A fair premium for private Shield plan

Are you paying a fair premium for your private Shield plan? Are you being over-charged? How can you find out?

You can look at the ratio of claims to premiums, as reported by the insurance company for this plan, in their return to MAS.

Take this example. If an insurance company has 100,000 policyholders and pays a total claim of $10 million each year, the average cost of claim is $100 per policyholder. The insurance company needs to incur expenses and to have a reasonable margin of profit. As a rule of thumb, the loading should be about 50% over the cost of claim. A reasonable premium should be $150.

The actual premium charge will differ according to the age of the policyholder and other relevant factors, but the average for all the policyholders should be $150.

If the average premium paid by the policyholder is $500, it can be considered to be excessive. Why should the policyholder pay an average premium of $500, when the average cost of claim is only $100? This means that $400 is taken away to pay commission to the agent, and profit to the insurance company.

Why is this insurance company able to get away with charging such a high premium rate to its policyholders? Here are the ways:

1. It makes it product different from its competitors, so that the policyholders cannot compare the prices.

2. It provides some special features that make the product look very attractive, but the actual claim cost is small. This is a way to mislead customers.

3. It pays high commission to incentive its agents and train the agents on how to market the product aggressively.

As a consumer, you should avoiding paying far too much for a private Shield plan. The money is taken from their Medisave savings. If you spend too much money now on unnecessary insurance, or is overcharged, you will have inadeqaute savings to pay for the medical expenses in your old age.