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The Actuary The magazine of the Institute & Faculty of Actuaries

Medical expenses in the Middle East

Many regions in the Middle East are facing dramatic changes in their healthcare systems. Historically, healthcare has been free for everyone resident in the region. However, governments are changing their philosophy and privatising healthcare systems, and the pace of change is quickening.
Over the past few years, following advances in technology and increased capabilities in hospitals, leading to an increasing demand for medical treatments, the cost of medical provision has increased considerably in the Middle East. This, coupled with the fall in oil revenue in recent years, has meant that governments are now finding it difficult to accommodate the expense of healthcare.
Kuwait is one example where free state health provision is being passed over to private insurers. Expatriates are being targeted initially, but there is no doubt that national residents could be included at a later stage. A similar system is likely to be adopted in Saudi Arabia and the United Arab Emirates.

Typical benefit structures
The private medical insurance (PMI) policies sold in the Middle East are very different from those sold in the UK, where cover is either provided by an employer as an employee benefit or bought by individuals for convenience, comfort, and speed. The cover is usually restricted to non-emergency treatment because of the existence of our National Health Service. In contrast to this, the PMI policies sold in the Middle East completely replace the free service that has historically been provided. Generally, the cover is bought by employers for their employees, with or without a monetary contribution from the employees themselves, although the individual market is also picking up.
Typical benefit structures include the standard in-patient treatment that is similar to the UK. Middle Eastern policies will also include an outpatient benefit that enables the policyholder to claim after a visit to an outpatient clinic. Further benefits, such as maternity, dental, and optical cover are also available. They are restricted to group policies so as to avoid the potential for anti-selection on individual policies. Historically these extra benefits have not been actively marketed, but they are now used more or less as marketing incentives and are therefore becoming increasingly popular. The extra benefits tend to be quite costly compared to the basic cover, and do require careful monitoring of results.
Private medical insurance is not a cheap form of cover. To make the premium more attractive to the customer, and to contain the cost, various tools are used. For example, it is very common to impose sub-limits on benefits, such as limiting the number of visits to the doctor or only allowing certain claims up to a pre-specified monetary amount. The majority of plans will incorporate some form of deductible or co-insurance, to ensure that the policyholder retains an interest in the claim and reduces the frequency of smaller claims.
The culture is very different in the Middle East, and for this reason many policies contain exclusions that would not appear in the UK. For example, in Saudi Arabia capital punishment is still politically and socially acceptable and therefore any medical expense incurred in connection with capital punishment would be excluded.

Pricing private medical insurance in the Middle East
Pricing in the Middle East is no easy task! It is difficult to obtain statistics that are reliable and credible enough for actuarial pricing. Statistics can usually be obtained through statistical annuals, local governments, embassies not forgetting the Internet. However, obtaining consistent statistics from several sources is a different matter. Very often we have to adopt statistics from other countries and apply adjustments to make them relevant for the Middle East. The pricing of PMI from scratch in the Middle East is very reliant upon actuarial judgement and experience within the region.
Once a group scheme or portfolio of policies has built up several years of experience, we are able to analyse the experience and estimate the future cost of claims. Full reserving measures need to be taken into account to ensure that fully incurred claims are included within the projection. The difficulty arises when much of the market is adamant that medical inflation doesn’t exist and that the concept of ‘incurred but not reported’ (IBNR) is unheard of! Also, many companies in the region still do not use computers and much correspondence is kept in paper form. Because of this, it has proven very difficult to obtain past experience. However, more and more companies are now investing in technology and I believe that this difficulty will soon be overcome.

Adequate pricing is not all that is required to ensure a profitable portfolio of medical insurance. Claims-handling is just as important if not more important than pricing itself.
Insurers in the Middle East are very aware of this and many have developed their own administration systems. I have listened to many stories which support the need for this strict claims control. Apparently, at one time it was not uncommon to find one insurance policy being shared among family and friends, or even to find the cost of a tube of toothpaste on a prescription form!
It is also possible for surgeons, anaesthetists, and doctors to artificially inflate the cost of medical procedures. It is now very common for insurers to direct their policyholders to a restricted network of hospitals, doctors, and clinics so they can maintain control of the charges. Since the insurer is presenting the hospital with higher volumes of business, it has negotiating power for reducing the cost of treatment. This saving can then be passed onto the policyholder as cheaper cover. In an ever-competitive market this is extremely valuable for retaining existing business and gaining new business.

Role of reinsurers
Many insurers (and reinsurers) in the market have had their fingers burnt in the past with medical insurance. This has been for a variety of reasons, such as lack of pricing and reserving knowledge, and the absence of an infrastructure to control claims.
The need for reinsurance support for medical business is becoming increasingly pressing. Reinsurance actuaries with healthcare experience can provide the technical expertise, including pricing and reserving, required to market medical insurance in the region. In addition to this, reinsurers are increasingly using third-party administrators to control claims costs and are even setting up their own systems in the region.

Exciting times ahead
I feel that the market is definitely learning from its own past experiences. Many insurers entered the market very aggressively and as a result have not been able to sustain their presence. I have seen premium rates increase over the past year and the market is now very much on the upward climb in the insurance cycle.
I firmly believe that there are exciting times ahead for private medical insurance and, in particular, I believe that actuaries have a significant role to play in putting the healthcare market in the Middle East on a sound, sustainable, and profitable footing.