International health insurance giant, Bupa International, continue to focus their development in the Asia region with particular interest in the China market. There have been a number of successes and announcements recently supporting Bupa International’s move and focus. Read more
Hedge fund managers in China are feeling positive about the rest of 2013 as the nation’s stock market recovers, resulting in high expectations for potential yields. One of the fastest growing and most attractive segments for fund managers in China is that of healthcare and pharmaceuticals.
Although investment in the Asia Pacific region, particularly in private equity, has been sluggish since 2011, the healthcare industry has seen surprising and promising growth. Many articles, opinion pieces and exposes have highlighted the new frontier that is Asia healthcare.
The most recent reports from China confirm that over 60 people have been diagnosed with bird flu, and 13 have died. So far, there are no cases of the disease being passed from one human to another – all of those people infected contracted the disease directly from infected poultry.
The absence of human-to-human transmission means that this particular strain of bird flu, H7N9, has less chance of spreading – a person unknowingly infected with the illness will not be able to simply board a bus or plane and spread the virus to other parts of the world.
With the release of MSH China’s April 1st premium rate adjustments, Globalsurance is pleased to report a stable increase of 10.5% across the board of all plan options. While this increase is in line with the market average, coverage adjustments have been made to certain benefits. These adjustments should not have a large impact on plan renewability, but Gloabalsurance analysts expect that in many cases, the renewal rate will increase for affected plans.
In addition to Bupa’s April 1st premium adjustments for their Premier Worldwide Health Option plan (PWHO), which caters to the China market, the leading health insurance provider has also announced major changes to their child coverage.
Some of these changes have left Globalsurance parents with Bupa plans feeling concerned. Children have typically been separated into two brackets based on age, a 0-6 bracket and a 7-20 bracket. Children that fall into the first bracket are likely to see premium increases of about 25-50%, while children in the older bracket will only see premium increases of around 6%. The result of this decision now makes it more costly to insure a child that is under the age of 6 than one in the 7 to 20 age range.
MSH International entered the Chinese insurance market in 2001, setting up a Third Party Administrator service that allowed the parent company to establish MSH China. Based off their success in Europe, MSH began to offer new health and life insurance product options in the region. Read more
Leading international health insurance provider, IHI Bupa recently announced their premium increases for 2013, which have come in at the lowest percentage increase recorded by the company in five years. This tapering off of increasing health insurance premiums is a trend that seems to be occurring across the health insurance industry. Globalsurance, one of the largest distributors of IHI Bupa plans, has seen many other providers offering premiums that are slowing down in their rate of increase and believes this is likely due to falling medical inflation worldwide.
For more than 30 years, IHI Bupa has been a leading provider of international health insurance policies for expatriates and high-net worth individuals all over the world. Distributors and customers all tout IHI Bupa to be one of the best in the industry, and the company has formed an especially strong presence in Asia. Their policies include coverage in all parts of the world, including in the USA and are guaranteed renewable for life, an option that other providers are often apprehensive about offering.
Globalsurance continues to see differing indications of the state of the health insurance industry in China. Most analysts concur that the country’s high-income earning population are not likely to buy comprehensive health insurance in the short term. Many of the health insurance companies that have invested in developing on-shore solutions for health coverage continue to see varied results. While some insurers are re-figuring their China strategy, others continue to develop new products to further test the market.
Earlier this month and after little success, ICBC AXA eliminated its ‘China Executive Plan’ that was launched in December 2011 and targeted high-income Chinese nationals. The ‘China Executive Plan’ featured benefits that were below more typical expatriate policies but higher than domestic Chinese policies. One particular point of interest was that the plan had options for covering preexisting conditions, an option readily available with many health insurance policies.Read the rest of the China’s Emerging Wealth not Buying Medical Insurance as Expected article.
In what began as a careful partnership, Globalsurance is working even more closely with Now Health, as the young health insurance company has shown promise, especially in regard to its strong organization, service and claims capabilities.
Now Health, which was only launched last year, is the creation of a management team comprised of former Good Health employees, including Martin Garcia, who served as Good Health’s managing director. When Good Health was bought by Aetna, there was a significant number of employees who left and followed Mr Garcia. The group, under Mr Garcia’s direction, aspired to develop a new international health insurance company. This goal was finally realized in April 2011.
November 8th marked the official re-branding of the AXA Minmetals Ultracare International Medical Insurance Plan in China with a new, updated name, ICBC AXA Ultracare. The move comes after the shift in the majority shareholding from Minmetals to ICBC.
This change is only one of a few to have occurred in regard to the ICBC medical plan in China. Globalsurance CEO, Neil Raymond notes that these modifications are definitely steps in the right direction; “The ICBC AXA plan was the first true global health plan in China to be onshore and licensed, initially with RSA, then Minmetals and now finally ICBC. During this transition the plan has had its ups and downs but we feel very positive about the current changes,” he said.
Some of the other changes that have taken effect refer to plan benefits and premiums. These changes are seen as a positive shift by analysts at Globalsurance, and they maintain optimistic outlooks that this plan will continue to perform well.
Globalsurance can confirm that Bupa International’s medical inflation rate has come in below long term average which is good news for clients. Global medical inflation in the international Private Medical insurance (iPMI) market has been running at 10.8 percent on average for the past 5 years so although Bupa’s increase looks high by most inflation measures, it is actually typical within the iPMI sector.
Bupa International is unique as an insurer in that it has a bi-annual premium rate increase for individual international private health insurance policies and it changes its premiums twice per year – on the 1st of April and the 1st October. Earlier this year, Bupa adjusted its premiums by 6 percent and then by 4.3 percent this October meaning an effective rate of yearly medical inflation of 10.3 percent.
These changes relate to all of the company’s Worldwide Health Options (WHO) and Lifeline health insurance products.
In a move that has caught agents and brokers off guard, Nordic Healthcare, a provider of international health insurance, has announced that it will cease sales of new individual policies in all but its core markets. This means that, with immediate effect, Nordic will no longer be issuing new IPMI policies anywhere in the world except Europe, Singapore, Hong Kong, Thailand and Vietnam. The announcement deals mainly with individual clients, it is understood that corporate business will be assessed on a case by case basis. This announcement follows close on the heels of Nordic’s announcement earlier this year to pull out of South America.
Although Nordic will no longer be accepting new business in areas outside of the aforementioned countries, it insists that all existing policies will continue to be renewed and that customers with policies currently in force will not be affected in any way, a move that is warmly welcomed by clients and intermediaries. To date, Nordic has continued to treat its existing customers fairly and continued to support them even after pulling out of selling new business in a particular market.
The move appears to be an attempt by Munich Re, the owners of Nordic, to make the Nordic Healthcare business more compliant. Historically many international private health insurance providers were prepared to sell a policy to an expatriate in almost any country, particularly to individuals. The nature of the business and associated regional regulation, means that insurers, mostly based and licensed in Europe, have been selling policies to client anywhere in the world in an uncompliant way. All insurers are regulated in their home country, but because international health insurance policies are aimed at non nationals and are sold by foreign brokers or insurance companies, they fall into a grey area (particularly individual policies) which makes it difficult for local regulators to exercise any oversight of their operations. Most regulators require an insurance company to have a local presence before it can sell insurance products to nationals, but it is not always worth the investment for an insurer to open a local office if the IPMI market in a particular country is very small, and in many countries the legal requirements to be registered as an insurance provider represent a large financial commitment.
In the past twelve months, many insurers have been making efforts to become regulated in key markets. Recent moves by Bupa and Allianz in China and Aetna in Singapore are early indicators of an industry wide shift taking place.
This drive to be more compliant explains Nordic’s actions as far as most of Asia is concerned, withdrawing from poor or developing countries with very small expat populations will not affect Nordic’s balance sheet much. What is puzzling is that they have also stopped selling new policies in China and South America, some of the biggest emerging markets around. Nordic is the only European insurer to have made such a massive exodus, it has obviously deemed the risks high enough to justify pulling out of such potentially lucrative markets. Whether this move is reflective of internally motivating factors for Nordic Healthcare or whether it is more indicative of issues brewing in the wider IPMI market is difficult to tell.
It is possible that Munich Re will follow the lead of Bupa and launch a locally based IPMI product in China, where it is seeing 20% annual growth in its reinsurance business, and is clearing the way for a similar move by pulling Nordic’s operations from the region. It is hard to imagine Nordic have completely abandoned the region since China is such a valuable market for all types of insurance business. While there is bound to be more than regulatory pressure involved, right now, we can only speculate as to what is really happening, whilst keeping an eye out for more developments that are sure to follow soon.
Globalsurance has learnt that Bupa is launching a new product for the Chinese market. Bupa has teamed up with China based Alltrust Insurance Company to provide Bupa Premier Worldwide Health Options (PHWO), which becomes available from the 1st of October. PWHO is unique in that it will consider covering pre-existing medical conditions, a first for international private medical insurance plans in China.
While the attention of the financial world is fixated on the unfolding European crisis, there is a sleeping dragon some 5,000 kilometers away about to wreak chaos around the world. The dragon is China, the world’s most populous country and the world’s second largest economy. The problem has been festering for years and has been somewhat controlled through governmental stimulus money but this problem can no longer be delayed – the slowdown in the economy is becoming a pressing concern for people around the world. The effects of this recession could be disastrous and would affect healthcare and international health insurance worldwide.
The Chinese government is reporting 7% – 8% Gross Domestic Product (GDP) growth this year, so how could the Chinese economy be in a recession? Many experts agree that China could be deceptive about their GDP numbers. As reported by Reuters, WikiLeaks revealed that in 2007, during discussions with Clark Randt, the US Ambassador to China at the time, Li Keqiang (head of the Communist Party in 2007) hinted at the fact that China’s GDP figures were not necessarily based on real data.
This should not come as a surprise. The country is a totalitarian state controlled by the Communist Party of China. To the government of China, maintaining a strong public image to both its own citizens and the rest of the world is very important. Fortunately, investors and citizens can turn to more reliable data which can also confirm whether or not China’s economy is slowing down or entering a recession.
Many economists and investors use other sets of data to help determine the strength of an economy, aside from the GDP. Even if there was truth behind China’s GDP growth numbers, GDP itself may not be a good indicator of economic health in the sense that it does not take into account the general financial state of the typical citizen.
One data set that other financial analysts look towards is the Purchasing Managers’ Index (PMI). The PMI is an index composed of five indicators which come from purchasing managers in a given country. This gives diversified results and provides a good sample of the economic industries. The indicators included are; production levels, new orders, supplier deliveries, inventories and employment level, with each indicator having a different weight. Purchasing managers will indicate whether their indicators are better, worse, or the same than the previous month. The index is then reported on a scale of 0 to 100, with anything higher than 50 indicating that the economy is in growth, and anything lower indicating the economy is slowing down in growth or is in recession. A number lower than 42 indicates that a recession is either occurring or is close to doing so.
The index focuses on manufacturing, and while the Chinese economy may not be solely based on manufacturing, a large portion of it is, and recessions traditionally affect manufacturing first. Even more so, factory output is significant in China because the economy has used its cost effective labour to become the world’s factory, accounting for a large portion of China’s overall GDP.
For China, there are two PMI numbers: one released by HSBC, conducted by Markit, and one that is sponsored by the state and is the official figure released by China. Both numbers are within tenths of percentage points of each other and it is important to note that the difference between the two numbers is due to the composition of the surveys – China’s numbers focus on larger corporations, while HSBC’s numbers take into account small and medium sized enterprises (SME). As SME’s may be more representative of the general population, it seems wiser to take these into consideration. Despite their differences, both figures indicate a below 50 reading, indicating that the industry is contracting, but not yet in a recession.
Another indicator is the amount of loans being granted or applied for. China’s banks recently indicated that they may miss their loan targets for 2012, something that has never been missed in the past seven years. Banks have a heavy dependency on the SME market for loans, not because of their loan amounts, but because of their volume. This points to a slowdown in China’s economy as the fact that businesses do not require loans may indicate that there is no need to expand, or an incapability to expand. It could also indicate a business’s inability to acquire the loan due to its poor financial standing. SME’s health is crucial to the financial health of China’s citizens as SMEs make up the vast majority of the total contribution to GDP and employment. Poor SME health could therefore indicate that the overall state of the economy is in a terrible condition.
Electricity consumption could also be used as an economic barometer. If GDP increases, then electricity consumption should follow as electricity use will generally increase in from higher productivity. However, China’s electricity consumption and demand has slowed over the past few months, which seems to contradict China’s picture of continuing high GDP growth. It does, however, coincide with the PMI indication that things in China may be slowing down. China is actively spending to reduce its energy consumption in spite of this, and analysts still agree that factory consumption of power is slowing.
Finally, rail cargo volume can also point to changes in actual production. Rail cargo volume for China has been declining and while there are many seasonal highs and lows, the lows for the past few months have been significantly lower than historical values. Moreover, analysts have indicated that the decrease in rail cargo volume is comparable to the amount of decrease that happened during the 2008 financial crisis, which causes alarm for many who are monitoring these stats.
There are some significant consequences that can arise if China were to enter a recession. The effects of its recession could be comparable to those of America’s recession as China is the second largest economy in the world. Although a weakened Chinese Yuan as a result of the recession may encourage foreigners to outsource from China, the lowered demand from foreign companies is what contributed to the Chinese downturn – the deepening Global Recession may continue to produce lower demand for Chinese products even after the Yuan is lowered.
While the Yuan lowers, imports will decrease, compounding the effect of lowered imports due to lowered production levels. This can have significant effects around the world as China is one of the largest importers for many different minerals and raw materials, used often in their manufacturing industries.
As the Chinese economy worsens, general prices in China may increase due to lower demand and lower quantities will be sold as a result. Moreover, prices may increase because imports could become more expensive due to the weakened Chinese Yuan. Businesses may exit the market because profits are not as high anymore and may reach an unsustainable state.
In recessions, government spending is cut in order to maintain proper budgets for more essential and important aspects. As such, subsidized healthcare is usually one of the first departments to receive cuts. China currently offers a progressive subsidized healthcare system whereby the small and local clinics / hospitals receive a sizable subsidization and larger more specialized hospitals receive significantly less subsidization.
Once cuts are put in place, healthcare receives cuts, and the chances of people not being able to pay for their healthcare needs increases; costs of healthcare in emergency situations can represent significant amounts. Due to the higher relative costs of healthcare, health insurance in turn could end up costing more. This is because of the way health insurance premiums are calculated: what are the chances of a certain person requiring healthcare and how much would it cost if they do? A recession can push up the cost of healthcare and the cost of health insurance.
After the recession, because of citizens’ poor financial health, demand for health insurance will be lowered. As such, many small local health insurance companies may be forced to exit the industry as well, which could see some people at loss because of lack of coverage.
Acquiring an international health insurance policy in China now, before the recession takes place, is much more attractive. If you currently have health insurance, it is a safe way to hedge your bets against the Chinese recession since your plan will remain at its current price for rest of the term, as well as any financial problems which might occur in the future.
How long might this recession go on for and just how deep into the economy could it reach? This is a difficult question to answer. If the 2007/2008 recession is anything to go by, a recession in China could pull the world into a depression. The Global Recession still hasn’t concluded yet and is on the brink of further collapse.
As a sort of safety net, the Chinese government has set aside hundreds of billions of dollars in stimulus money in the event that action is required. This money will go towards cost saving measures for both the government and the average citizen, such as incentives for purchasing energy saving air-conditioners.
The real question at hand is not about the possibility of China going into an economic downturn – the real question is whether it will be a soft landing or a hard one. Some analysts think that it will be soft and that China is well equipped and large enough to absorb some of the loss. Some analysts, however, feel that their recovery from the previous 2007/2008 recession was too manufactured and that it wasn’t a sustained recovery – they are afraid that there will be widespread damage across the globe especially with the European crisis still unfolding. Whether it is a soft of a hard landing, many feel that this downturn is inevitable and fast on its way.
China announced last week that they plan to increase healthcare spending to more than USD 1 trillion by 2020. This is a lot of money, but a closer look at the current state of public health in China and the obstacles to further improvement, will help shed some light on this announcement.
We recently posted an article covering the state of China’s health services, the “successfully completed” improvement projects and the calls by Vice-Premier Li Keqiang for China to continue pushing forward with healthcare improvements.
At the time, the major focus of improvement to healthcare in China had been to increase affordability and accessibility of health services so that at least 95% of Chinese would be able to avail themselves of public healthcare services without having to incur significant out of pocket expenses.
A lot of these improvement efforts have had some effect, and many more Chinese (especially in rural areas) now have access to a host of medical treatments which they may not have known existed only a few months ago. This is certainly a good thing, but this massive increase in the eligible patient pool has had some unintended consequences. Patient intakes in city hospitals have surged; at many city hospitals patients queue up overnight to get a ticket to see a doctor and even then it is usually only for 5 minutes worth of consultation, due to the huge backlog. Touts are common, and people often pay massive amounts to buy a space in the front of the line.
One unexpected issue has been that of unrealistic patient expectations. Uneducated patients are arriving at the hospital believing that the high-tech and expensive treatments can cure just about anything, and they do not understand the limitations of current medical technology. This is compounded by the fact that people expect money to buy solutions, and when a family has just spent a large part of their life savings on some treatment, only for the sick person to then die anyway, the family draw the conclusions that it must be that they have been cheated somehow. In addition, patients who have worked or studied abroad have seen what is possible and now have higher expectations than what the overburdened system can deliver, leaving only more dissatisfaction and frustration.
Chinese doctors were already overworked and underpaid before these latest sets of healthcare reforms occurred, and their situation has radically worsened since. The average doctor still only earns the same as most other college grads, despite much longer hours and greater risks. A junior doctor in a city hospital earns around USD 500 per month, rural doctors even less. It is not uncommon for a doctor to see more than 50 patients a day and sometimes up to a hundred. To date, doctors and hospitals have used kickbacks and high profit margins from selling specific medications to supplement their income, a practise which has become commonplace, and which the Central Government has seen as a simple solution to the problem of doctors’ pay and hospital’s profitability.
Unfortunately, having a doctor in the situation where he has to prescribe medicine simply so that he can pay the bills is awkward at best and not a typical recipe for quality care. It ensures higher costs for the patient and eventually creates the expectation that all treatment requires medicine and that any treatment can be treated with a medication.
These factors are creating an atmosphere filled with pent up rage, frustration and disappointment, with patients and doctors finding themselves in a very uncomfortable situation.
China is planning to continue increasing its healthcare spend significantly, and will be spending around USD 1 trillion a year by 2020. This will largely be taken up by insurance costs and with an aging population, the increasing availability of more expensive treatment and addition of more chronic diseases to the insured list, a trillion dollars will be spent surprisingly easily. It will be a total of about 7% of GDP and still less than half of the US healthcare expenditure – and the US has a quarter of the population. A trillion dollars sounds like a lot, but it is still on the conservative side.
We have already seen that public healthcare rarely improves simply because more money is thrown at it, and it appears that the authorities have seen this too. The developing situation in the pharmaceutical industry is a good example of this. Doctors and hospitals have come to rely on the income from sales of branded medicines, and a large chunk of the increased healthcare expenditure would most probably be absorbed by increased costs of prescription meds.
To counteract this, the Central Government have allowed a few provincial governments to trial a different approach. One such province that has risen to prominence is Anhui, where officials decided on some rather extreme measures, at least from the pharmaceutical industry’s point of view.
A legislative and healthcare framework being trialled in Anhui prohibits prescription providers from adding any markup to sales of any medicine on the Essential Drugs List (EDL), and centralises the process of bidding on and purchasing drugs. Hospital controlled pharmacies are out and EDL drugs will instead be distributed only from rural hospitals for a flat fee, while each drug will have exclusive distribution rights assigned to certain companies, decreasing competition and the ability of the pharmaceuticals to pay kickbacks to doctors in order to ensure high sales.
While other states have also developed models to try and bring pharmaceutical costs under control, the Ahnui model has become very popular and 18 out of 23 of China’s provinces have implemented measures based on the same model. The big pharmaceutical companies are understandably worried, as many of their most profitable drugs face the possibility of being added to an EDL, therefore stripping any profits from that particular drug. Another worry is that the Anhui model places a very large emphasis on direct price comparisons, and doesn’t test for quality very well. This has the potential of driving prices down so low that only below quality products can compete in the bidding process.
What has also tended to happen is that drugs on the EDL simply become unavailable, as doctors don’t trust the low cost drugs, hospitals cannot afford to stock items that they cannot make any profit on and pharmaceuticals either pull out of the bidding process or the bid winner ends up being unable to maintain the supply of the drug at the price they bid.
Keep in mind that the goal with all of this is to prevent overpricing and overprescribing, which to some degree it does (at least on a superficial level) however, it doesn’t really tackle the root of the problem and merely leaves doctors and hospitals in the position where they will have to find another way to supplement their income. To date, doctors employed at public hospitals have not been allowed to do any private practise, although many do secretly work in private hospitals or from home to generate additional income. Authorities have loosened their grip on this matter, and doctors have recently been permitted to work one day per week in a private capacity. This helps a little, however, the greater problem still remains. The dismal remuneration of doctors really does need to be addressed in order to draw new doctors to the profession. China needs thousands of doctors to be added to the current workforce to even come close to meeting current demand, one estimate suggested that there is a shortage of 200,000 pediatricians alone in the country. There is also a lot of ill will towards doctors in China, and it is not a career with anywhere near the same earning potential or prestige as in western countries. The dysfunction in the healthcare system has brought the public’s appreciation of and respect for doctors to an all time low. It has become so bad that an online poll by Chinese People’s Daily was removed after a large majority of respondents selected a happy emoticon to characterise their reactions to the recent murder of a doctor by a very unsatisfied, knife wielding patient.
Somehow, China needs to turn this situation around; the country desperately needs more doctors and with the powerfully negative public sentiment, low pay and huge workload, it is hard to envision many young Chinese people harbouring a desire to be a doctor one day, much less acting on that desire.
The private sector does present some potential solutions to this. Doctors in private hospitals are not as highly regarded by the government’s medical bureaucracy or the public at the moment, but those doctors who brave the current scorn from their peers in public service to work in private institutions receive much higher pay, better conditions and a much improved doctor-patient relationship. This is a trend that will continue to change, with private institutions gaining credibility with the government and general public through quality of service and level of care.
It should not be hard to outshine the average public hospital. Most public patients see a doctor for only 5 minutes after hours of waiting, and on this point alone the private sector should be able to show stark contrast. Having a doctor that has time to meet the patient, focus on their case, make a proper diagnoses and decide on an appropriate treatment, can go a long way towards increasing patient satisfaction. Add to this the fact that the doctor will not be overworked, exhausted, stressed out or waiting for an “incentive” in a red envelope, and it isn’t difficult to see how people will be prepared to pay for a better service if they can afford it, at least they will feel like they’re getting value for money.
The challenges of provisioning public healthcare are not to be sneezed at. China’s sustained period of unprecedented development has increased the demand for modern medicine among more than a billion people. Ten years ago less than 30% of Chinese people were entitled to some kind of healthcare insurance, today, that number has risen to at least 95%. This in itself is a major feat, but to actually bring the benefits out of the world of statistics and into the lives of almost a quarter of the world’s population is a lot more difficult.
China needs approximately 500,000 doctors as soon as they can be trained or hired. To start meeting the demand, not only does the desirability of being part of the medical profession need to be improved, but so too must the capacity to train these new doctors. Finding a way to improve the quality of life of the average doctor is also important, not only by increasing salaries, but also by improving the work-life balance, professional development opportunities and making it easier for doctors to increase their income through excellence – not just work-rate or levels of prescription.
Aside from the challenge of finding the human capital, there is also that of ensuring the availability of affordable drugs and technology, without alienating the large brands and ending up without any quality suppliers available. The big pharmaceutical companies have a reputation for putting profits high on their agenda, and will not be interested in doing business in China purely on humanitarian grounds, they will need a carrot to keep them in the game.
The increasing costs of a progressively older population also needs to be accounted for, and when looked at in the light of the current economic slowdown and the sheer scale of things in China, this becomes quite a large hurdle. China’s one child policy has produced a large “elderly overhang” with the imbalance reaching its peak in the next twenty years. With more than 2 generations of single child families, Chinese youth are heading for a future where each adult will have potentially 6 elderly family members to look after (4 grandparents, 2 parents). Even just in terms of taking care of the elderly, by 2020, spending USD 1 trillion at a national level would have to be split between 15% of the population who are over 65, that’s only USD 5000 each when split between 200 million people.
China is working to improve its healthcare, questions remain as to how the private sector will fit into the picture, and whether solutions offered by new technology to the urban rural divide will help turn the tide. Above all, the big question is just how China will pay for it all, and what the chances are of actually turning public opinion against the medical system around.
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In this article we will first present our findings of the premium increases and premium inflation rates in each region and country we studied, with specific insurance findings to be presented at the end. Overall our findings were that International Private Medical Insurance (iPMI) premium inflation was very high, at roughly 10.8 percent per year over a 5 year average. While variations exist between countries, the reality is that iPMI inflation rates were extremely consistent throughout the world. However, it is important to note that this is medical insurance premium inflation at the high end of the sector, and not necessarily with regards to the mass market.
Even presenting the argument that premium increases are fairly consistent on a global basis, there are some immediate outliers – Hong Kong, for example, runs at an iPMI premium inflation rate of roughly 13 percent per year, while Kenya’s premium inflation rate is approximately 9 percent per year. Although there is a difference in premium inflation rates between Hong Kong and Kenya, the difference is not overly substantial – as will be seen inside this report.
Globalsurance is pleased to reveal the results of our latest study on the international health insurance industry and rates of international medical insurance inflation around the world as of August 1st 2012.
Using 7,916 data points from 8 different International Private Medical Insurance providers in 10 different countries, Globalsurance has been able to successfully identify a number of trends within Global Medical Inflation for individual International Private Medical Insurance (iPMI) plans during the time period from 2008 to 2012. iPMI is a subsector of the greater health insurance industry which services the global population of expatriates and international High Net-Worth individuals.
The companies sampled in the studies use Age and Geographical Area of Coverage as the main variables in their premium calculations. By selecting a sample which is community rated Globalsurance has been able to efficiently identify the actual rates for premium increases in different parts of the world. Our measure of inflation is based on a sample of policies, ages, and published rates for each insurer included in the study. Globalsurance selected the most common age groups and most common policy types for our data points to achieve realistic measurements in relation to medical insurance premium inflation around the world.
While individual insurance providers and underwriters may disagree with our findings, the figures represented in this report are based on our sample and present baseline figures for all of the regions and companies we chose to consider.
It is important to note that, unlike the recent Towers Watson Report on Medical Trends, the data contained in the Globalsurance insurance review is not survey based. Rather than looking at individual responses and feelings in reference to levels of health insurance premium inflation, which may have some inherent bias dependent on the respondent, Globalsurance is analyzing the actual premium data from insurance companies with exposure to the world at large, over locally based providers operating in a single country.
Additionally, we have analyzed premium data, and not healthcare pricing data. Consequently the figures represented in this report are indicative of the levels of healthcare cost inflation which insurance perceive to be in place in the locations we sampled; profit and operating costs of the individual insurers are assumed to be unchanged. While the increase or decrease in premium values may point to actual rates of medical inflation in the countries which were included in the study they do, in fact, represent the increased costs placed on policyholders.
However, it should be noted that, while the figures contained in this report are the actual rates of iPMI premium increases for the duration of the study, the removal of Age and Policy type means that the figures presented in this study of International Medical Insurance premium inflation can be used as a suitable proxy for rates of actual medical inflation in relation to healthcare costs around the world. It should be noted that the proxy does not represent medical inflation across the entire healthcare sector within a country or region; for example, NHS cost increases in the United Kingdom are not evident in our findings. The rates of iPMI premium inflation are only a proxy for healthcare costs in High-End, private medical facilities in the countries which we considered, due to the basic nature of the international medical insurance products we are studying.
So, without any further ado, here is the Globalsurance International Insurance Review:
The rise of the middle class in East Asia is proving to be a boon for private healthcare providers. Kuala Lumpur based IHH illustrates this nicely. In their recent IPO, which was 132 times oversubscribed, IHH raised more than USD 2 billion and the shares climbed by more than 10% in the first few days of trading. The value of the company stands at around USD 8 billion. IHH is now the second largest hospital group on the planet, and the largest outside the USA.
Owned by Khazanah Nasional Bhd, a state owned investment arm, IHH tells a story of unprecedented growth. Khazanah started their move into the healthcare sector in 2005, when they bought a 13.2% stake in India’s largest private hospital group, Apollo Hospitals Enterprise. A string of acquisitions and investments in the following years have enabled IHH to build itself into the powerhouse that it is today, able to ride the wave of opportunity created by the growing economies of East Asia.
According to Frost & Sullivan, the market for healthcare in Asia Pacific region will grow by 8 % until at least 2015, and IHH already has plans to add another 3300 new beds and 17 hospital developments in China, Singapore, Malaysia and India, as well as expansion plans Turkey, Egypt and Lybia by the end of 2016.
The success of IHH has been largely due to their ability to fill the gap created by lagging national healthcare infrastructure and rising demand for quality medical services in countries like Indonesia and Malaysia. The strategic positioning of their Singapore based hospitals, all within a relatively short 3-4 hour flight from Malaysia, Indonesia, Vietnam, Myanmar and Bangladesh, has created a healthcare hub which IHH has been well positioned to exploit.
IHH is now applying their winning formula to expansion in other developing regions of the world. It recently bought a 60 percent stake in the owner of Turkey’s largest hospital group, Acibadem Saglik Hizmetleri & Ticaret AS, which it bought for $826 million. Turkey is conveniently situated within easy reach of Central and Eastern Europe, the Middle East and Africa, much like Singapore is to East Asia. IHH hopes to develop their Turkish operation into another global healthcare hub, alongside Singapore and Malaysia.
The growth of private healthcare, especially in the developing world, is certainly a good thing, providing top medical services to those who can afford it, and easing some of the burden on national healthcare systems by providing an alternative source of treatment and the associated networks of training and development facilities. IHH owns a private medical university and a nursing training centre in Malaysia. Private healthcare is also the incubator for new healthcare technologies and techniques, as public sector healthcare often doesn’t have the budget or the staff to invest in much other than proven technologies and treatments.
There is a downside to this success story though. The draw of shiny new hospitals, new technology, a better working environment and higher salaries is proving to be too much for many healthcare professionals to resist, and is causing a slow but steady exodus from the public health systems all over the world, from the poorest and most underdeveloped, to the wealthiest and most advanced, basically without exception. Patients in private healthcare enjoy the luxury of not having to wait for treatment, of being treated by doctors who are well paid, have had enough sleep and who have enough time in their day to carefully consider a patient’s diagnosis and treatment.
The state of public health services is not quite so utopian. Even in somewhere as developed as Hong Kong, the public Health Authority struggles to find staff, and is left with no choice but to require the staff it does have to work unsustainably long hours for pay which is well below the equivalent in the private sector. This situation is not only making it difficult to convince new personnel to work in the public sector, but also creates an environment that is prone to mistakes and accidents.
President of the Hong Kong Doctors Union Henry Yeung Chiu-fat said many young doctors nowadays want easier jobs. Their preference for less stressful fields has exacerbated staffing problems. For example, becoming an ophthalmologist (eye doctor) is much more competitive with less-demanding on-call work than internal medicine or emergency room jobs.
Public hospitals In Malaysia, Thailand, China, India, UAE, South Africa, Australia, and even Europe have all been struggling with this issue, with some areas being so short of staff that they are having to close departments when a particular specialist is away for any reason.
While some of the problem can be alleviated by increased salaries and reform of health departments to be able to offer more flexibility to staff, there is another factor brought on by the rise in private medical services which could make the brain drain even worse.
The option for overseas treatment offered by a growing number of private medical insurance companies, as well as the relatively cheaper cost of treatment in developing countries, has created a massive growth in medical tourism. This lucrative market requires staff who are not only medically qualified, but who are also multi-lingual and culturally sensitive. This is a relatively unique demand of the private sector, since public sector hospitals treat a relatively small percentage of foreign language speakers.
This begs the question: If the unprecedented growth in international private health services continues, which it probably will (IHH alone are building 17 new hospitals), and the private sector continues to draw in much of the top talent in the medical industry, how will the public health services maintain a high standard of care, with fewer experienced personnel and many young doctors looking elsewhere for employment?
The crisis is very real, and there needs to be some serious thinking done on the part of the public health systems, especially those of developing countries. Stop gap measures will only work for so long, as human doctors and nurses will get tired and frustrated which can lead to them making potentially serious mistakes or quitting.
In China the problem is just as real, although slightly different. The private sector is still very small in comparison to public health system, instead, the problem China faces has to do with the urban – rural divide. China has recently spent more than USD 100 billion to try and bridge this gap, providing health insurance cover to 98% of rural Chinese, and ensuring access to improved primary healthcare facilities in a massive investment in rural infrastructure. While a large proportion of the rural population now have access to modern medical facilities, and are now more able to afford it, the State has still not been able to convince doctors and nursing staff to choose to work in more rural locations. Any career minded doctor in China would choose to work in one of the top tier city hospitals, where their case load will give them more interesting work with increased opportunity for career advancement, and where there are more opportunities for generating secondary income with some private practise on the side. In Shanghai alone 9 new hospitals are being built, which will all need to be staffed. A position in the rural areas is definitely not on the average Chinese doctor’s wish list, and the State faces some serious challenges in encouraging doctors to fill rural postings.
Unless creative solutions can be put in place, it seems that staffing issues in the public sector only going to increase around the world. With so many nations now facing economic turmoil, a significant increase in public health spending is not going to be easily managed. While investing more money into public health spending and salaries may alleviate the problem, other factors are involved in many cases.
What is certain is that all this bodes very well for the private healthcare industry. Being able to obtain first class medical care is going to become more dependent on whether patients are covered by private health insurance, and the public systems could decide, as the NHS in the UK and the Health Services Executive in Ireland have, to use the private sector to take some of the burden of healthcare off of public sector facilities. Add to all these factors the ageing world population, and it looks like the ideal environment for further growth in the private healthcare industry.
The largest challenge facing private healthcare providers may end up being that of finding and keeping their staff. Inevitable rises in salaries due to industry competition, are sure to be a major factor in the profitability and affordability of private healthcare. However, medical care will still be a necessity for everyone, and with a growing middle class in many developing parts of the world, an increasing number of people will be willing and able to pay for quality care.
A report released on Monday by the Healthcare Reform Office in China announced that the 3 year plan to improve some of the fundamental parts of China’s healthcare system completed its objectives on schedule. The Chinese Central Government spent almost US$71 billion between 2009 and 2011 in efforts to improve healthcare services to the public, build primary care medical facilities and new hospitals. Much of the effort was focused on extending coverage and providing medical services to the rural population, and the report claims that 95% of Chinese are now covered by public medical insurance.Read the rest of the Healthcare in China: The Overhaul that Underwhelmed article.
In recent announcements, AXA, the Industrial and Commercial Bank of China Co Ltd (ICBC) and Minmetals declared the launch of their foray into the China insurance market for life insurance. Officially branded as ICBC-AXA Life, the company recently received official approval from China’s State Council and all other relevant governing bodies to do business in the country. This follows the acquisition of 60 percent of the equity stake in AXA-Minmetals by ICBC.
ICBC-AXA Life represents AXA’s long term commitment to the Chinese market, according to Henri de Castries, Chairman and CEO of AXA. By partnering with ICBC, AXA stands to gain significantly in terms of expertise and experience, bringing diversified and comprehensive insurance coverage for the Chinese market.
Prior to the partnership, AXA and Minmetals formed the venture known as AXA-Minmetals and was established in 1999. In October of 2010, ICBC acquired a 60 percent equity stake in AXA-Minmetals, resulting in an equity split of 60 percent ICBC, 27.5 percent AXA, and 12.5 percent Minmetals. The equity stake was purchased for 1.2 billion yuan by ICBC and prior to the acquisition, the equity split was 51 percent-50 percent AXA-Minmetals.
With headquarters in Shanghai and operations in over 20 major cities and provinces, ICBC-AXA intends to service a vast majority of China. Beijing, Shanghai, and Guangzhou will serve as major service hubs. Some of the products which ICBC-AXA will offer include education, family protection, wealth management, and retirement insurance advice and services.
ICBC-AXA will be leveraging ICBC’s 282 million clients and expertise in the Chinese financial industry. The strategic move on both parties should prove to set a new precedent as China’s power player teams up with Europe’s largest insurer. Ambitious plans are in place as ICBC-AXA strives to be the leading provider for insurance in China.
In recent statements, Mr. Castries was quoted as saying that Europe looks like Chernobyl before the explosion, indicating forecasts of tumultuous times ahead. The development of ICBC-AXA represents a diversified move for AXA and a new area of opportunity for ICBC. As financial woes continue to haunt the financial industry, the insurance industry represents a stable move despite the large gains that can be achieved through it.
The Chinese market is difficult to penetrate due to strict Chinese government oversight and regulation. As such, China represents a significant opportunity due to its sheer size of population. Previously, AXA utilized Minmetals’ network and Chinese state-controlled status to break into the Chinese market. However, as Minmetals is a mineral and metal company, AXA stands to gain much more through the help of ICBC’s broad reach within the relevant sector.
The Chinese market is expected to grow at an average rate of 12 percent per year between 2010 and 2020, according to analysts. Chinese national companies maintained a 95 percent market share on life insurance and 99 percent in damage products, while more than 50 foreign players were struggling to win more of the market for general lines. AXA aims to bypass regulatory brakes which have restricted the company’s ability to compete in the past. ICBC has agreed to distribute AXA’s product in over 16,000 branches. AXA remains dedicated to the Chinese market and is actively trying to withdraw from activities within Australia and New Zealand.
Appointed as the Chairman of the Board of ICBC-AXA Life is Mr. Sun Chiping and President Mr. Jamie McCarry will oversee the day-to-day business operations of the newly formed joint venture.
While AXA is attempting to significantly increase market share in China, ICBC is actively trying to increase their market share in Europe. It is understood that ICBC will leverage AXA’s connections and expertise within the European market to help ICBC expand.
ICBC is the world’s largest bank by market capitalization and is looking to diversify its holdings outside of banking. ICBC is one of China’s four state-owned commercial banks and was initially founded as a limited company in 1984. It entered two stock markets simultaneously, Hong Kong and Shanghai, in the world’s biggest initial public offering at the time, featuring $21.9 billion US in public funding.
As Europe’s second largest insurer, AXA Group is a worldwide leader in insurance and asset management. With over 101 million clients in 57 different countries, AXA boasts revenues of over 86 billion euro and earnings of over 3.9 billion.
Minmetals, officially China Minmetals Corp, is China’s largest metal trader. Minmetals specializes in the production and trading of metals and minerals, namely copper, aluminum, tungsten, tin, antimony, lead, zinc, and nickel. As a state-owned enterprise, Minmetals is under the jurisdiction and laws of China.
Insurance Companies Mentioned:
AXA the global insurance group in Paris
Insurance Australia Group (IAG) is planning to expand its presence in Asia following successful initial investments worth around US$735.5 million in five countries including India and Thailand. The expansion is part of IAG’s long term goal to have 10 percent or more of its premiums come from Asia by 2016.
IAG’s CEO, Mike Wilkins was confident that building on the company’s investments was the right decision, stating that: “The Asian opportunity is here and now. Over the past couple of years we’ve quietly gone about our Asian strategy and are now getting real traction. We are entering an exciting phase of our Asian ambitions as we shift from a market entry focus to one of driving operational performance from our enlarged regional presence”
Despite his confidence, shareholders are wary of investing even more money into Asia as it brings back memories of the company’s last offshore investment; a costly and damaging expansion into the UK market. The company expanded into the UK in 2006 with the purchase of motor insurer, Hastings Insurance. The investment was considered a failure after the Hastings posted losses which in turn brought down IAG
Some IAG shareholders have expressed that they want the company to focus on domestic markets rather than going abroad. Portfolio manager at Tyndall Investment Management Jason Kim said on his company’s stance: “[Asia] might be exciting but it’s very, very long term. They’ve got such a great business in Australia and New Zealand, and it would be really good to focus on that and harness that.”
Wilkins said IAG will be relying on the ever expanding middle class in Asia to ensure that the company’s latest investments prove to be successful as it is expected that middle class consumption will experience a 200 percent increase by 2020.
The investments that IAG has already made in Asia, including a venture with the State Bank of India and Malaysia’s AmBank have contributed approximately 6 percent to the group’s total premiums and it is next looking to expand into Indonesia.
While a merger in Indonesia is still some ways away as no official deal has been reported, IAG does have a number of possible merger partners. Citing a number of reasons including Indonesia being a “very-high growth market” with “very low insurance penetration” Justin Breheny, Chief Executive of IAG’s Asian operations said: “Its [Indonesia's market] got the characteristics which are very attractive to us.” If a deal occurs, the company will be leaning towards a bancassurance model, teaming up with a bank to provide insurance products through the bank’s existing sales channels.
It is expected that the Asian businesses will collectively lose US$50 million over the short term, however it’s not something that IAG executives will be losing sleep about. This is because by 2017, it is anticipated that the investments will bring in return rates of up to 17 percent, further cementing the point that the expansion into Asia is very much for the future rather than the present.
One of IAG’s three “developing businesses” is its joint venture with the State Bank of India. The venture resulted in the creation of the SBI General Insurance Company Limited, which IAG are hoping will be profitable by 2015.
Despite existing laws stating that IAG cannot immediately add on to the 26 percent of SBI General it already owns, it still expresses hopes that in the future a change in regulations would allow it to increase its stake to 49 percent. In the meantime IAG are hoping that the joint-venture’s plans to set up more distribution channels (including Bancassurance) will increase the amount of money it brings in.
The other two ‘developing businesses’ in China and Vietnam have both initially been successful. In China, IAG own 20 percent of Bohai Property Insurance. China’s insurance industry is dominated by domestic players, with foreign investors only holding 1 percent of the market, and as a result, one of IAG’s big goals for the future is to increase Bohai’s market share.
In Vietnam, IAG own 30 percent of the country’s 6th largest motor insurer, AAA Assurance. Much like China, the industry is dominated by local insurers, and through AAA, IAG are aiming to become the first foreign entrant to gain a meaningful market position by becoming one of the top 3 motor insurers.
With investments in China, India and Vietnam still in their infancy, it’s IAG’s ventures in Malaysia and Thailand that have been the most successful for the company. In Thailand, the company owns 98.6 percent of Safety Insurance, the sixth largest general insurer and one of the top three auto insurers in the country. In the future, IAG expect to increase Safety Insurance’s national presence and achieve a top two position in the motor insurance industry.
While IAG only has a 49 percent stake in its joint-venture in Malaysia, it also has proven to be a good investment up till now as the product of the venture, AMG Insurance, has become one of the top ten insurers in the country. In a couple of months the company is also expected to acquire Kurnia Insurans, a merger which will make AMG Insurance the largest auto insurer in the country.
In response to the seemingly positive investments made, Breheny attributed the success to a couple of elements: “Our extremely disciplined approach to market entry has resulted in an attractive portfolio of businesses, with differing stages of market development and associated growth and return profiles, but all with a clear ability to create value for the Group.”
Insurance Companies Mentioned
Insurance Australia Group
Insurance Australia Group was founded in 2000 and owns a number of smaller insurance companies around the world. It specializes in all sorts of insurance including general, commercial and auto.
SBI General Insurance Company Limited
SBI General Insurance Company Limited is a joint-venture between the State Bank of India and Insurance Australia Group. It has a presence in 20 cities in India and specializes in the retail, corporate and SME insurance industries.
Bohai Property Insurance
Bohai Property Insurance is partially owned by Insurance Australia Group. It has 25 provincial agencies and more than 200 municipal and county agencies and sepcializes in a wide variety of insurance.
Established in 2005, AAA Assurance is part owned by Insurance Australia Group. It boasts more than 30 branches in Vietnam and specializes in motor, property and other types of insurance.
Safety Insurance, a Thai insurer is 96% owned by Insurance Australia Group and deals predominantly with Motor Insurance.
AMG Insurance is 51% owned by AmBank Group and 49% IAG. It is Malaysia’s fourth largest motor insurer and has 2,900 insurance agents.
Kurnia Insurans is a Malaysian company that was formed in 1978. It is one of Malaysia’s top auto insurers and is expected to merge with AMG Insurance in the near future.