by Angela Smith, Head of Proposition Development, Charles Taylor Assistance for Insurance Day, first published on 29 November 2021: 'Claims inflation will challenge underwriting strategy of A&H market'

In March 2020, scores of scheduled medical procedures were cancelled across the globe to make way for “Covid care”. The result was a major drop in healthcare spending: 18% in the US alone, according to The Economist Intelligence Unit (EIU). But, as the pandemic abates, so too will this spending honeymoon. The EIU predicts healthcare spending to rise faster this year than in any other since the global financial crisis.

This, of course, will translate into more costly medical claims: another challenge for an international accident and health (A&H) sector for which Covid has been no honeymoon. Over the course of the pandemic, the sector has had to overcome hurdles ranging from reduced access for urgent or elective medical care, to disrupted medication supplies, stretched supply chains and closed international borders: all leading to increased costs and complexities for global medical assistance and repatriation.
Covid’s eventual retreat will put some of these challenges behind the A&H sector, but its collective sigh of relief could be short-lived.

According to the World Health Organization, the Covid-19 pandemic hit when the world had established a stable pattern of growing health spending. This had, by 2018, reached $8.3trn, driven by factors such as a growing global population and increased investment in medical technology.

Rising costs
Today, there are other drivers behind the increased spending, not just the post-Covid surge in elected medical procedures. As global movement increases, so too do road traffic accidents, workplace mishaps  and all the liabilities of life that were reduced by lockdowns. There are also the negative effects on mental health caused by decreased physical activity and loneliness during the pandemic… the list goes on.

Medical claim inflation is also threatened by fraud. For instance, private medical providers, starved of income from elective procedures during the pandemic, may resort to exaggerated costs to claw back losses. And policyholders may fabricate medical treatment to counteract their own income shortfalls. There is no shortage of conjecture about post-Covid claims fraud, but its full effect may yet be felt.

All this is good reason for the A&H sector to give its cost containment toolbox a health check of its own. Putting this toolbox under scrutiny means asking, for example, if it can benchmark global medical costs, provide pre-negotiated discounts with hospitals worldwide or determine usual and customary rates for medical treatment by country (and persuade providers to accept them). Or if it can segregate fraud risk efficiently by optimising front-end intelligence. Or deploy the right digital tools to reduce the risk of medical claims arising at all.

Covid has accelerated digitisation in the sector. Today, services such as automated medical screening and claims processing (for non-urgent claims), together with digital diagnoses and telemedicine, are being complemented by a raft of other developments. These include digital health risk assessments to determine employees’ suitability for global travel, deep-dive open source and social media searches to unearth obscure global fraud and more efficient use of artificial intelligence to drive underwriting decisions.
 
Risk mitigation
Investment in these sorts of tailored solutions can drive risk mitigation and, in turn, drive not only cost containment, but often customer satisfaction too. For instance, effective fraud detection can benefit honest customers by enabling timely claims payments and protection from rapidly rising premiums.

In this context, it is important not to lose sight of the fact specialist human skills are needed to ensure A&H claims are managed well and cost effectively, interventions are made at the right time and the individual needs of customers are met, especially when they feel vulnerable.

It is important to anticipate future opportunities and challenges too, and to prepare for their impact on claims costs. For instance, how much capital can be gained from digitisation in product distribution and claims handling? And how will corporates justify travel decisions in the face of climate change? Will travel to traditionally popular business destinations reduce, putting a premium on the cost of healthcare? Will increasingly unpredictable weather patterns create more emergencies overseas – and what sort of provision needs to be in place to mitigate these?

These are real issues for which the sector needs to prepare, but they are not by any means the only ones. And innovation will need to keep up the pace to address them.