Saturday, August 15, 2009

No Claim Bonus in Hospital and Surgical insurance ?

Insurance is one of the very few "Personal Finance" tools that is specifically cater for our personal needs. Hence, as soon as a new need exist in the public, insurance companies will rush toward satisfing that needs. Sometimes insurance companies get very innovative in creating needs and therefore capture more market share.

NCB or No Claim Bonus has been a common term in car insurance. If you never make any claims from your car insurance, your next year's premium is likely to be deducted up to 55%*. $2,000 vs $900 is a huge difference. This is to encourage people to dirve safely and not the other way around ie. drive like Formula 1 on the street since I can get a new car anyway should anythings happened ...

On 2004, Dutch goverment started to introduce the similar NCB on health insurance. They did that so that their people would not abuse the insurance payout and therefore the insurance companies would not use that as an excuse to increase premium until a rediculous high level.

On 2005, Prudential quickly adopted that strategy.

As for Malaysian who has been keeping an eye on health insurnace / hospital and surgical plan / medical plan, most have realized that Prudential Malaysia has also introduced NCB on their health insurance. Typically it says you get back RM 500 every year if you didn't make any claim. PruHealth can only be a rider within one of the investment link products by Prudential ie. NOT a standalone plan.

Lets review this new growth ....

Introducing NCB in health insurance in general is a great move. Basically the whole idea is to encourage you to take good care of your health. You should eat right, move right and live right. Having a handsome health insurance is NOT an excuse to simply commit sins to your health.

Every time when a new great idea is introduced to the market, it is usually not mature. It will take a while before the idea can cover all concerns and all areas. This NCB on health insurance is no exception. The key difference shouldn't be too hard to be noticed. NCB on car insurance may starts with 20%* and then grows every year until it reaches the maximum deduction. PruHealth is only constantly deducting RM 500 every no-claim-year. So unless PruHealth can increase its deduction on 2nd year onward, it will still fail to capture its insured royalty.

All this while, life insurance and general insurance (ie. car) have been managed seperately. Life insurance systems are totally incapable of calculating subsequent years deduction like MRTA or car's NCB. Hence, either Prudential is incapable of coming up with a system that is exactly the same as car's NCB mechanism or they purposely leave it as the room for improvement when competition starts to come.

Either way, it means it sounds great to the insured but it is NOT as good as it should yet. In other words, it will only gets better in time to come.

What does this NCB on health insurance mean to the prospects ? Well, its actually nothing new. Health insurance plans have been paying insured yearly money for whatever reasons or excuses they can come up with. This is especially obvious in lady's insurances. You are paid RM 200 to RM 2,000 yearly so that you can do your medical check up, cover your normal clinic visits etc. So this RM 500 payout to you is just another form of pay-back from your higher premium.

This is why the whole idea is currently built inside an investment link plans. Once you have an investment link plan for more than 5 years, it is most likely the investment return itself can cover all the other 'costs'. But should they do NOT, you are still liable to top up to the plan so that your coverage stays the same. As in the worst case scenario is that you have to add RM 500 to your premium so that you can get paid RM 500 by year end if you didn't claim. Ofcourse this may exagerate but this is just to illustrate the idea.

Should you consider this plan ? Well ....

The new NCB is just a annual pay back, so if you never have any insurance plans that pay you back and if this premium is not too high, you may try this. Its a nice feeling that someone is paying you some money every year. But if you are one of those who believe whatever they pay you is from your own pocket anyway, then you probably shouldn't join this plan for this reason.

One of the key strengths in Prudential is investment link products, so if you believe Prudential can make the right investments and subsequently maintain your portfolio well, then despite NCB on PruHealth or not, you can leave part of your life plan to them. On the other hand, if you have been a successful investors yourself, you probably would not choose this option. ( Just a sharing, most people who think they can do better than the industry usually ended up DID NOT ).

There is also a 'life stle' part on PruHealth which pretty much is a cross marketing tool, so that shouldn't affect your decision too much unless you want to rely on Prudential to assit on your future life style ... ( not a bad option if you never thought of such thing anyway )

* 55% may not be the maximum No Claim Bonus for cars, expert in this area please comment, thanks !