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Are claim ration in US or Australia much higher and if so, what laws differences cause it.

What are the typical claim ratio of insurance companies in US, Australia, and Indonesia?

https://www.investopedia.com/ask/answers/042315/what-difference-between-loss-ratio-and-combined-ratio.asp

Claim ratios are the ratio between reimbursement and premium.

Say I buy insurance.

From a gambler points of view, I want to know how much, on average, I will be reimbursed compared to how much money I pay.

For example, if I pay $1000k for life insurance, I want to know that on average, I will get $900. The amount I get if I die may be $1m., But the chance that I will die is 0.09 percent, for example, I will on average, collect $900 out of my $1k premium. Of course, on average I lose. But because I am risk avert it's still worth it.

However, given that I don't lose a lot and I want security, I am okay with that. Of course, if the loss ratio is very low, it's stupid to buy insurance.

If premium fees are very clear and insurance companies compete with one another, I would expect the loss ratio to be very high.

If premium fees are unclear and customers insurance companies avoid competition, I would expect the loss ratio to be very low. Most extra money goes to marketing and profit.

Do US and Australian companies have much higher claim ratio? Can we know? What sort of laws on western countries that ensure that that differs from those in Indonesia.

I asked a friend of mine in some group and an Australian told me this

An established, mature insurance company in Australia (and most western countries I would think) will expect, in the long term, to pay out more money in claims than they receive in premiums. They make their money by investing the premiums during the time interval between receiving the premiums and paying out claims. Insurance companies live or die on their funds management. That's not due to any legislative requirement. It's a competitive business. If their prices aren't competitive, they won't get any customers.

It seems that in Australia, buying insurance may be "worth it"

In Indonesia, insurance agents are told that it is unethical to compete on price.

Also, companies can increase fees through various tricks or scam.

One such trick is by using a combination of not writing fees clearly, combining investment with insurance, and simply having huge fees.

For example, someone may pay $10k premium believing that most or all money is "invested". The company can obfuscate contracts that make it very difficult for customers to see the fees. Agents can lie to customers claiming that all money are invested.

Basically, it's like Sim Lim scam, but much more obfuscated. https://www.asiaone.com/singapore/sim-lim-scams-student-reduced-tears-after-being-charged-1k-iphone-warranty

One agent told me that there is no way a customer can know about those fees unless the agents tell and most agents simply don't tell.

Latter, even though the insurance benefit only worth $500, the customer can end up paying $5k in fees. Because the insurance and investment is joined, the customers do not know about it till it's very late. Also, it's very difficult to compare prices among different companies.

So why Australian or us companies do not just pull the same trick? Why do they bother competing?

In general, I think buying insurance in western country may be worth it but buying insurance in Indonesia may not be. I think the claim ratio, that is, ratio between reimbursement in western countries is high and the reimbursement ratio in Indonesia is low. Am I correct? If I am correct, or not, why?

Update: I just found out that life insurance premium in Singapore is 1/10th the price in Indonesia, for the same amount. This is what I am talking about. I am very sure that mortality rate in Indonesia, while higher than in Singapore, isn't really 10 times more. So insurance in Indonesia is simply very inefficient

user4951
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  • No the question is very different.

    I am thinking of doing https://www.cms.gov/CCIIO/Programs-and-Initiatives/Health-Insurance-Market-Reforms/Medical-Loss-Ratio would be a good answer.

    The reason is because insurance rate, even without fraud in Indonesia cost 10 times more. There is no way most of the money go to pay hospital. I bet only 10% pay hospital.

     – user4951 Jul 15 '22 at 16:42

1 Answers1

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You can’t “mislead or deceive” in “trade or commerce” in Australia

It is flat out against the law to mislead or deceive - you can’t lie, you can’t conceal salient facts, you can’t tell half truths, you can’t even tell the truth, the whole truth and nothing but the truth if that could be misleading.

The fines are huge (for example), plus the contracts are unenforceable, plus the reputational damage is extreme. The types of practice that you describe would result in orders to return the premiums, plus fines plus probably revocation of the licence to be an insurer in Australia if they were systemic.

This is particularly true of insurance companies - the legislation that applies to them is enumerated here.

Dale M
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  • So cases like https://law.stackexchange.com/questions/58282/what-are-the-difference-in-obfuscated-contract-laws-between-indonesia-and-other is illegal in Australia? No insurance company can charge 100 times normal fees by obfuscating contracts? – user4951 Dec 03 '20 at 02:41
  • @user4951 Australian businesses are required to clearly disclose total cost of a periodic contract like a mobile plan – Dale M Dec 03 '20 at 03:45
  • Clearly. So saying that there will be 100% charge from certain variable is not enough. They have to clearly say it'll cost $5k – user4951 May 01 '21 at 14:10
  • While this is a good answer, I've heard there are also other laws in US that make sure HMO spend 80% of premi for customers – user4951 May 01 '21 at 14:11