Morbidity Gap in Hong Kong – Are Insureds Well-Covered?
The fundamental aim of lump sum Dread Disease insurance is to help meet the costs associated with the treatment of a critical illness such as a heart attack or cancer. The claims money may also enable the policyholder to take time off work whilst recovering, to pay off his or her mortgage or just to spend more time with family.
Earlier this year, while reading Gen Re’s Dread Disease Survey for 2008-2012 (published in March), I was struck by the small amount of sum assured that consumers seem prepared to purchase in Hong Kong.
The average sum assured in Hong Kong was close to USD 50,000, compared to more than USD 200,000 in Australia. Is that due to substantially higher costs in Australia, or are Australians more inclined to get adequate cover? I think part of the difference can be explained by the product design. Australian policies are mainly protection-oriented and structured on a Yearly Renewable Term (YRT) basis. Hong Kong products typically involve a savings element and premiums are often level and limited pay. However, if we look at the premium spend for the next 20 years, for example, for a 35-year-old, the difference between Hong Kong and Australia is not very marked.
Of course, some Hong Kong consumers may be already covered to an extent by conventional medical schemes. However, this coverage is often inadequate or does not extend to supplementary medical treatments. This could explain why the Hong Kong government has been pushing for a Voluntary Health Insurance Scheme (VHIS).
Coming back to the question on treatment costs: As an actuary, I embarked on a journey to find out the treatment costs of various diseases with the aim of coming up with an average treatment cost weighted by causes of claims.
We dug into different surgical procedures, costs of hospital stay, chemotherapy, radiotherapy, targeted therapy, etc. With our market research and reference to the Hospital Authority’s List of Charges, we came up with estimates to treatment costs ranging from around HKD 500,000 to HKD 1.2 million with a weighted average of around HKD 850,000.
Statistically, HKD 850,000 may be the right target amount but the range of treatment costs is wide, and what if you were the patient responding to the most expensive targeted drug therapy or needing a complex surgical procedure? The essence of buying insurance is to have adequate coverage should an insured event occur, and you certainly don’t want to be faced with a shortfall when your health is the main concern.
By end of 2015, the median monthly employment earnings was HKD 15,000, according to the Hong Kong Government Quarterly Report on General Household Survey.1 This is an average figure. Dread disease products usually target the mass affluent segment in which the income level is higher. Using the Government average figure, the ballpark estimate for the supplement needed for a loss of income for two years is HKD 400,000, taking into account incremental salary increases to 2016.
As a result, adequate dread disease coverage in 2016 terms is HKD 1.6 million. Looking at the trend of average sum assured of new policies in Hong Kong from our Dread Disease Survey for 2008–2012, and assuming this trend continues, the projected average sum assured in 2016 will be around HKD 460,000. This means the morbidity gap in 2016 will hit an estimated HKD 1.14 million. It will be interesting to see what the industry does to close this gap and how it encourages more people to purchase adequate cover.