A recent study by Swiss Re Institute indicates that global health resilience is likely to be lower following the recession that COVID-19 brings in its aftermath. The pandemic is pushing households into financial stress especially in emerging markets. This in turn will widen the health protection gap across the world and Asia will most likely reach record-high levels in 2020.
As health protection from governments and private Takaful schemes becomes scarcer, more households are vulnerable to health emergencies which will then have to be paid through out-of-pocket expenditures. This affects disproportionally low-income countries where more than 40% of the household spending relies on such out-of-pocket sources. Households may then be forced to sell off productive assets, put the accumulation of retirement assets on hold or forego their health maintenance and education expenditures (among others) in order to cope.
Takaful operators are a key stakeholder in the healthcare ecosystem and many governments recognize the role the private industry plays in addressing the health protection gap.
Traditional methods of relying on public budgets and household savings to fund healthcare will become increasingly challenging, given the rising concern over fiscal sustainability, higher treatment costs, greater incidence of chronic diseases and rising consumer expectations.
A recent consumer survey by Swiss Re highlighted a growth in awareness in Muslim-majority countries about the benefits of Takaful in general. Specifically, medical cover has gained wider attention, with 51% of the respondents in Malaysia and 38% in Indonesia prioritizing health as the most important Takaful cover.
Closing the health protection gap calls for a multi-stakeholder approach involving Takaful operators, governments, public policymakers, healthcare and medical service providers. Taking Malaysia as an example, medical Takaful is one of the least profitable business lines.
In order to ensure a sustainable and profitable model, new partnerships between various stakeholders are required to share healthcare risks, while providing support to the development of solutions that deliver value and choice for consumers in the market.
This represents a great opportunity for Takaful companies to develop innovative health products customized to local markets, which can offer cost-effective, customer-centric and technology-enabled healthcare solutions that improve access to healthcare.
The recent COVID-19 survey has also shown that consumers are interested in value-added services such as the ability to fully process Takaful policies online and new or unique coverage that help consumers cope with the health protection gap. Finally, Takaful operators can also leverage big data capabilities to improve underwriting and help consumers make more informed decisions.
COVID-19 has been disruptive, but the silver lining is that it has shaped the Takaful consumer market through generating a greater awareness of risks and the need for protection. The Takaful industry can seek new opportunities to innovate and build greater societal resilience in the face of future health risks.
Marcel Omar Papp is the head of Swiss Re Retakaful. He can be contacted at [email protected].