurance premiums, and stronger distribution networks and better agent training.

There are two under-discussed strategies to increase health insurance coverage. First, insurers can accelerate the healthy trend of Asian countries implementing social health insurance (SHI). High-income Asian nations started SHI much earlier, such as Japan in 1938, South Korea in 1977 and Taiwan in 1995.

But SHI has also been implemented in middle-income countries, including Basic Medical Insurance since 2009 in China (now covering 96% of Chinese), the Thai Civil Servant Medical Benefit Scheme since 2002 (99% of Thais) and the Philippine Health Insurance Corp since 1995 (which automatically includes all Filipinos by law). Vietnam started in 1992 (87% coverage today) and Indonesia in 2014 (83% coverage today). These five countries achieved SHI while being populous, middle-income and with a large informal economy, showing other middle-income Asian countries the way forward.

To accelerate the trend, insurers must embrace that SHI is always complementary to the four major funding sources of tax-based financing, out-of-pocket payments, employer insurance coverage and private insurance coverage. Therefore, there is an opportunity for insurers to work with national governments to start some form of SHI (in countries like Malaysia), increase policy benefits (in the five countries mentioned), and to offer a private option (in higher-income or more sophisticated SHI countries).

The second under-discussed strategy to increase health insurance coverage is to offer attractive savings or investment components to health insurance policies. Currently, many life and health insurance policies exist as “standalone policies”, without a savings or insurance component that allows the policyholder to receive dividends or a cash payout when the policy expires.

It may make sense to offer more savings components in Asia, because of the high household savings rate of 27% of gross domestic product (GDP) in Asia, 5.4 times higher than the 5% average savings rate in Europe. This extraordinary 27% number translates into a whopping 

US$11.3 trillion (assuming total GDP of Asia is around US$42 trillion) of savings looking for a safe investment destination while protecting their own health.

Insurers need durable solutions to reduce healthcare cost inflation while avoiding the pitfalls or negative perceptions of “insurers are rationing healthcare for policyholders or restricting the prescribing powers of doctors”. There are analytics and political parts to this.

The three analytics suggestions are easier than political will. First, insurers can use artificial intelligence (AI), large language models and Big Data tools to digitalise their “medical second opinion” or MSO services (currently, insurers either in-house MSO with medical doctors on their payroll, outsource MSO to non-payroll medical doctors, or have rudimentary automation).

Second, insurers can also begin implementing value-based healthcare, starting with workshops and dialogues with private hospitals to inform them (VBHC means “insurers pay doctors for good value and good outcomes”, not “pay doctors for volume of services performed”). Third, insurers can implement a basket of solutions to increase strategic purchasing, to increase bargaining power, reduce costs and reduce administrative burden.

The political will is much tougher, because insurers must address providers, patients and policymakers. At some point, insurers will have to conduct difficult negotiations with private hospitals that are also squeezed by naturally increasing medical costs due to modern technology, higher consumer expectations and higher medico-legal risk. For patients, the principal-agent problem in insurance is nearly unsolvable, but better education, behavioural nudges, no-claims bonuses and financial incentives will help.

And policymakers present a unique challenge. Governments may perceive their SHI systems as a “natural competitor” to private insurance, but both systems are actually complementary because they cater for vastly different target audiences. Policymakers may separately perceive private insurers as profit-seeking instead of health-maximising, and this is another opportunity for dialogue and better understanding of each other.

Multi-win situations are possible, but require insurers to use a combination of data analytics and health system and public policy expertise to build political will.

The blinding pace of innovation in insurtech, healthtech and digital health means that insurers need to decide “what tech do we need, what’s the best timing to integrate that tech, and should we buy or build that tech?”. And that tech is myriad: Preventive analytics can show which patients are at higher risk of cancer; genomics create a whole new debate about coverage of pre-existing conditions; and “digital front doors” can coordinate patient care to improve outcomes and reduce cost.

There are two possible ways insurers can make those tech decisions. First, insurers can create an internal innovation sandbox, where internal teams can experiment with small ideas and pilot, iterate and launch quickly. Such an innovation culture can be seeded with some external expertise, such as design thinking experts or founders of successful start-ups. Second, insurers can run a hackathon with a clear problem statement (for example, 10 teams of two or three external experts each compete over one weekend to code a software solution to the problem of “How to identify over-treatment in 10,000 insurance claims per week?”).

A complete redesign of IT systems is not necessary to integrate technology. One small lesson from start-ups would be “find what works, then scale what works”. Using this lesson, insurers can be more agile with technology without creating unnecessary operational risk to themselves.

Insurers need new skills to implement all the above, not just from actuaries, medical doctors or 30-year insurance veterans. For the 2020s in Asia, insurers will need experts in Big Data and AI pattern recognition, from government-run SHI programmes, in health systems, public policies and public health, and from innovation experts.

Healthcare needs are very high, and the (commercial) opportunities are equally abundant. If insurers increase healthcare insurance coverage, reduce healthcare cost inflation and integrate technology correctly, they will have done themselves and the citizens of Asia a great service.

Dr Khor Swee Kheng specialises in health systems and is CEO of Angsana Health, delivering digital health and analytics services in Southeast Asia

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