What’s the difference between a group and an individual health insurance policy in the UAE?

health-insurance

There is admittedly sometimes a bit of a misunderstanding about the benefits of having a group policy over an individual policy.  Hopefully, this article can clear things up a bit for you. Firstly, a group policy is usually structured for an organisation (eg. for a business, usually with more than ten employees but there are some products for companies with just two employees onwards) while an individual policy is structured for an individual person or a nuclear family. Certainly, some group policies can give you an option to add family members of employees as dependents – but how group policies work and differ is outside the scope of this article– I will publish a separate article about this shortly.

When referring to a ‘group’ policy, one may assume that this is simply a portfolio or ‘grouping’ of some individual policies and that as a result of the scale economies or efficiencies brought about, a ‘group’ or ‘corporate’ discount is offered. However, this is not quite the case – usually far from it – indeed you may find group policies working out to be more expensive per member than an individual one!

It’s not that group policies do not bring about the benefits of scale – they most certainly do. But rather than these benefits straightforwardly reflecting themselves on the lower cost of insurance, they’ve found better uses – namely in terms of scope – the covers and benefits offered under the policy.  It is widely known that you can’t buy (as of now) an individual medical insurance policy in Dubai and most other Emirates that covers you for pre-existing conditions (i.e. ailments that you may have prior to taking up the policy). Why? Well, the common analogy is to that of car insurance – you can’t buy an insurance policy on your car after it’s had an accident – after all, insurance isn’t for certainties – otherwise it wouldn’t work. They’d simply know how much they have to pay out and add on their expenses and profit margin to come up with your insurance premium! But the story differs if you’re talking about group policies where you can indeed cover pre-existing conditions.

Similarly, in addition to not covering any pre-existing conditions, individual insurance policies offer restricted (if any) covers for maternity or pregnancy – you may either find those with nine or twelve or twenty four months long waiting periods or those that do not cover anything pertaining to maternity costs or sometimes those that cover only complications or acute conditions of maternity.

With a group policy, however, you can cover pre-existing conditions and maternity without a waiting period because of the inherent benefits of a portfolio approach. The concept of a group health insurance policy is often compared to a societal financing scheme whereby medical costs borne by a few are shared by many – this is essentially the conceptual definition of insurance itself.

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But in essence, the insurance company uses the volume of premium created by group medical policies to open up the floodgates a bit and cover for conditions which they would otherwise just not be able to cover because of the risk involved. From major covers like pre-existing conditions and maternity to the luxury covers like wellness, optics, vaccinations and even life insurance compensation – group medical insurance truly opens up opportunities for increased benefits. After all, it’s unlikely that every female in the group would become pregnant or every member has a serious pre-existing medical condition – therefore the risk can be calculated based on probabilities and a price be put on a group. If you’re wondering why this can’t be done for an individual – the one-word answer is that a policy with such benefits would create ‘anti-selection’ i.e. all the people with the intention of claiming under a certain section insure with a company that covers that particular situation.

For example, very recently the portfolio of a major local insurer collapsed because they were covering maternity for individual policies without a waiting period. Even though they were charging more than double the premium that others were charging for a roughly equivalent product (other than this specific difference), they could not contain claims costs and eventually had to book major losses and go back to imposing a waiting period like everyone else – they just could not afford to pay for almost every other policyholder that was claiming for pregnancy – essentially people were just signing up when it was time for them to have a baby! And only those that wanted babies were signing up – why would anyone pay so much more otherwise?

Of course, the extent of benefits and pricing on group and individual policies depends on various factors and this is worthy of a separate article – UAEbut in essence, I hope one can now appreciate how not to just simply expect a ‘cheaper’ policy because it’s a group policy but rather a more beneficial one. Certainly, it’s possible to structure a group policy as a collection of individual policies and thereafter offer a group discount but what’s the point? Anybody on an average individual insurance plan in the UAE would tell you how these plans have many caveats and restrictions to them and as a professional insurance broker I can add a disclaimer to anyone with an individual policy that if, God forbid, a serious medical condition comes up your insurer may actually find ways to disallow you from renewing your policy – terrible fact of reality in this part of the world, but it has happened frequently in the recent past – note here that your insurance broker would have to play a crucial role at such times by standing by your side and fighting the big, bad insurers – make sure you find the right one!

Whether you’re looking to take up an individual health insurance policy or structuring a group portfolio for your company, please be in touch with us on InsuranceMarket.ae and we would be happy to give you various options, implement the cover and thereafter also manage your claims for you on a fast-track basis. 

[Image sources:

topnews.ae/content/25185-uae-health-insurers-face-huge-challenge

gulfnews.com/business/banking/uae-health-insurance-premiums-may-rise-by-up-to-20-this-year-1.798593

telegraph.co.uk/health/expathealth/8015363/Expat-guide-to-the-UAE-health-care.html ]

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Why do you want to buy individual health insurance?

health_insurance_UAEIn the UAE, like many places around the world, the healthcare sector is a hot topic. Specifically often, medical inflation can make it financially crippling and difficult to actually afford medically necessary treatment. As a result of this, citizens look to their government for its support and the government tries its best to be able to put a model in place that is sustainable and fair. Certainly, the people running the Emirates of the UAE are no different in this regard.

So, based on the above, one would assume that it is fairly logical to deduce that the main reason for buying a health ‘insurance’ policy is simply to avoid being in a situation where a financially crippling medical service needs to be paid for due to an unforeseen incident or diagnosis. While in principle this should be the reason to buy health insurance, in the UAE it is often bought for other reasons, hence making inflationary and prohibitory pressures actually worse! Due to a misunderstanding of the fundamental reason to buy insurance, people are either paying more than they should be or, which is even worse, buying inappropriate or insufficient policies.

To explain how buying the wrong product can actually increase your overall cost of healthcare, most simply put, if the insurance company is ‘cash swapping’ with you or an insurance portfolio has a high number (high frequency) of small claims (low severity) then they are adding a cost to the transaction – one that could have been completed more efficiently by the patient and the doctor. For example, it is widely popular to see plans in the UAE that have higher out patient deductibles (and therefore lower premiums) not selling or plans with out patient on reimbursement not selling purely because the potential policyholder says ‘what’s the point of an insurance card if I can’t actually use it?!’.  Well, if you have to use something often, it’s not insurance! The whole point is that there should be a financial support in the event that there is a catastrophe – an in-patient procedure, for example. For any other ‘regular’ costs, the insurance company can obviously forecast (to a surprising extent of accuracy) how much it is costing and hence add their operating costs and profit margins to it.Dubai-Healthcare-City

So, the next time you’re looking to buy your medical insurance, think about the in-patient capabilities of your plan. Think about how well the product would be able to cover you in the event of a large claim. Forget about the small claims – it’s actually more efficient to pay those yourself. Just have a higher deductible applied on your policy and you will see the difference in cost! Or why don’t you consider an in-patient-only plan? To answer the question in the title, I can say as a professional insurance broker that one should buy health insurance (or life insurance for that matter) in order to be financially stable in the event of a traumatic health condition or at the time of an accident. Of course, like most things in life one should note there are exceptions to this recommendation – for example, corporate group policies are priced and structured differently. Or, for example the functions of policies designed for blue collar workers may be different… But largely speaking, the above principle holds true.

At InsuranceMarket.ae we have a whole host of health insurance products – those that would cost you just AED 1000 annually to those that would rent you a studio flat in JLT!  Each kind of product has its own function and strength – and we can always find something to match your preference (even if it’s not as per the recommendations in the above article!) Why don’t you get in touch with us and we would help find the right solution for you.

[Image sources: thenational.ae/thenationalconversation/industry-insights/economics/uae-healthcare-system-deserves-better-from-its-insurers

arabiangazette.com/medical-professionals-welcomed-to-uae-20130213/]

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Alfred & The Principles of Insurance – Principle Two: Insurable Interest!

insuranceCritics of insurance claim that one of the major flaws is that it is very similar to gambling and hence is unethical – at the end of the day we all know that in Vegas the house always wins. However, they are idiots and haven’t a clue about what insurance really is – and insurance companies DON’T always win (okay, I should not dig myself a hole here). But insurance is never a wager – far from it. I would go as far as saying that insurance is truly the backbone of a robust economy – no insurance, no economy.At the end of the day, it’s because of insurance that businesses can truly thrive in their core function and not worry about operational hazards – without insurance, we would see competent factories go bankrupt because of an unfortunate accident or fire! In addition, the insurance industry, using the significant amount of capital gained by insurance premiums (before claims are paid), generates a significant amount of investment back into the economy – contributing greatly to the national income multiplier. Let’s not forget that it was the insurance business that was at the core of Warren Buffet’s great success. Okay, so enough about how great insurance is – what is insurable interest? Well, it’s precisely because of this principle that we can explain to the critics of insurance that it is everything except a wager.

In a contract of insurance, for a claim to be payable, it is absolutely essential that the conditions brought about by the principle of insurable interest are met. Without going into the caveats to this when looking at different classes of insurance (for example in marine insurance you just need it at the time of the loss whilst in property it is required at the time of inception, loss and claim), insurable interest in simple terms is just that the person claiming should actually have incurred a loss themselves and the insurance policy therefore performs to put them in the same financial position as they were prior to the loss (this is the insurance principle of indemnification, the next article!). As a result, if there is no insurable interest, there is no insurance cover as otherwise the claimant would benefit from the claim being paid. With this simple principle, insurance suddenly becomes this great boon to mankind from just a mere gamble on whether a loss will occur or not!

So, if you own a property, you can insure it. If you rent a property, you can’t insure the property (as it doesn’t belong to you but rather to the landlord) but you can insure the contents that you own. At the same time, you may have to pay for damage to the property if you cause the damage due to your negligence – so you would purchase a liability policy to insure your duty of care towards your landlord. Here we go – insurable interest – you can only insure it if you stand lose financially! Voila!

Alfred is the insurance genius behind InsuranceMarket.ae and its wonderful insurance personal shopper services. With us you don’t only find the best insurance deals in the UAE, you are also protected by a sound knowledge-based infrastructure and over seventeen years worth of experience in the insurance industry. Follow Alfred on Google Plus and Twitter. Here you can also share your thoughts at AlfredsInsurancemarket.


[Image source: cbg.gm/finance_systems/insurance.html] 

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Alfred Explains The Principles of Insurance – Principle One: Utmost Good Faith!

Utmost Good Faith is also known as Uberrimae fidei. Okay, may the demystification commence: when you’re buying or selling insurance, you’re buying or selling a promise – a piece of paper. When selling something like this you are putting in place an alleatory contract – another big word with a relatively simpler meaning. An alleatory contract is one where one party may get something significantly more during the currency of the contract – or nothing at all. The literal consideration of the contract is not quite fixed. And when this happens, there is a serious moral hazard – a risk that one party to the contract may try and influence the result on the contract when they’re technically not supposed to. In insurance, you may have a liability cover of a million dollars and yet pay only a few hundred dollars for the policy. In this context, it is assumed as a basic principle of insurance that you are acting in utmost good faith and basically not creating a loss that the insurance company would have to pay for.

The big question is how do you actually ‘act in utmost good faith’? Well, basically you’ve to make sure that you do not non-disclose or misrepresent a material fact! Ah – some more beautiful insurance words here! Firstly, what is a material fact? This is any bit of information that can influence an underwriter’s view of the risk. At the end of the day, the underwriter takes risk on behalf of the insurance company he or she is working for and does so on the basis of various bits of information provided. All the information is key to the pricing of the risk and also key to determining whether cover will be offered and to what extent, is material. If, during placement, a material fact is not disclosed or, even worse, misrepresented i.e. incorrectly disclosed, then the insurance contract itself becomes invalid as a fundamental principle has been breached.

Okay chaps, I know this is a bit complicated. This is why the successful brokers have written tens of exams to get where we are. As long as you’ve a qualified, reputed and experienced insurance advisory firm by your side, you can be confident that you’re not going to be in breach of a fundamental insurance principle! But of course, we still require that you act in utmost good faith hence this explanation!

So the next time you insure your car, do make sure you let you provide your advisor with as much information as possible – it might well come in handy at the time of a claim because you acted in good faith and disclosed everything you know accurately! Interestingly, this would also usually help to understand your requirement better so that we can offer or structure the appropriate policy at the best possible price point.

Alfred’s InsuranceMarket is owned and managed by AFIA Insurance Brokerage Services LLC, who have been in operation in the UAE since 1995.

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