Peter Nduati is the founder and CEO of Resolution Health. He is 41 years old and has over 20 years experience in the Kenyan Insurance Industry. He is also a master’s degree holder in Economics and Insurance, and is currently working on a doctorate in Entrepreneurship in Kenya. We spoke to Peter so as to get an informed opinion on health and insurance for the aged.
Insurance for the aged
He explained to us that most people run to insurance companies after it is too late. For example, their parents may have already been admitted in hospital and that is when they inquire if they can have them insured. This is a challenge as most insurance companies do not cover people over 65. A few, like Resolution Health, cover them but only if they were also covered before they turned 65.
This may seem cruel on the part of the insurer, but it is with substantial reasons. Firstly, people above 45 are afflicted by diseases such as hypertension, arthritis and diabetes. These diseases are costly to treat, and the affliction they cause is long term. Secondly, after 65, most people are retired. There are also few members in this age group, and it is very high-risk because with the conditions named above, it is very likely that large claims will be made.
It is important to note that insurance companies apply the rule of anti-selection, whose premise is that people are more likely to take out insurance contracts when they believe the risk is higher than what is allowed for in the insurance premium. If such a risk is selected, for example, by agreeing to insure a person who is obviously more predisposed to illness, there is a higher chance of loss than what may be allocated for in the insurance rate. The rate is therefore inadequate and the risk is adverse, meaning that such a selection is a selection against the company. As a result, insurance companies want to avoid such selections.
The normal target group for insurance products are people aged between 20 and 50, because they form a large number of the insured populace and as such, they enable spreading of risks. Secondly, they are less predisposed to illness than people aged above 50.
Pre-existing conditions are also another matter that people seeking insurance should be aware of. These are health problems that existed before applying for a health insurance policy or enrolling in a new health plan.
Since insurance companies are also concerned about their financial bottom line, they take one of the following approaches to handling pre-existing conditions. They either exclude the pre-existing condition from the cover; impose a waiting period before coverage starts or charge higher premiums. Even where special coverage for pre-existing conditions is made available, the premiums will be much higher and payments for such conditions will be restricted, normally to Sh. 1 million. Some companies, such as AXA PPP, still have insurance products for the elderly; however the premiums are very high, even up to above Sh. 200,000 a year.
Matters of interest to the insurance company
Before an insurance company can cover anyone, they need certain details. Firstly, they are interested in whether one has been insured before. When one has been insured before, it is easier to estimate the amount of risk one is exposed to and therefore the premium that should be charged. However, if one has not been insured before, premiums tend to be higher due to the lack of insurance history as the insurance company is exposed to more risk.
Secondly, they will inquire about both family medical history and personal medical history. This is to establish whether there are any illnesses that run in the family that one is predisposed to. In the case of personal medical history, it is to establish the existence of any pre-existing conditions. If the insurance company discovers any of these, it can either deny the request for insurance or charge higher premiums based on the amount of risk posed by the individual.
They are also interested in the plan one would like to have. Some of the plans include:
Basic level, where only outpatient care is covered
Lab services
Medicines
Packages designed for the elderly (they may include items such as treatment abroad and private care)
For the packages designed for the elderly, it is important to note that the cost can be as much as 2 times higher than that one spends on oneself. For example, Mr. Nduati’s mother is 68 years old, and he pays Sh. 120,000 per year for her insurance. For the same services, his personal premium is Sh. 54,000, almost half of what he pays for his mother.
Words of advice
Mr. Nduati stressed that we should apply for cover for ourselves and our relatives early. This way, even when one turns 65, the insurance company will still offer cover, as opposed to after one turns 65 where it is unlikely that one will get insurance. Another advantage of applying for cover early is that the premiums paid will be lower as compared to when one applies later on.
Secondly, elderly people should apply for health insurance as they retire. For example, if you are employed by a company that has insured you under a group insurance scheme, as you retire; you should transfer your insurance to a personal insurance scheme under that insurer. The advantage of doing this is that there is no switching cost charged and there is no exclusion on grounds such as pre-existing conditions.
He also encouraged group insurance. Most of our parents tend to be in investment groups, “chamas” or they even organize themselves within the family. When people come as a group to apply for insurance, it lowers the costs by as much as 30%.
The importance of life insurance was also mentioned, because as people grow older, they are naturally at higher risk of death as compared to when they are younger. He advised that elderly people should also take out life insurance as they take out health insurance, and they should do so early so as to reduce on costs. For example, a 25 year old may pay Sh. 500 per month for life insurance, whereas a 45 year old may pay Sh. 1,500 due to his age and perceived risk.
He advised that we should take out as much personal accident cover for our parents as we can because personal accident cover does not exclude any conditions and in the case of death, the money reverts back to you, the insuring party. Insurance against disability, however, is covered under health insurance, so one does not have to insure against it separately.
Once one is insured, one should have an annual medical checkup. The insurer expects the client to do so at his own cost, and it is a condition for the contract to be renewed. In accordance with this, the cover is also reviewed each year. Once one is above 65, if the annual medical checkup lapses for even a day, one is not reinstated. He advises that once we reach 40, we should begin our annual medical checkups so as to identify diseases such as cancer early enough. If one is 55 and above and is insured, the insurance company is very specific and insists that some measurements be submitted in the checkup, such as the PSA test.
In a nutshell, Mr. Nduati urges us to think about health insurance early. He finds that most people remember to get life and property insurance, but only think about health insurance once it is too late. Do not wait until it is too late.
Article by Brenda Wambui
About the author
Brenda Wambui is a soon to be graduate from Strathmore University, with a Bachelor of Commerce degree in Marketing. In her spare time, she also masquerades as an Accountant, about to complete the ACCA qualification. She is interested in all things internet, especially social media management and research. She has a healthy appreciation for humour and the unusual, is a sports enthusiast (she watches almost all sports but prefers to play none), a philanthropist and a change agent, and she defies almost all laws (except the law of gravity). Follow her musings at mizzbree.wordpress.com and tweets via @brendawambui.