Should you get IP Riders with Claims-Based Pricing?

If you’ve only got a minute:

• Claims-based pricing (CBP) rewards policyholders who do not make claims with premium discounts, similar to no-claims discounts in car insurance.
• Premiums may increase if claims are made or if treatment is sought with specialists who are not under the insurer’s panel, but discounts can be reinstated if no claims are made.
• Before selecting a CBP rider for your Integrated Shield Plan (IP), it’s essential to understand the benefits, risks, and conditions to make an informed decision.

With the lifetime premiums of the most expensive Integrated Shield Plan (IP) with rider amounting to S$842,000, many struggle to keep up with the premiums of their medical coverage over time.  

But one relatively new concept of pricing for riders that are attached to Private Hospitals IPs could help you pay lesser for your coverage.

Understanding Claims-Based Pricing

Claims-based pricing (CBP) offers a discount for policyholders who utilise their insurance less frequently.

This model is akin to car insurance, which provides a no-claims discount (NCD) to drivers who do not make claims, rewarding responsible behaviour.

Under CBP, if you do not make any claims, you can expect a discount on your premiums during the next policy year. Initially, policyholders start at standard-level premiums. If no claims are made, a discount—potentially as high as 20% —applies at the next renewal.

What Happens When You Need Treatment?

If you require hospitalisation, you have a few options. Should you seek treatment at a restructured hospital or from a specialist within your insurer’s panel, you could retain your standard-level premiums at your next renewal.

However, if you choose a specialist who is not under your insurer’s panel, your premiums may increase. The extent of the increase will depend on the specialist and hospital, the amount claimed, and your policy’s conditions. If you then return to making no claims, you can regain your CBP discount.

The aim of CBP riders is to encourage policyholders to avoid unnecessary medical treatments and services, thereby preventing the overconsumption of medical resources and potentially reducing overall medical claims.

They are particularly beneficial for those who do not frequently make claims, allowing for savings on premiums. This helps keep healthcare and insurance costs sustainable for policyholders.

An Example: Ken’s Journey

Consider Ken, who opts for a CBP rider on his private hospital IP with an annual cost of S$1,000. If he makes no claims, he receives a 20% discount at his next renewal, reducing his premium to S$800 and saving him S$200.

When seeking treatment, Ken has two options: he can visit a specialist on the insurer’s panel or a restructured hospital, allowing him to maintain his standard-level premiums. If he continues to make no claims, he will keep enjoying discounts on his premiums.

However, if Ken chooses to seek treatment with a specialist who is not under his insurer’s panel of doctors, his premiums could increase significantly at the next renewal—potentially up to S$3,000, tripling his standard cost. As a result, Ken could end up paying far more than under a standard plan.

The Drawbacks of CBP Riders

As illustrated in Ken’s example, CBP riders come with potential downsides. They may limit policyholders' treatment options, especially if they seek care from doctors outside the insurer’s panel, which can result in steep premium increases.

Moreover, CBP riders often include numerous caveats and conditions, with some insurers employing a ladder system that complicates the calculation of premium increases based on claims. This complexity can make it challenging for you to understand your policy fully.

Additionally, while the discounts aim to incentivise healthy choices and going to approved healthcare providers, they could unintentionally discourage policyholders from seeking necessary medical treatment, as they might prefer to maintain their discounts.

Conclusion

In summary, while claims-based pricing (CBP) riders can offer significant savings and encourage mindful use of medical resources, they also come with complexities that require careful consideration.

Consider reaching out to a trusted Wealth Planning Manager who can provide personalised advice and help you navigate the intricacies of these plans.

Ultimately, making an informed choice can empower you to manage your healthcare costs effectively while ensuring you have the coverage you need when it matters most.

DBS has partnered with major insurers in Singapore to make health insurance easily accessible online for purchase. You can now independently learn, compare, and buy a plan most suited to your own needs. Find out more on DBS Health Marketplace.

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Disclaimers and Important Notice
This article is meant for information only and should not be relied upon as financial advice. Before making any decision to buy, sell or hold any investment or insurance product, you should seek advice from a financial adviser regarding its suitability.