ElderShield facts put right

21 Apr 2007, Today


A Shield that could give more cover

THE fact that the severe disability insurance ElderShield is up for redesign five years after its launch should draw widespread approval and applause.

After all, the insurance scheme is set to find its place here as a very instrumental safety net in the years to come in our fast ageing country.

But any applause was almost immediately silenced when the proposed enhancements were spelt out: A $100 increment of monthly payout from $300 to $400, and a payout period of six years instead of five years.

And these enhancements will not come free — the public has been warned that it will come at a price, in the form of a one-time top-up and higher premiums.

Taken together, the small enhancements and the additional cost make the review seem conservative at best.

Consider the situation here: The claim ratio for ElderShield since it started — only 2,366 out of 748,000 have managed to get the $300 monthly payout — is astonishingly low.

As Society of Financial Service Professionals president Leong Sze Hian pointed out, even with all members paying the lowest premiums at age 40, the claims ratio for last year was just 6.7 per cent. Since the 2,366 claims were the cumulative total for four years, the claims ratio would actually be lower.

According to statistics from the Monetary Authority of Singapore, the claims ratio for typical health insurance has been above 50 per cent for each quarter since 2004.

In this light, ElderShield could well be the most profitable insurance scheme ever — not only in Singapore, but in other countries too.

In fact, the claim rate was so low that the two private insurers — NTUC Income and Great Eastern — are giving out the rebate of more than half the "excess" collected.

This was the guarantee given by both insurers, five years ago, in return for the agreement that no changes to premiums and payouts would be made and no other insurers would offer the same product during these first five years.

These rebates, which are still being calculated, would likely be returned to the subscribers in the form of covering their future premiums.

This is scarce comfort considering these private players have been raking in the profits for the last five years, and will likely continue to do so after the slight enhancements are introduced after the review.

For a Government-linked scheme, we would expect ElderShield to be run more efficiently and less for the aim of generating profits — not fat profits, at least.

The proposed refinements seem overly prudent in the interest of the private insurers. The improvements now being looked into by the Ministry of Health and the insurers for the review ought to commensurate with the profitability of the scheme. After all, it wouldn't be too late to tweak the scheme should it prove to be loss-making, as in the case of MediShield?

Given the common complaints of low payout and a short payout period during the first five years, perhaps the review should take a realistic look at meaningful adjustments. A mere additional $100 per month for just another year is pathetic. Another $100 really does not make much difference to many in the middle-income group.

In fact, some might find it simpler and more sensible to opt out and plan for what one needs with a financial planner. After all, a basic private old-age plan covering those aged 40 can cost under $15 a month but covers permanent disability up to $10,000. In addition, there is also accident and hospitalisation coverage, and coverage for loss of Activities of Daily Living — up to about $20,000 if a subscriber is unable to perform any three.

In contrast, ElderShield now costs just above $12 for males who are enrolled in the scheme from the age of 40. If he does become disabled, the total payout over five years, at $300 a month, is $18,000.

For the layman doing educated research for his cover, the current ElderShield just does not seem to measure up.

Although the scheme is supposed to be a basic insurance and riders are available in the future with private players, one wonders at how meagre the scheme is when the middle-income group probably forms the larger base of the insured.

The review undertaken now can certainly be bolder in its changes than what has been proposed.


Reply from MOH 

ElderShield facts put right

Ms Tan Hui Leng’s commentary on the ElderShield reform (“A Shield that could give more cover” TDY, April 13) contained a number of misinterpretations.

First, she found the ElderShield claim rate to be “astonishingly low”.  While the rate is low, it is not without basis.  Disability largely strikes at old age.  The likelihood of making a claim increases sharply after age 70.  With 97% of ElderShield policy holders still below 70, the current claim rate is expectedly low.  As policyholders age with each passing year, the claim rate will rise.  (The current young profile of the ElderShield policyholders is in turn a deliberate outcome.  This is because the elderly aged 70 and above and those with pre-existing disabilities in 2002 are separately assisted under the Government’s Interim Disability Assistance Programme for the Elderly (IDAPE).)

Second, she compared ElderShield’s claim ratio with that of a typical medical insurance and found the former to be too low.  But the two are not comparable.  ElderShield policyholders pay the same premium rate charged at the point of entry throughout the premium payment period.  This is a pre-funding model so that by the time a person retires, a substantial portion or all of the insurance premiums would have already been paid.  On the other hand, a typical medical insurance policyholder will have to pay a higher premium as he ages and coverage is valid only if he pays the annual premium.  Once the payment stops, the coverage stops too.

Third, she assumed that any premiums not paid out as claims immediately become profits.  This is inaccurate.  The bulk of the premiums paid in the early years must be reserved by the insurers against claims arising later in life.  This is important to ensure that an insurer can meet its obligations to pay out claims many years in the future.  So the profitability of the ElderShield plan has to be evaluated over several decades and not based on short term claims data. 

Fourth, she also compared ElderShield with a “basic private old-age plan”.  This is not valid.  Unlike ElderShield, such old-age plans incur premiums which increase each year as the policyholder gets older and do not provide lifetime cover.  

The Ministry will continue to educate the public on ElderShield and its proposed reform.  We acknowledge that the current ElderShield is not satisfactory and we hope the reformed product will more significantly meet the long term needs of Singaporeans.

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