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In many ways, the Middle East has become, and is becoming, one of the most exciting regions for economic and financial development.

Dubai is in position to not only have the world’s largest Ferris Wheel but also the world’s largest mall. In addition to large commercial attractions, Qatar will also be hosting the 2022 World Cup, another feather in the hat for the region that has seen marked instability during the last few years. However, one of the biggest indicators that show the region is in prime position for substantial growth can be found within the insurance industry, particularly in the health insurance sector.

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Hong Kong’s economic development over the last few decades has led to improved measures for dealing with natural disasters. With the installation of the Hong Kong Observatory in 1883, early storm warnings and procedures were gradually established to handle the region’s seasonal typhoons. The numbered Signal System, ‘T1, T3, T8 & T10’, promoted public awareness of typhoons and arranged a platform to notify residents of each storm’s potential severity. (When T8 is hoisted workers are released and encouraged to go home.) Now Hong Kong residents handle five or six typhoons annually, but there are growing concerns that many of them are severely underinsured for the long term effects of a natural catastrophe.

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From the 21st of December 2012 European insurers will no longer be able to use gender as criteria when assessing risk factors to price premium plans. The European Court of Justice ruled a decision in March 2011 determining that insurance policies reliant on gender factors were incompatible with the prohibition of discrimination under the European Union. The final Article prohibits:

“…any results whereby differences arise in individuals’ premiums and benefits due to the use of gender as a factor in the calculation of premiums and benefits.”

Initial plans for the Gender Directive began in 2004, with the goal to enforce equality for men and women when accessing goods and services. The Directive would dismiss the use of actuarial factors related to sex when insurance companies determined the provision of insurance to clients. Individual plans could no longer be calculated using gender as a factor. Despite the campaign, the court ruled that insurance companies could continue to identify sex as a determining factor when defining differences between premiums and benefits.

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When Barack Obama was re-elected to the White House this November, America was reminded that not only is Obama the first African-American to preside in the Oval Office, he is the first president to make health care a primary component of his presidential legacy.

Obama’s re-election will certainly have important and lasting effects on the Patient Protection and Affordable Care Act, better known as the ACA or simply Obamacare. Passed by Congress and approved by the Supreme Court during Obama’s first term in office, the American public has already seen plenty of positive changes thanks to Obamacare – 3.1 million young people are insured who otherwise would not be, Medicare patients are receiving better services in hospitals across the country, and for the first time in four years, the U.S. Census Bureau has reported a fall in the number of uninsured Americans.

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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.

The insurance industry seems to be going through a lull. Things are quiet, with few major news events, no major catastrophes rocking the industry and a general sense of calm. How much of this is merely the swimming duck effect, with the appearance of calm on the surface, but energetic kicking happening under the water remains to be seen – but there is certainly a lot going on behind closed doors.

In Europe, the insurance industry is still working hard to effect amendments to Solvency II. As far as it is concerned, the proposed legislation is still far from the final draft, even after almost 10 years of planning and negotiating. Solvency II is going to force the industry to implement measures that will simply become an extra burden, with proposed capital requirements completely out of proportion to actual risks.  One example often cited by opponents of the current version of the legislation, is that of Hurricane Katrina in 2005, which caused widespread damage resulting in US$40 billion of claims. While this was the most expensive mega-catastrophe in recent years, the insurance industry was able to absorb this hit and recover rather quickly.

Indeed, according to a recent report published by the Universities of Leeds and Edinburgh, the expected financial losses linked to natural catastrophes such as hurricanes and earthquakes are not of the magnitude to “justify substantially high capital holdings against catastrophe underwriting risk.” The report focused on U.S. insurers, but the findings apply to all those potentially affected by the regulations.

While negotiators and lobbyists in Europe and North America are working feverishly to keep the insurance industry as legally unfettered as possible, the sales and marketing departments also have their work cut out for them.
The current economic climate is putting a lot of pressure on insurance premiums, with many Europeans currently underinsured when it comes to life cover. One of the main reasons for underinsurance is that the products are seen to be expensive, and customers are looking much more closely at what they are spending their hard earned pennies on. This trend can safely be extrapolated to other types of insurance, as the economy is affecting individuals as well as businesses and organisations of all types and sizes. In the life cover market alone, Swiss Re calculated that the protection gap amounts to EUR10,000 billion across the 14 EU countries. This gap is basically the difference between projected amounts of money needed by dependents in the event of a person’s untimely death, and the financial provisions put in place to cover such an event.

In light of this, there is much work to be done to develop innovative products that offer clients an attractive deal. With such a stagnant economy, sales teams are going to have to work not only harder, but much more intelligently to improve their figures. There is certainly untapped potential in the European market, but without new products and bold strategies, only a small percentage of this potential will be realized. Insurers in the USA and EU are facing a lot of legislative uncertainty, especially so in America, as the government rolls out a raft of healthcare and health insurance changes, along with new taxes and regulation for insurers and re-insurers on the horizon. There is certainly a long uphill struggle ahead, but opportunity is often found in the midst of adversity. Although the demand for insurance will not be going away anytime soon, the nature of the business is changing somewhat, and insurers will need to adapt to stay in the game.

Emerging markets offer a whole lot of new opportunity, albeit with some risk and a lot of uncertainty. As the global shift eastward continues, money is flooding into Eastern Europe and Asia, which means access to a whole new set of customers, along with new cultures and completely different environments. Traditional insurance is doing very well in the developing world, and insurers are using strategies such as bancassurance very successfully to help them penetrate these new markets. However, because of the flexible and entrepreneurial nature of emerging markets, where many things are still in flux, traditional insurance companies are also having to face new challenges on a regular basis. Developing countries are not afraid to try something new, and have the luxury of being able to draw on the experience of more developed countries and businesses. For instance, there is a lot of interest being shown into using captive insurance as a solution to risk management and financing, especially based on the experience of large companies like BP in dealing with large scale disasters like the Deepwater Horizon spill in 2010.

Another area where there is a lot of upheaval and change in developing countries is in the area of healthcare. In 2011, the WHO’s 193 Member States committed themselves to reforming their health financing systems to move towards universal health coverage. The goal of universal health coverage is that all people can use the health services they need without being exposed to the financial hardship often associated with paying for them.
In the developing world, where a large majority of people live on a subsistence basis, very few can ever afford any kind of healthcare, yet these are precisely the people who need assistance and public provision of healthcare services.
Developing nations face this problem almost universally, and much work is being done to study possible ways to finance universal healthcare and to develop models that provide a better bang for their buck.

Currently, public healthcare is provided based on variations of two basic strategies.
In the first type, a country provides universal healthcare based on a single risk pool, of which all eligible people are members, and funds its system through general taxes. Usually, in this kind of system, healthcare is provided by publicly owned facilities. The NHS in the UK is a good example of this strategy.

In the second type of system, a government provides healthcare to its nationals via mostly private providers, and funds the system through payroll taxes. The government essentially pays for private healthcare on behalf of its citizens. There are usually a few different risk pools, which means that different classes of citizens pay differently and possibly also receive different treatment. The German system works according to these principles.

At the moment, a majority of developing countries have public health systems that use multiple risk pools, but the current trend is definitely towards broader and larger risk pools. Many feel that consolidating pools mean lower administrative costs and less fragmented and possibly unequal treatment. The general consensus is that bringing everyone into one pool can make healthcare more equitable because everyone is entitled to the same set of benefits.

The role of the private healthcare industry varies, but in a majority of developing nations, private services are incorporated into their systems, with the state buying private care for their citizens when the public services cannot provide the necessary treatment.
This would be the best system from the perspective of the patient, as excluding the private sector from a universal healthcare system generally produces double standards, where the poor go to publicly funded facilities and receive basic care, while the rich can afford the very best treatment in private hospitals and clinics.

Developing nations have a their work cut out for them, but at the same time they have a huge advantage with “greenfield” development opportunities – unhindered by archaic and inefficient systems, and generally, a public healthcare system which can only really improve.

Of course, the biggest concern when talking about health services anywhere in the world revolves around finances. Many countries remain uncertain as to how to finance universal health coverage. Medical services have an amazing capacity to consume budgets, and universal coverage seems to be simply unaffordable to many.

Pre-paid schemes such as health insurance, provide one solution to this problem. The WHO hold the view that health insurance and other prepaid health financing mechanisms, are a key route to universal coverage. Every year, out-of-pocket payments force millions of people into poverty. Larger risk pools, combined with a larger percentage of the population contributing to a healthcare fund, would make it affordable for most developing countries to extend a basic standard of care to all their citizens, and even provide subsidies for more advanced services at private facilities on a more limited basis. Increasing taxes or funneling revenue from national resources like oil or minerals for the specific purpose of providing improved healthcare is not a hard sell, as long as citizens eventually feel they get what they pay for. Not all countries will be able to start with a full range of medical services, but getting the ball rolling through pilot programs and incremental extension of public healthcare will mean that they can grow their systems in a controlled fashion, experimenting with new solutions and strategies as they go. Assuming that health ministers can keep their departments on course and free from the ubiquitous bureaucracy, the goals of universal health coverage might just be within their reach.

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.

During his inaugural speech of the 6th FICCI HEAL (Federation of Indian Chambers of Commerce and Industry – Health Enterprise and Learning) 2012 annual international conference in Delhi this week, Indian President Pranab Mukherjee noted that there is a “high variance” in the quality of service available in public and private sector hospitals, and that the country’s healthcare system should be developed to meet medical requirements of all sections of the population.

“There is a high variance in the quality of service available. Some private hospitals provide world class facilities, so much so that people from third countries come here for treatment giving impetus to medical tourism. On the other hand is the lack of access to even basic medical care for many people, particularly the poor and disadvantaged.”

India’s healthcare system reflects the country’s massive rich poor divide very accurately. The public healthcare system is barely able to provide essential services to the urban population,  while there are many rural areas where no public health service is available at all.

The private healthcare sector has taken up some of the slack, and currently accounts for more than three quarters of total healthcare spending and a similar percentage of the country’s total hospital beds. While private hospitals provide a critical service, the majority of hospitals are based in large urban centres.

The rural population is generally also significantly poorer than the urban population, compounding the problem of availability of medical services with that of affordability. According to Future Generali India Insurance, only about 320 million, or 26% of the population, are covered by some type of health insurance and many pay for medical treatment out of the family’s savings.

Improving the affordability, availability and quality of healthcare available to India’s billion-plus population presents both a massive challenge and enormous opportunities. India’s government is actively pursuing Public Private Partnerships to try and tackle the problem, with the goal of leveraging the scale of the public system with the efficiency and quality of the private sector.

Some examples of these Public Private Partnerships working successfully already exist. The Urban Slum Healthcare Project in Andhra Pradesh is a partnership between State Commissionerate of Family Welfare and NGOs. Outsourcing of emergency transport services in 14 states  where state governments are in partnership with private providers has proven to be very successful, as has the partnership between GE Healthcare and public hospitals to set up diagnostic centres within the hospitals.

While some work is being done to alleviate the plight of the currently underfunded and short staffed public system, many hospitals are feeling the pinch and have not seen any government action for years.

For instance, the state run Gandhi Hospital in Hyderabad currently has an extreme shortage of anaesthetists, extending waiting times up to two months and preventing hundreds of operations from being performed.

The shortage is causing some departments to close down, despite long waiting lists, and while the hospital is still managing to handle all emergency cases, elective surgery has been all but suspended.

The hospital usually operates five days a week, but currently has no anaesthesiologist on duty for two of those five days. Even for patients already admitted, the waiting time for procedures has gone up from three days to two weeks.  According to Dr. Upender Goud, head of anaesthesia, an average of 40-53 surgeries per day are performed at Gandhi Hospital.

“The number of surgeries is not the criteria. What matters is the quality of work. Even a small mistake can cost the life of the patient. We are overburdened and hard-pressed,” says Dr. Goud.
Several representations by the anaesthesia department have been pending with the state government for nearly four years. For the time being, the officials said that they are planning to outsource a couple of specialists and are hoping that there will be some improvement to the situation within a month.

India spends only about 0.9% of its GDP on healthcare, and it will require a lot more investment than that to bring the 30 year old health system up to date. There is a shortage of more than 6000 doctors in primary care facilities across the country, while there is only 1 public hospital bed for every 2000 people. A leading government think tank recently produced a report proposing some changes to try and tackle this massive healthcare conundrum. The report suggests some radical changes in the current system. One of the major proposals is for the government to relinquish its role as the nation’s primary healthcare provider, leaving that role to private facilities, and focus on administration and management of the healthcare system  It envisions a situation where the government pays private healthcare providers fixed rates for providing medical services to the public. These proposals have not been well received by the Health Ministry, which prefers to try and bolster the public system and use private resources to fill in the gaps.

It hasn’t been suggested how much such proposals would cost to implement, but in a country with such a large part of the population living in poverty, one wonders where the money will come from. India not only needs to make some major investment in its healthcare infrastructure, but its road network is falling into disrepair, the railway system is ancient and the electricity grid needs massive investment as well. While the current government is promising to spend USD1 trillion on infrastructure upgrades by 2015, the healthcare problem is far greater than a mere lack of facilities, with issues that are not so easily solved.

The situation in private hospitals is far better, the problem is that very few can afford treatment in them. With almost a billion people having to pay for any healthcare costs out of their own meagerly filled pockets, it is absolutely certain that private healthcare will stay out of reach of the vast majority of Indians for the forseeable future given that only around 6% of the population is covered by private medical insurance.

Compounding the affordability problems of healthcare, the private insurance company, Future Generali India Insurance, sees medical costs in the country increasing at an average of around 15 per cent annually. Currently only about a third of all hospitalization costs in the country are covered by health insurance, meaning the inflation in medical expenses will progressively put quality healthcare further out of reach of a growing number of Indians.

The demand for health insurance coverage in India is very high. Getting more people covered by health insurance may help with removing the urban bias in the accessibility of health care, and may also improve the standard of medical services for all Indians. If the government does decide to step back from being a healthcare provider and chooses to use the private sector to fulfill that role, the demand for private healthcare will obviously increase. As we have seen in other countries who have similar systems, there will always be a market for premium medical services, away from the throngs of people, queues and budget constraints that feature so strongly in public healthcare.

The health insurance industry is expected to grow at a rate of 16-20 per cent per annum for the next five years. The potential for growth is high but for insurance companies it is still a loss making business. Basic loss ratios, which only take into account premiums to claims, have been above 100 per cent and combined ratios which are a measure of ultimate profitability are above 120 per cent. Some of the factors making it difficult for insurers to turn a profit are a high ratio of fraudulent claims and almost no regulation of private healthcare providers, meaning that private hospitals can charge whatever they like. Furthermore,  the Indian system of using third party administrators (TPA’s) to act as a kind of broker between insurers, hospitals and policyholders is prone to abuse and fraud. TPA’s are supposed to ensure that claims are dealt with smoothly, by helping the customer file a claim, working with the healthcare provider to settle bills directly, and referring clients to doctors who are able to deal directly with insurers. The reality is that currently, TPA’s are often delaying payments, offering to settle only partially, leaving policy holders with large unexpected bills, and some are even processing claims for fictional treatments at non-existent hospitals. There have been calls to regulate the role of TPA’s more strictly, but no new measures have been implemented to date.

In an effort to increase market exposure and improve efficiency and ultimately, profitability, insurers are developing strategic partnerships with banks. In one such recent move, Tamilnad Mercantile Bank Ltd, in partnership with United India Insurance Company Ltd, has launched a co-branded family healthcare product, to offer customised health insurance policy for the bank’s customers. “The cost of healthcare is going to increase rapidly in the coming years and insurance is a requirement to meet the cost of healthcare for each individual. This co-branded product will give our customers a fine risk coverage at a low premium,” said KB Nagendra Murthy, managing director and CEO of the bank.

Indian health officials have some big decisions to make. They could choose to simply try and improve the current system by investing in public healthcare infrastructure, increasing training facilities and using the private sector to simply fill in where it cannot provide care, such as in super specialized facilities or experimental treatments. Another option would be to step out of the healthcare provider role altogether, as outlined above, and simply pay private healthcare providers set amounts for treatment. This option is fraught with potential dangers of overpricing and overdiagnosis, as is the case in the USA, where providers are paid per treatment, and the more they do for a patient, the more they get paid.

The PPP model seems to be the most promising, and if done right can play into each sector’s strengths and existing infrastructure. Whichever route India decides to take to deal with its healthcare challenges, working out affordable solutions will definitely be a challenge. However, India has a reputation for innovation, creativity and adaptability in business, let’s hope they have politicians brave enough to implement the changes they need.

Teetering on the brink of economic collapse is Greece, the land of ancient mythological deities, and like the Gods before them hopes and beliefs in a timely turnabout for the Greek economy are dwindling hastily. At hand is the issue of the Eurozone: does Greece stay within and keep the Euro, or will it revert back to the obsolete drachma, the original Grecian currency which existed prior to 2001?

If the Eurozone were to retract it’s inclusion of Greece, there could be drastic effects which affect not only Greece, but the entire Eurozone as well. Specifically, the once-Eurozone-greats of Spain, Italy, and Portugal, who similarly share severely weakened economies, are significantly at risk should the Greek make an exit. It is ironic that the four major players pulling down the system are Portugal, Italy, Greece, and Spain – bearing the acronym of PIGS.

What are some of the possible issues at hand? How will the lifestyle and welfare of the residents be affected? And something more topical, with the state of Greece’s public funding slashed, what will happen to healthcare and health insurance?

Should the Greek system withdraw its participation in the Eurozone, there will be widespread effects across economies not just in the Eurozone, but around the world as well. In preparation for the withdrawal, the Greek banks will probably limit the amount that a person can withdraw from their bank accounts to prevent a bank run and a collapse of Greek banks. Greeks will need to endure the changeover of their currency from Euros to drachma as well as the subsequent devaluation of the drachma. The Euro will most likely be converted to the drachma at a pre-defined rate which will remain fixed for the duration of the changeover. As it stands, the exchange rate, which was revised in April of 2012, stood at 1:340.75. There is a glimmer of hope: many sophisticated investors and those with significant savings have already shifted their funds out of their Greek banks into foreign banks. What this means is that if Greece were to recover, the money is ready to come back in, without experiencing a dismal devaluation.

Once Greece exits, there will be defaults on their debt, which still hold their face values in Euro dollars. Even with 95 billion euros of the debts face value wiped, it still represents almost 265 billion euros. But what kind of implications will that have on the other countries whose economies are also at risk? Spain, Portugal and Italy’s liquidity is affected significantly due to investor fears of economic collapse and worries about debt repayment. Since all three countries require debt financing and liquidity for day-to-day activities, the loss of foreign investments can cause serious liquidity issues. The financial health of these countries could be in considerable trouble, especially since Italy and Portugal carry a considerable amount of debt – with inabilities to pay off the interest payments on loans and bonds, both countries could default. Currently, both countries owe more than their annual GDP.

If it turns out that Greece needs to roll in the new currency, the drachma, the currency that most likely will replace the Greek Euro, will take time to officially come into place. Experts predict that it will take four months until the currency is printed and entered back into circulation. Until then, monies held in bank accounts will likely be changed immediately, while the physical Euro, or at least those denoted by a Y which is the Greek country code, will still be accepted with those.

After the drachma is returned to the Greeks, what will likely happen is inflation, or worse, hyperinflation – you may have seen those old photos of people carrying a wheel barrel of cash just to buy a loaf of bread, or starting a fire with the local currency. If hyperinflation takes place, and this may become a reality for the Greeks should the drachma drastically devalue after its introduction, a basket of goods does not. The relative value of a drachma compared to that basket of goods will widen, resulting in the price of goods soaring.

Moreover, as the drachma is worth less and less, imports become exponentially more expensive. This is not good news for Greece as it is a net import state – Greece imports more than it exports, including food. Conversely, exports will receive a great benefit from the devaluation as one of Greece’s biggest export, tourism, will surely rise due to inexpensive holidays and cheap money.

Inflation, or hyperinflation, will cause Greece to be highly unaffordable for many of those struggling amidst the grip of unemployment; stability in the region will be hard to attain until the government gets back on its feet and is able to borrow again. Residents of Greece may leave the country in a bid to reduce the effect of the devaluation, but measures may be put in place to restrict some of these movements, including provisions on bank account withdrawals.

Compounding the damage is the cut in public spending and governmental policies which affect the business community. Specifically, a lowered minimum wage will have negative effects on residents’ ability to afford goods, making daily necessities difficult to attain. Greece’s two-tiered wage cut, was disproportionately hard on the younger generation, with the minimum wage for those under 25 cut 32 percent, instead of 22 percent. The effects of this and other cuts are being felt more acutely as goods become more expensive. As there are proponents of a spending method to get out of a recession, it seems like this is almost an impossible option for Greece at the moment whose debt outpaces its GDP by over 170%.

Businesses may begin to fail – their ability to borrow money and to keep a sufficient flow of business will be seriously affected by the devaluation of drachma. Furthermore, as citizens concerns start to turn towards more essential goods, such as accommodation, food, and other necessities, relative luxury goods and services become less important in their lives. Businesses suffer due to the lack of demand for their goods and may be forced to close doors.

And what about the necessities of healthcare and the ability to receive healthcare? Already, hospitals all over Greece are feeling a financial asphyxiation which is being transferred to the patients. Supplies are low and resources are lower. As public benefits decline, people increasingly turn to the public hospitals to receive treatment where the waits are long but the prices are lower. Significant changes have been made to treatment policies, allowing only for serious cases to be treated in a timely manner, or at all. There have been numerous reports of supplies being stolen, especially syringes and gloves.

Citizens’ ability to receive healthcare will be negatively impacted and will continue to worsen as the burden on health services is driven by the declining health of citizens. Wait times will be compounded as hospitals are flooded with demand for healthcare and an increasing lack of personnel and resources to service them. Doctors and nurses may flee to private hospitals or other countries in the wake of cuts to benefits, increases to workload and the potential of frozen salaries.

The medical system is already beginning to collapse. Big Pharmaceutical companies are refusing to provide medication because of the inability of hospitals and clinics to pay. In some cases, doctors and nurses are providing healthcare and treatment with no pay and can endure such a lifestyle for only so long.

Medical insurance will be equally negatively impacted in the near future. As businesses feel the increasing effects of the slowdown, so will local health insurers as business functions are hampered by inabilities to borrow and inflation makes existing or collected premiums insufficient for providing coverage. Moreover, premiums collected before the collapse may be converted to the drachma from the Euro and may not be enough to cover the cost of providing healthcare once devaluation sets in. Premiums will probably need to rise in order to keep pace and many may cancel their plans and opt for basic health coverage through the government because they cannot afford to keep up with the increasing premiums. This is under the assumption that the Greek government will continue to provide subsidized health coverage – under austerity measures, subsidized health coverage could very well be one of the earlier things that a government will cut. This will likely result in the collapse of many local health insurers, leaving those previously insured with them without coverage.

As for international health insurance in Greece, premiums for new plans should increase. Since premiums are calculated based on a community rating, the risk profile for those in Greece is increasing alongside the cost of providing healthcare in Greece. Those who do not have health insurance should consider purchasing an international health insurance plan prior to any change in currency that may take place. The plan will be good for the year before the devaluation takes effect, resulting in confirmed coverage for the higher costs of healthcare. It will be a money saving route for the long run. As for existing international health insurance premiums, they too will probably increase in the coming years because it will be costlier to provide healthcare in the country given the lack of supplies or credit to purchase them, as well as the possible need for more people to travel abroad to seek treatment. Furthermore, the health of the residents may continue to decline, resulting in a riskier health profile to the insurance companies, especially since big pharmaceutical companies are wary of providing more supplies on credit.

This makes acquiring an international health insurance policy in Greece much more attractive now rather than later. Before the conditions are unfavorable for you to acquire insurance, acquiring now is a safe way to hedge your bets against both financial and healthcare problems in the future.

There is salvation in sight: with the devaluation of the drachma, many exports become significantly more inexpensive across the world. This makes Greeks exports attractive, helping the country get on its way to recover. However, if the country does not exit the Euro, recovery could be long and arduous.

With Greece controlling its own currency and fiscal policies, it can make provisions and decisions which can bring it out of its slump faster. For example, if Greece wanted to increase its exports, it could further devalue its currency by printing more of it. In addition, Greece has free reign to set its own interest rates, which could facilitate lending and financing throughout the region.

Argentina and Latvia are similar examples of the two options which Greece is faced with: stay with the old currency or move on to their own. Argentina was pegged to the US dollar and Latvia is part of the Eurozone. When faced with their financial meltdowns, Argentina opted to discard the pegging and Latvia decided to stay with the Euro.

What happened was Argentina’s peso devalued significantly and unemployment soared, as did inflation. But quickly after, Argentina crawled out of their depression and reached their peak output levels in just a few years. In contrast, Latvia struggled significantly while under the Euro and GDP growth plunged to the deep negatives. Living conditions continued to decrease and is projected to start recovering in the coming years.

The International Association of Insurance Supervisors (IAIS) recently published a consultation paper titled, “Assessment Methodology for the Identification of Global Systemically Important Insurers”. In the paper, the IAIS proposed criteria which will be used to classify insurers as “global systemically important” and invited public comment until 31 July 2012.  The paper was endorsed for consultation by the Financial Stability Board (FSB), which has been tasked with coordinating the overall global set of measures to reduce the moral hazard posed by global systemically important financial institutions.

“This proposed methodology results from intensive and thorough discussion within the IAIS based on the expertise from supervisors around the world,” said Peter Braumüller, Chair of the IAIS Executive Committee. “Based on a recommendation by the G20 Leaders and the Financial Stability Board, the IAIS has accomplished an important piece of financial sector reform.”

The system proposed by the IAIS is very similar to that used by the FSB to identify global systemically important banks, with some modification to reflect the difference in the Insurance business model. The intention is to be able to classify those insurers who have global significance and then, through relevant and effective legislation and continuing oversight, to maximize their stability and to minimize the effect of any financial disaster the insurers may suffer on the rest of the global economy.

Under the proposed IAIS criteria, insurers are categorised according to 18 indicators in 5 broad categories: size, global activity, interconnectedness, non-traditional activities, and substitutability. Four of the five categories are the same as for the banking sector.

The Financial Stability Board, a group of regulators tasked by the G20 nations to establish measures preventing another financial crisis as in 2008, will be using the criteria to examine a total of 48 leading insurers to determine whether they should be placed on a list of “systemic” financial institutions along with leading global banks. AIG, Allianz, Axa and Prudential are all seen as potential candidates for inclusion on the list. Insurers deemed to be high-risk could be forced to hold extra capital under new safeguards being drawn up by the FSB.

The insurance industry supports improved regulation, however, according to the International Association for the Study of Insurance Economics, commonly known as The Geneva Association, the proposed measures are still using too many banking-specific indicators, and have not been adequately modified to account for the fundamental differences between banking and insurance companies. The media and politicians tend to lump insurance and banking together under financial service companies, but the reality is that the two are fundamentally different businesses. In their response to the IAIS proposal on Monday, the Association highlights the fundamental differences between banking and insurance, and argues that research has indicated that the most accurate and efficient method for assessing risk in insurance is to focus on activities, instead of the institution as a whole.

While banks have “callable” funds, in that creditors can claim access to their deposits at short notice, insurers only have liability when an insurable event has occurred. Insurers also receive payment up front, while banks provide credit up front, and receive repayments later.

The difference between insurance and banking is clearly illustrated in how the same criteria indicate different situations for each industry. Diversification and global activity is a good example. In banking, an increase in the size and global activity of a bank means an associated increase in risk and global impact. It is precisely the opposite when it comes to insurers, because insurers use increasing numbers to lower risk.

John Fitzpatrick, the Secretary General of the Geneva Association, elaborates,”We know that if we add more size or diversify by line of business or geography, it further reduces risk. So rather than these being indicators of systemic risk, we think they’re indicators of stability and strength.”

Size and global activities carry up to 20% weight in the assessment of indicators, but this is contrary to the nature of insurance, since size and global operations decrease risk. The new proposals do not properly take into account the enhanced stability gained by insurers when they diversify into multiple international markets.

“The insurance business is based on the law of large numbers – the larger number of units that you insure, the lower the volatility of the portfolio,” explained Geneva Association Secretary General, John Fitzpatrick.

The report points to recent research by The Geneva Association which has identified two activities that do have the potential  to create systemic risk as defined by the FSB’s criteria, namely speculative derivatives trading on non-insurance balance sheets and the mismanagement of short-term funding. It recommends that, “when collecting data for this methodology, focus should be given to companies engaged in potentially risky activities.

Mr. Braumüller’s makes it clear that the IAIS understands this and has taken the different risk profiles into account, “The potential for systemic risk within the insurance sector needs to be considered where insurers deviate from the traditional insurance business model and more particularly where they enter into non-traditional insurance or non-insurance activities.”

However, it seems that the Association feels that the considerations don’t go far enough. “The system must make the best possible use of regulatory capacity by focusing on activities that can create systemic risks and not misallocate capacity and resources on areas that do not.
We believe that  traditional insurance activities should be removed from the process and  that  noninsurance activities be given a higher weighting than they are currently.”

During the financial crisis, the areas in the insurance sector which were directly affected were not related to the primary business of providing insurance coverage, but other non-insurance activities, like banking, credit issuance and mortgages.

The Association agreed that these speculative activities should face tighter controls and higher capital requirements, but stressed that it was important to recognise the difference between hedging against risk (which insurers do as a matter of course) and speculative investing.

The report called for greater clarity in how the IAIS calculated the weighting of the interconnectedness category relative to the banking and insurance industries. Banks in the current banking system are very interconnected, as was highlighted by the LIBOR scandal. However, in their assessment of the banking system, the FSB have assigned 20% weight to the interconnectedness of the institution. Insurers are not nearly as dependent upon each other or so closely connected, yet the FSB have inexplicably assigned a 30-40% weighting to interconnectedness for the insurance industry.

The substitutability measure is also called into question. Insurance products do not require immediate substitutability, unlike in the banking sector where a catastrophic failure in the payment processing and credit facilities of a bank has immediate and systemic impact. The global financial system is not dependent upon the services of insurers and an interruption in insurance coverage of hours or even days would not necessarily create the same kind of consequences. Governments have stepped in before to provide cover during crisis situations, and would be able to do so again without causing systemic interruption.

It is widely accepted that the current string of regulatory changes is a good thing, but the insurance industry is concerned that some of the measures being put in place are either politically motivated, or are being thrown together without due consideration because of pressure from the media, governments and general public. Unintended consequences of regulation can be quite serious, and if we take into account the fact that the FSB is not the only regulatory body pertaining to the Insurance industry, some nervousness in the industry is to be expected. EU officials and industry regulators are currently working through the details of Solvency II, another package of EU-wide regulations set to come into effect in January 2014.

According to a survey by the Geneva Association, 73% of leaders in the insurance industry have significant concerns about the effects of inappropriate regulation. Chairman of The Geneva Association and Chairman of the Board of Management at Munich Re, Dr Nikolaus von Bomhard, said, “The insurance industry plays a vital stabilising role in society and in the world’s economies both as a significant participant in financial markets and as a shock absorber for individuals and companies that suffer an insured loss. The results of this survey reveal that leaders of some of the world’s largest insurers are concerned that inappropriate systemic risk regulation will needlessly affect our ability to play that role.”

About the IAIS: The IAIS is a global standard setting body whose objectives are to promote effective and globally consistent regulation and supervision of the insurance industry in order to develop and maintain fair, safe and stable insurance markets for the benefit and protection of policyholders; and to contribute to global financial stability. Its membership includes insurance regulators and supervisors from over 190 jurisdictions in some 140 countries. More than
120 organisations and individuals representing professional associations, insurance and reinsurance companies, international financial institutions, consultants and other professionals are Observers. For more information, please visit www.iaisweb.org.

There is to be a vigorous shake up of the Slovak private health insurance industry. So vigorous in fact, that it’s actually going to disappear altogether.

The Slovak government has reached a decision this week that it wants to bring all health insurance under a single state run system. A move the government feels will save the Slovak state some money by stopping the flow of precious state funds into private corporation’s profits and channeling them back into the system instead.

Prime Minister Robert Fico has charged the Slovak health care ministry to work out a plan of action by the end of September. The process is currently set to be completed by 2014, although Slovak officials do not expect the current insurers to go without a fight.

Slovakia can force a buyout of the two private health insurers, a move Fico said would have to be very carefully planned and executed to prevent any chances of backlash in the courts.
Fico has stated that, “”It would be ideal if we could reach an agreement on the buy-back.”

It appears that Fico is determined to see this measure implemented fully, regardless of opposition. “In case we will not reach an agreement, we will use the expropriation measure. This is a standard procedure written down in the constitution and known also elsewhere in Europe.” He added later that, “This (expropriation) is in the public interest.” However, the Prime Minister was not prepared to venture an estimate of the value of a buy-back or eventual nationalization, saying that the value would have to be determined by independent auditors.

The current health care system in Slovakia is a form of private-public partnership, where all Slovaks pay a healthcare tax of 14%, and can choose cover provided by one of the three providers, who provide cost-free treatment. The two private health insurers, Union, a unit of Dutch Achmea B.V., and Dovera, controlled by Slovak-Czech private equity group Penta Investments, provide cover for about 1.8 million of a total 5.4 million Slovakians. The state owned General Health Insurance Company, or VsZP, provides cover for the remaining 3.6 million citizens.

Katarina Kafkova, head of the Slovak Association of Health Insurers, said on Wednesday that, “We don’t consider re-installation of a single health insurer is the best possible option,” and made it clear that investors were not interested in ending their operations in Slovakia.

Martin Danke, a spokeman for Penta Investments, stated that, “We’re taking the plan into consideration. We don’t know any details of how the government wants to carry it out. It still holds that we want to be active in the sector of health insurance long term. There have been no talks with representatives of the government about its plans.”

Achmea was very direct in its reply: “If necessary, Achmea will take all steps necessary to protect the business interests of Union,” adding that it was not interested in selling Union or its portfolio to the state.

It is quite understandable that the private investors would fight this reform. Q1 profit for the entire health insurance sector in 2011 was almost EUR 13.5 million (USD 16.5 million), from a gross aggregated revenue during the quarter of EUR 871.1 million (USD 1.1 billion). Dovera’s share of the profits was EUR 6.6 million (USD 8.1 million), down from EUR 10.9 million (USD 13.35 million) for the same period the year before, Union only posted a profit of EUR 400,000 (USD 490,000), for Q1 2011, compared to a small loss for Q1 2010. At the same time, EUR 7 million (USD 8.6 million) can go quite a long way when channeled back into the health service especially in light of the current state of EU finances.

This is not the first time Prime Minister Fico has taken on the private healthcare industry in an attempt to save his country money. He banned private insurers from making a profit during his previous stint as Prime Minister between 2006-2010. This was later overruled by the Slovak Constitutional Court.

While the Prime Minister obviously has noble intentions, the Slovak Health Care Ministry will have its work cut out for it. Firstly to successfully evict Union and Dovera without prolonged legal battles, and then to build the national health insurance service in such a way that it has the capacity to offer cover to all Slovaks, while remaining profitable. Public healthcare systems are notorious for effectively draining blood out of the healthiest economy, Slovakia’s General Health Insurance Company is currently on the right track, let’s hope it will stay that way. This is definitely a story that will not be over soon.

As the European financial situation becomes more uncertain with each day passing, Vhi Healthcare, Ireland’s largest health insurance company must raise €300 million (US $368.55 million) which could affect the premiums of over 2.2 million Vhi policyholders.

Vhi, short for Voluntary Health Insurance, is generally referred to as “The VHI” by residents of Ireland and is traded under the brand Vhi Healthcare. With headquarters in Dublin, Ireland, VHI is a state-controlled corporation which has been accused of being given preferential treatment above its primary competitors. It is regulated by the Health Insurance Authority which is the private health insurance regulatory board, monitoring activities in Ireland.

The issue at hand is that Vhi Heathcare is guaranteed by the State, meaning that it is not required to keep specific reserve amounts on hand in the event there is a spike in the number of claims. In addition to the guarantee, it cannot be declared bankrupt.

Competition experts and analysts say that preferential treatment towards Vhi needs to end in order to restore balance to the private healthcare market.

The preferred status for Vhi has allowed to it borrow funds at advantageous rates, in addition to the lack of need to keep a reserve balance. Lenders are happy to oblige to Vhi’s requests as the loans were essentially risk free due to the fact that the government would pick up the bill if Vhi defaults. However, the likelihood of Vhi defaulting and going bankrupt is almost impossible as it is a statutory body.

The European Commission has called for an end to the preferred status of the company, and has proposed that the government end the guarantee by the end of 2013. Vhi Healthcare was receptive to the proposal; however it made note that a risk-equalization plan will need to be implemented.

Initially, there had been plans to privatize Vhi Healthcare back in 2010. However, the new coalition government decided to retain Vhi when it entered office, making it a pillar of the universal health insurance system which is scheduled to be rolled out in 2016. Under this plan, all citizens will be required to purchase health insurance from an insurance provider, not exclusively Vhi, and the government would provide a subsidy of some sort for those who meet the low income criteria.

Currently, Vhi is required to raise €300 million (US $368.55 million) in capitalization and one of their options to do so include raising the premiums of its 2.2 million clients. This €300 million (US $368.55 million) is to increase the solvency ratio of Vhi, ensuring the insurance company has enough money on hand to cover any unexpected spike in claims. Should Vhi decide this is the best way for it to raise capital, clients of Vhi can expect to see their premiums to be raised by up to €135 (US $165.85) this year. Moving forward, Vhi will have to retain 40 cents to the euro in income to safeguard itself as per regulations.

Meanwhile, competitors welcomed and encouraged the move to abolish the guarantees and preferential treatment for Vhi. Specifically, Aviva stated that the clients of Vhi should not be negatively affected by the increase in premiums due to an external cause from the government. Aviva called on the government to provide more details as to how it plans to handle the solvency requirements of Aviva.

In related news, the government of Ireland has recently hired a new CEO for Vhi. The coalition government, however, breached the salary limitations which are imposed on maximum salary limits for new CEO’s of Vhi. Vhi’s new chief is John O’Dwyer, and his annual income will be €238,727 (US $293,276.12); this represents almost €50,000 (US $61,425) more than the limit.

Despite the limits in place, Minister Brendan Howlin stated the need for exceptions in specific cases, especially in the case of Vhi due to some of the substantial changes that are about to take place.

This comes at a time full of volatility for the European financial industry. With Euro prices falling and shrinking, or failing, economies, Vhi’s deregulation will need to be handled with care. If safeguards are not in place, many individuals who hold policies may no longer be able to afford their current plans. If they choose to move away from their current plans, they may not receive adequate coverage as competitors may not want to offer the same plan for the same price, which could cause greater uncertainty into the lead up to the introduction of the universal health insurance system.

Insurance Companies Mentioned:

Vhi Healthcare

Vhi is a statutory corporation with members appointed by the Minister of Health in Ireland. Vhi is the larges health insurance company in Ireland

Aviva

Aviva is a British insurance company with global operations. As one of the world’s largest insurance companies, it has over 40 million customers and is a market leader.

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.

Insurance brokerages across Europe expressed frustration towards the European Commission’s (EC) latest revision of the Insurance Mediation Directive (IMD II), and specifically the component that makes remuneration disclosure in a transaction mandatory.

While not all of the regulations introduced were negative, broking organizations will not give up pressure on the EC to modify the rules until the IMD II is officially finalized and published sometime next year.

The European Federation of Insurance and Financial Intermediaries (BIPAR), and one of its members, the British Insurance Brokers Association (BIBA), were pleased to see their lobbying efforts recognized through the incorporation of other insurance distribution methods, such as travel agents or price-comparison websites.

However, BIPAR and BIBA along with various other European brokerages are not so happy with the EC’s plans to create a “level playing field”, by requiring all brokers in the general insurance line to disclose their commissions, before the end of a 5 year transition period. They claim that these rules ignore all of the advice and recommendations from the Financial Services Authority, HM Treasury, the European Insurance and Occupationla Pension Authority (EIOPA), and all leading insurance brokers in Europe.

The mass disappointment is supported by the fact that insurance companies selling directly to customers will not be subject to the same mandatory disclosure.

Head of Compliance and Training at BIBA, Steve White, expressed that his organization is happy with a number of areas of concern the EC addressed in the IMD II. Yet, the main concern lies with the rules mandating disclosure for brokers only, and the importance of establishing a “level playing field” when comparing to insurance companies selling direct.

David Strachan, Co-head of the Deloitte Centre for Regulatory Strategy, also shared White’s skepticism about the ability of IMD II to carry out its purpose. Strachan noted that the IMD II is meant to clear up any conflicts of interest among different sales modes. However, the difference between intermediated and direct insurance sales should be stressed to customers, because remuneration varies between the two services. Consumer clarity on the issue is vital to ensuring that the IMD II is a successful in its goal.

In the meantime, the Chief Executive of BIBA, Eric Galbraith, said that his association will cooperate with BIPAR to voice their perspectives as the Council of Ministers, European parliament, and European Union co-legislators, near the final publishing processes of the document.

On the other hand, other means of insurance distribution will also be affected, to many European brokers’ satisfication. After the implementation of the IMD II, sales channels such as price-comparison websites will also be under stricter regulation, in the EC’s attempt to provide greater transparency through all methods of purchasing insurance.

Currently, the IMD focuses on intermediaries, but the IMD II will incorporate a much wider scope.

Norton Rose LLP partner David Whear said that the most promising changes revolve around the kinds of groups and organizations that the new directive will regulate, such as loss adjusters, claims managers, and price-comparison websites. This ensures that much attention will be diverted from intermediaries, which may have been unfairly monitored before.

According to the EC, the revised directive will allow customers to receive complete transparency from the seller when purchasing insurance products. It claims that the purpose of the IMD II is to enhance customer rights and protection within the insurance sector, by implementing set standards and honest advice among insurance sales. In this way, business for intermediaries across borders will not be as much of a hassle, and therefore encourage an internal insurance services market to develop.

Although the revised IMD cannot be called a complete flop, European insurance brokers are about to enter a period of significant struggle, as the looming EC regulations threaten to hurt and complicate future business.

The developing Green Energy Sector requires new products and increased funding from insurance companies in order to reach its full potential, say Mainstream Renewable Power Chief Accounting Officer Eimear Cahalin and Vestas Chief Specialist James Barry.

While some of the more prominent energy systems are sufficiently insured, such as wind and solar power, there have yet to be services to insure the less established technologies, as well as adapt to the growth of existing technologies.

Types of needed developments include multi-year products and weather derivatives, according to Cahalin. Currently, the biggest struggle for insurers regarding weather risk is to determine a proper balance between cost and level of risk transfer.

In broad terms, weather derivatives are a particular type of contract that insure renewable energy businesses against unfavorable weather conditions, which could potentially negatively affect production. For example, with wind and solar energy these conditions would primarily include wind speed and duration of sunshine respectively. A weather derivative product in the Solar energy sector, for example, would therefore offset risk of lowered solar energy production associated with periods of unduly cloudy weather.

Both traditional insurance and weather derivatives act to transfer risk in exchange for premium payment. However, traditional insurance entails high risk-low probability events, while weather derivatives entail low risk-high probability events.

Overall, Cahalin would like to see insurance companies create a “fund for innovation”, and invest in the renewable energy industry without expecting immediate return.

At the Green Power renewable energy risk-management conference she commended underwriters for the health and safety concerns introduced to the industry. Nevertheless, she pointed out that it would be great to see more innovation and products that cover losses during adverse conditions, with coverage paid back through premiums during favorable conditions.

Such services could be a potential solution to European investor’s, for example, reluctance to shoulder the high risks involved with renewable energy investment. In this way, insurance plays an essential role to both initiate successful financing for beginning stages of projects and protect future potential losses.

Besides a current lack of innovative products, many green energy companies have also been forced to shift their focus from banks to institutional funds (held by insurance companies) for financing, due to the erosion of banks’ financial strength resulting from the economic crisis. Institutional capital markets on the other hand, provide secure and long-term loans, generally spanning from 5 to 20 years, which is exactly the sort of investment up and coming renewable energy companies need.

James Barry, Chief Specialist at Danish wind turbine manufacturer Vestas, noted that in the United States they are beginning to use capital markets instead of the banking market to fund projects. Pension and life insurers investment funds are two potential sources of financing for renewable energy projects, because risks can be structured for these types of investors. However, if these funds are to invest in such projects, governments will have to provide some sort of financial security to them.

According to PricewaterhouseCoopers (PwC), many European insurance groups have already displayed interest in renewable energy projects.

Previously, the auction of energy firm E.ON’s gas transmission company, Open Grid Europe, attracted the likes of Germany-based Allianz and France-based CNP Assurances. The final acquisition, however, was made by a Macquarie Infrastructure and Real Assets (MIRA) association, which includes Munich Ergo Asset Management (MEAG). MEAG is the investment-management firm of reinsurance giant Munich Re and insurance group ERGO.

As the renewable energy industry continues to develop, insurers need to adapt their existing products, innovate, and look to invest in green technology. However, recent events like the Solyndra scandal have caused potential investors to rethink their current positions.

Controversy surrounding the scandal, in which the Obama administration approved a USD535 million loan to solar panel manufacturer Solyndra, is, of course, subject to debate, and much of it political.

But looking at the facts, it is evident that energy-loan guarantees are not a flop, the private market is under-investing in energy technology, and solar is not a “doomed industry”. The reasons are as follows: The U.S. Energy Department’s loan-guarantee supported close to USD38 billion in loans to 40 projects all over the country ever since its inception in 2005 – Solyndra is only 1.3% of the entire project, and so far is the only investment that has failed; an American Energy Innovation Council’s (AEIC) report resolves that “Energy innovation should be a higher national priority,” and also encouraged increased public spending for “all aspects of the innovation process.”; and finally, one year ago an Ernst & Young report indicated that within a decade, cost-competitive, commercialized solar power could emerge – not to mention ever improving solar storage technologies (molten salt storage) and a projected 24 Gigawatts worth of operations underway in the United States.

While PwC stated, quite correctly, that renewable energy assets are “stable, long-term and predictable returns,” especially in a time of poor interest rates and investment ambiguity, a change in attitude of institutional investors towards the growing industry is crucial if it is to move forward.

Insurance Companies Mentioned

Allianz

Allianz is a leading financial service provider worldwide. It maintains its leading position in the German market and strong international presence as an insurer through its 142,000 employees worldwide, and 78 million customers in over 70 countries.

CNP Assurances
CNP has lead France in personal insurance since 1991 with over 150 years experience. It strives to provide each of its 24 million customers high quality services to protect them against risk.

Munich Re
Munich Re offers all lines of insurance with roughly 47,000 employees globally. The company centers itself around a business model that comprises of three key aspects – Reinsurance, primary insurance, and Munich Health.

ERGO
ERGO is one of the largest insurance groups in Germany and Europe. With focus in Europe and Asia, ERGO still has representation in over 30 countries internationally. ERGO is a part of reinsurance giant Munich Re.

European insurance markets are looking increasingly bleak amid news of UK health insurance premiums climbing by 10 percent, and fears of expat health insurance premiums doubling in Greece. The bad news in the Euro Zone’s health insurance market comes at the same time European life insurers are nervously awaiting the outcome of the Solvency II proposal’s passage through the European Parliament. The proposal, which has been ten years in the making, has been designed to ensure insurers have capital reserves proportional to the risks underwritten.

The unprecedented rise in health insurance premiums, specifically in the UK, has left both insurers and their customers worried. In an effort to stop the 10 percent price increases that have been seen in the past couple of years, international health insurers have been trying to reduce costs by pinpointing where they’ve been going wrong. William Russell, an international insurance firm based in the UK, has pointed the finger at surgeons who it claims have radically varying surgical prices.

The firm mentioned an example where a surgeon in Hong Kong requested US$42,000 to perform a knee replacement operation. According to Nichola Duncan, the company’s international claims manager, “We contacted three other well-known surgeons locally and the average fee was US$24,000.” In light of the hike in prices, a number of insurance firms, including William Russell have implored their customers to contact their insurer prior to treatment to ensure that the client will not have to personally foot the bill. Other reasons that have been stated for the increasing cost of premiums has been fraud, over diagnosis and unnecessary medical treatment.

The bad news in the UK comes at time where British nationals living in Spain and Greece are returning home due to the huge economic problems in both Euro Zone stragglers. One of the biggest potential problems that expats are facing is the prospect of their health insurance doubling if Greece decides to leave the Euro Zone. Their worries are centered around the possibility that if a Greek exit, or Grexit , occurs, hospitals may not reduce their prices. Despite their fears, prominent insurance firms such as AXA are confident that if Greece ditches the Euro for the Drachma, hospitals will reduce their costs. Kevin Melton, AXA international’s sales and marketing director admitted that “Premiums will be expensive” but “the cost of claims should be lower because hospitals services will be cheaper.” However, even if hospitals cut their prices, it is very likely that premium rates will still rise, as expats with international cover would rack up claims beyond the Greek border.

The economic problems in Greece are not only proving harmful to expatriates living in the country, but also to visitors holding the European Health Insurance Card (EHIC). The premise of the EHIC is that an individual holding the card has access to the same amount of public health care than a citizen of the EU country the person is visiting. In the past, many have used the EHIC as their main source of travel insurance while traveling in and around Europe. Due to the immense problems that the public hospitals are having in Greece, they no longer have the resources to deal with foreigners holding an EHIC. This means that even if one has an EHIC card, they are no longer guaranteed healthcare and may end up having to pay for expensive private care out of their own pocket. With the EHIC proving to be ineffective in many cases, the need for proper travel insurance has become greater.

The new ineffectiveness of the EHIC in Greece is part of a growing trend of European countries becoming increasingly cagey about other European nationals using their public health services for nothing. The first country that clamped down on this was France. In 2008, former President Nicholas Sarkozy enacted a law where by non-French non-working individuals under retirement age were made to buy private medical insurance and were no longer allowed to use France’s public health system for ‘free’.

As more and more European countries lose money it seems that they are becoming increasingly stingy about their own healthcare systems and following suit. Soon after France enacted their laws, Spain created similar ones, and while the Greeks didn’t exactly intend to cut expatriates out of their public healthcare system they too have effectively done the same. Those who support these moves argue that it was wrong that expats were getting the benefits of a system that they had not contributed to and that cards such as the EHIC were being abused.

The British have now caught on to the general trend and are pressing their government to make it compulsory for foreign nationals to have health insurance to ensure that the NHS doesn’t become a free treatment ticket and that Briton’s have first priority.

While the health and travel insurance markets ride waves of uncertainty, European life insurance firms are keeping their eyes firmly focused on the outcome of the Solvency II proposal. The proposal is intended to protect insurance companies in case of another crippling financial crisis. As the proposal progresses through the European Parliament in Brussels, German insurance companies such as Allianz and Munich Re, as well as many others, have all expressed an interest in implementing a phase-in process for Solvency II as it is claimed that 40 percent of German companies would have problems complying with the new regulations. They claim an immediate introduction of the Solvency II legislation would be detrimental as they would not have enough time to adjust to the stricter measures and a sudden hike in capital reserves.

Most companies use discount rates based on asset yield to calculate technical provision, and according to Karen van Hulle, the European Commission’s Head of Pension and Insurance, the phase in would allow companies to gradually move towards the risk free discount rate that Solvency II requires.

Insurance Companies Mentioned

William Russell

British firm, William Russell, was founded in 1992 and is an international insurance provider that specializes in health, life and disability insurance.

Axa

AXA is a French insurance firm based in Paris, France. Ranking in as the ninth largest company in the world, AXA specializes in life, health and other forms of insurance.

Allianz

German company, Allianz are the world’s 12^th largest financial services group in the world. Formed in 1891 it specializes in insurance but also deals with other financial services.

The Monetary Authority of Singapore (MAS) announced this week that it will conduct a major review of the country’s financial advisory industry in a move which could potentially change the way investment, savings and insurance products are sold to consumers in the Asia Pacific nation.

News of this upcoming government examination, titled the Financial Advisory Industry Review (FAIR), first came in the keynote address given by MAS Managing Director Ravi Menon at the Life Insurance Association’s 50^th Anniversary Dinner on Monday night. In his speech, Menon explained that the goals of FAIR will be to improve the professionalism and competence of financial advisers and insurance agents in Singapore through the creation of a more competitive and efficient remuneration and distribution system. This should in turn work to raise Singapore’s coverage level by gradually reducing the costs of insurance and investment products and raising the standard of financial advice given by those who sell them locally.

MAS have outlined five broad areas in Singapore’s financial services and insurance sector to be reviewed once the members of the FAIR panel are appointed. According to Mr. Menon these key areas will be: domestic financial advisor and insurance agent qualifications, financial advisory firm standards, making financial advice a dedicated service, reducing the distribution costs for insurance products, and further promoting ‘a culture of fair dealing’ in Singapore.

On the first issue, the competence of Singapore’s financial advisors, the MAS have already taken some notable steps. In his speech, Menon affirmed that new examination modules were now being introduced to ensure that the country’s financial advisors, both new and old, maintain an appropriate level of knowledge about the wide array of investment and insurance products available in the market. “MAS takes the view that a good financial adviser should be able to explain the advantages and disadvantages and the risks of competing products – both simple and complex,” Menon said, adding that Singapore’s consumers are themselves becoming more educated and will need agents to handle ever-more complex financial instruments. The new examinations are industry-certified and are supposed to set a common standard for financial advisors so they stay relevant to the needs and expectations of consumers going forward.

As part of FAIR, the MAS will then review the minimum entry requirement of four GCE O level passes to become a licensed financial advisor in Singapore. In his speech, Menon argued that this current standard was too low and had not kept up with the country’s rising education levels. According to government data, one in two Singaporeans now have qualifications exceeding the GCE “O” level, and a further quarter of the population have at least one tertiary degree. Lifting the educational attainment standards would also put Singapore’s financial services standards more in line with competitors in Australia and the United Kingdom, where diploma-equivalent entry requirements have already been set. Menon noted that while many prominent Singaporean firms are already consciously recruiting and investing in better qualified agents, setting higher market-wide norms, should benefit both companies and consumers going forward. “Only then can they provide holistic advice and comprehensive recommendations on what to buy, and – more importantly – what not to buy,” Menon said.

FAIR’s second tenet will be similar to the first, with quality standards being reviewed for the domestic financial companies themselves as opposed to individual agents. While Singapore’s banks and insurance companies are generally quite sound and well resourced, the country’s financial advisory firms vary wildly in size and complexity, and this needs to be addressed. Menon noted that some financial services firms in Singapore are so small that their shareholders and directors often assume multiple positions, including important oversight and compliance roles, which can prove detrimental to their performance and reputation down the line. Under FAIR, MAS plan to conduct a comprehensive examination of the sector’s management practices to ensure that the country’s financial advisory companies remain well managed and financially sound overall. The MAS then plan on using this data to establish fresh industry standards which could be then applied when considering admitting new financial advisory firms into the market.

In addition to raising company and agent entry and retention standards, FAIR will look to make financial advice a ‘dedicated and professional vocation’ to further improve the sector’s customer service standards. According to Mr Menon, this move needs to be made to tackle the growing number of agents now conducting or looking to conduct other activities outside of providing financial advice to their customers in order to claim on multiple commissions. Several of these activities, including money lending, real estate sales, and marketing unlawful investment tools, have been flagged as clear conflicts of interest to both a given agent’s client base and the company that employs them. While many firms already choose not to accept representatives with multiple commitments outside of finance, MAS will use their upcoming review to form a consensus and establish an industry-wide approach on this issue. Under the same purview, FAIR will also review the practice of financial advisors, insurance agents and companies making use of ‘introducers’ to reach out to new customers in Singapore. Introducers are often unlicensed individuals who pull in clients for firms in exchange for cash or a future cut of the commission. As they are not vetted by any financial or government institution, the use of introducers has come under criticism by the MAS for the needless risk their advice may have on customers. Similar scrutiny is also expected to being levied at domestic insurance brokers, many of whom are now advising on group term life insurance to complement their existing product portfolio. “MAS is concerned that insurance brokers may not have sufficient management expertise and compliance capability to oversee and manage the FA portion of their business,” Menon said.

FAIR will look to drive down the cost of buying life insurance policies in Singapore by reviewing the country’s commission-based remuneration and distribution structure. Singapore currently uses a tiered framework whereby customers pay multiple commissions over the life of a policy, which go not only to the insurance agent, but also to their supervisors. Menon noted again that both the United Kingdom and Australian insurance sectors are now moving towards a fee-based model and are banning commissions paid by product manufacturers to financial institutions “except in the case of pure-protection products”. MAS will examine whether Singapore’s current commission structure can better align the interests of agents with the long-term interests of consumers, and whether in fact the current tiered structure provides value for the average customer or merely adds cost. Currently, total commissions and overrides earned by Singapore insurance agents and firms amount to about 160 percent of a policy’s average annual premium over the first six years of a policy. In addition to these added commission expenses, distribution costs were cited by the MAS director as a key impediment to reducing life insurance premiums. As part of the push to lower these distribution costs, FAIR will examine how simple term life products could be sold more effectively to the wider Singapore population through the internet. “We have seen the use of direct sales via the internet for general insurance products such as travel and motor insurance. Why not life insurance?” Menon asked.

The fifth and final FAIR objective will be to promote and improve upon a culture of fair dealing and greater transparency by financial institutions in Singapore. The MAS recognize that enforcing fair trading and greater responsibility goes beyond mere compliance with market rules and instead requires firms to take a longer-term view of their clients rather than focusing solely on certain revenue and commission targets. “It is about a culture that places the consumer first, that is focused on doing what is right for the consumer, and that places a premium on integrity,” Menon remarked.

The decision by MAS to launch this comprehensive review is timely. According to Mr. Menon, Singapore still faces a significant coverage gap, with the average citizen underinsured in terms of life, health and property protection. In his speech, the MAS director cited a 2009 Nanyang Technological University study that found that the amount of life insurance cover of the average Singaporean resident had was only about a third of what their dependents would need in the event of an early death. Furthermore, a 2011 survey conducted by the Nielsen Company, revealed that only 14 percent of Singaporeans would be financially ready for retirement, which was lower than the Asia Pacific and international averages of 22 and 18 percent prepared respectively. Menon concluded that “the insurance industry should reflect on these findings and take up the challenge to narrow the shortfall in protection coverage.”

Sri Lanka’s insurance industry will likely see an up tick in merger, acquisition and consolidation activity in the coming years, particularly in the country’s general insurance sector, as the market’s smaller companies contend with new government requirements that mandate a separation of life and non-life business into two separate entities by 2015. A new report published last month by domestic ratings agency, RAM Ratings (Lanka), highlights the potential impacts of these upcoming regulatory developments and more, but furthermore argues that positive market indicators should enable insurers to thrive in the South Asian market in the long term.

In ‘Insurance Sector Update: Steering Towards the Brewing Divide,’ RAM explains how the dynamics of Sri Lanka’s insurance industry could be affected by the new market regulations introduced by the national government over the past few years. The principal concern RAM raises is the upcoming requirement for composite insurance companies to split their life and general insurance business lines into two separate entities. The country’s insurance regulator, the Insurance Board of Sri Lanka (IBSL), brought in this market-wide segregation initiative to both improve upon domestic business practices and insurance policyholder protection. This regulation enables the assets and liabilities of composite insurers to be more readily identified and prevents these companies from cooking the books by offsetting the losses of one product class from the profits of the other, as many did previously. Sri Lanka insurance market is currently home to 12 composite insurers and 22 insurance companies overall. Of the remaining insurers, 6 are general insurers while the remaining 4 operate only in the life insurance segment.

The report explains that while this regulation is expected to prove challenging for most Sri Lankan insurers to adapt to in the short term, the market’s smaller entities will likely suffer most, as they are the least prepared for the changes slated for 2015. Sri Lanka’s larger composite insurance companies have already been working towards this diversity objective over the past few years by gradually separating the core functions of their companies, particularly with regard product development, underwriting and promotion operations, across their various business lines. Smaller players, meanwhile, have proven largely unable to prepare in a similar manner so far. RAM notes that these smaller composite insurers furthermore lack the necessary scale to absorb the extra costs associated with replicating their operations for both life and general insurance classes and are thus inadequately equipped for the mandated split.

In addition, the report observed that the impact of the split would likely be more pronounced for smaller insurers due to the already limited supply of adequately trained and qualified personnel working in Sri Lanka’s insurance sector. Local insurers are already struggling to fill certain key positions within their firms and this market-wide skills shortage is only set to continue with the number of positions effectively doubling as a result of the split. Thus because of the aforementioned structural issues, lack of capital, and this fervent demand for greater manpower, RAM expects the Sri Lankan insurance to see considerably more consolidation activity over the long term, as smaller players merge with each other to generate the necessary scale to survive the rules change.

The upcoming split of composite insurance operations is not the only regulatory change expected to significantly impact the Sri Lanka insurance market. The RAM report mentioned that all existing Sri Lanka insurance companies will soon be required to list on the domestic bourse. This move, if successful, is expected to improve industry-wide transparency and corporate governance frameworks, and could help individual insurers address their poor capital positions by giving them the option to raise funds through the share market. In addition to this development, the IBSL is looking to introduce a risk-based capital model for industry supervision, which will align the local market more closely with international best practices. Furthermore, the Sri Lankan government has outlined plans to raise the minimum start-up-capital requirement for new insurance companies from LKR100 million (US$822,000) to LKR500 million (US$4.14 million) per class of business. While this may work to dissuade inadequate new entrants, RAM Ratings Lanka opined that if these same capital requirements were extended to existing market players, it may in fact force several smaller companies out of the industry.

Outside of these impending regulatory adjustments, RAM holds a positive outlook for the Sri Lankan insurance industry, due to the South Asian country’s favourable macroeconomic conditions and increased per capita income, which will continue to drive demand for more general and life insurance products. According to the report, Sri Lanka’s insurance sector has emerged from its protracted civil war to now become one of the fastest growing markets in Asia, with the insurance industry registering double-digit premium growth over the past two years. The South Asian country has entered a period of pronounced stability and is now well positioned for further growth.

RAM Ratings Lanka expects life insurance sales to be the Sri Lankan insurance industry’s main growth driver going forward, owing to the product’s low penetration rate, pegged at 10.9 percent of population in 2010, and thus resultant potential for further growth and expansion. The only things that could slow this growth down would be rising interest rates and inflationary pressures, which would reduce both the affordability and attractiveness of life-insurance and other investment products in Sri Lanka. Outside of these concerns, RAM acknowledged that competition will likely remain intense in the country’s general insurance segment for the short to medium term, which will put downward pressure on firm’s underwriting performance and the market’s overall profitability. General insurance companies have found their margins particularly susceptible to this, as new entrants have been able to more easily capture market share from existing players by undercutting prices.While the performance of Sri Lanka’s life insurance sector is expected to compensate for this, greater industry consolidation may be required to separate the wheat from the chaff.

Companies Mentioned

RAM Lanka Group

RAM Ratings (Lanka) Limited is a wholly-owned subsidiary of RAM Holdings Berhad. RAM Holdings was founded in November 1990 as a mechanism for Malaysia’s debt-capital market and serves as the Asian nation’s first credit rating agency.

India’s Prime Minister Manmohan Singh made news this week with the announcement of a new state pension and life insurance scheme designed to cover the country’s large expatriate workforce. The move looks to fulfill a long-standing demand of the prolific non-resident Indian diaspora and could encourage the country’s millions of overseas workers, especially the many now working in the Gulf states, to invest back in their home country and save money for their future.

Dr Singh laid out the details of the government’s new Pension and Life Insurance Fund (PLIF) in his inaugural address at the tenth Pravasi Bharatiya Diwas in Jaipur on Sunday. The Pravasi Bharatiya Diwas, or non-resident Indian day, is an annual event that recognizes the sizeable contribution made by the overseas Indian community to the continued development of their home country. The 1,900 delegates in attendance represented the interests of Indian expatriates from 60 countries.

Under the provisions of the PLIF, any Non-Resident Indian (NRIs) or Persons of Indian Origins (PIOs) who wish to save for their resettlement and retirement upon their return to India will be eligible for the scheme after proper immigration clearance. All subscribers who then contribute between Rs 1,000 (US$19.29) and Rs 12,000 (US$231.5) per year will receive an Rs 1,000 (US$19.29) annual co-contribution from the Indian government, with female overseas workers also eligible for a special co-contribution worth an additional Rs1,000 (US$19.29) a year. The Prime Minister added that the new scheme, which was only recently cleared by the Union cabinet, will offer a low-cost life insurance policy for Indian expatriates that will cover against natural death, and that this could become a key savings tool for many families. “This scheme fulfils a long-pending demand of our workers abroad,” Dr Singh said, adding that the PLIF “will encourage, enable and assist overseas workers to voluntarily save for their return and resettlement and old age.”

In addition to this expatriate pension scheme, The Ministry of Overseas Indian Affairs was on hand to describe a new e-migrate initiative that will provide comprehensive computerized solutions for all stages in the country’s previously over-encumbered emigration system. Once implemented, the system should link all key subscribers onto a common network which will then be used by workers, recruitment agencies, immigration officials, employers, and Indian missions to better coordinate expatriate movement. The scope of India’s previous Labour Mobility Partnership Agreements with other countries will also soon be expand to cover more skilled workers students, academics and Indian professionals. According to a senior official, these updated agreements are currently being negotiated with The Netherlands, France, Australia and the European Union.

It has become increasingly important for Indian governments to woo their large overseas workforce with initiatives for reinvestment in their country. It is estimated that of India’s 1.3 billion population, more than 25 million are currently living and working abroad. While other prominent Asian nations like China and the Philippines have been able to reap great economic reward from their expatriate workforce, be it through remittances and trade, India’s emigrant investment has lagged behind, and thus the government is now trying to more actively engage their diaspora. “The government and people of India recognize and greatly value the important role being played by Indian communities living abroad. We believe that the Indian diaspora has much more to contribute in building of modern India,” Prime Minister Singh said.

Of particular interest of late has been the state of India’s expatriates in the Gulf. The Indian diaspora has made up a considerable proportion of the working class in the Middle East for a while, with many moving to the rich Gulf States during the oil boom to work as construction laborers and other more specialized fields. The MENA region has proven to be an attractive destination for South Asian migrant labour due to the higher incomes available as well as the relative geographical proximity to the subcontinent. This has lead to, in 2005 for example, over 40 percent of the United Arab Emirates’ population being of Indian descent. This considerable demographic development presents problems for the Indian diaspora, as citizenship and permanent residency are seldom granted to immigrants in these Gulf countries. Thus maintaining affordable access to necessary services like healthcare and retirement planning becomes an issue for many non-resident Indians. Added to this of course are increased regional security concerns in the aftermath of the Arab spring.

These developments follow the renewed moves made by India’s chief insurance regulator (IRDA) to update and liberalize the country’s insurance market and encourage the rising number of Indian middle-class consumers to make more proactive insurance and investment decisions. The county’s insurance sector has grown rapidly over the past decade, driven in particular by the popularity of life insurance products, which dominate the market. Since the Indian insurance market was first opened up to the private sector through the Insurance Regulatory and Development Authority Act in 1999, total insurance penetration across the country has nearly doubled, with the local market overtaking several developed economies in terms of premium output in the process. Critical to this growth has been the input from the international insurance industry. According to a recent industry report, over the past 10 years the market share of the previously state-run firms has decreased to 65 percent for life insurance and 60 percent for general insurance. Foreign multinational insurance companies have played a big part in this development. Despite the highly contentious 26 percent foreign ownership cap, the vast majority of insurance companies that have been established in India since 2000 have been joint venture operations with overseas partners. Overall, India represents one of the world’s fastest growing insurance and pension fund markets, with rising income levels and growing awareness of risk management amongst the populace expected to drive a substantial demand for cover and investment solutions nationwide. Contributions from the country’s tremendous expatriate populace will of course play a large part in this development as well. “The ‘global Indian’ is a symbol of this diversity of our ancient land. Your individual prosperity and personal achievement are a symbol of what a diverse people like us can achieve,” Dr Singh concluded.

Indian insurance regulator IRDA (Insurance Regulatory and Development Authority) is currently drafting guidelines which would allow Indian insurance and reinsurance companies to open branch offices, subsidiaries or joint-ventures overseas.

IRDA is currently circulating preliminary draft guidelines on what would be required of Indian insurance companies in order to allow them to open operations overseas. As the drafts circulate among domestic insurance companies, IRDA is asking for feedback from insurance companies before the end of 2012.

Many of the preliminary guidelines appear to be aimed at ensuring that domestic Indian insurance companies seeking to commence overseas operations are on solid financial footing to do so, and that doing so would not pose risks to local business and policyholders. As it stands now, domestic Indian insurance companies are not permitted to expand overseas, either through branch offices or investment in foreign firms, while foreign companies can currently own stakes in domestic insurers of up to 26 percent.

The draft allows for insurance companies of any category to apply to the regulator for permission to open foreign businesses after the insurers have been in operation domestically for 10 years. The proposed regulation would allow domestic insurers to start a foreign operation in a number of ways, either by opening branch offices, the formation of foreign subsidiaries by controlling the board or owning 50 percent of the paid-up equity capital, or by starting a foreign joint venture.

While many insurance companies in India have joined with foreign insurers to make joint ventures, any company that a domestic Indian insurer engaged with overseas to create a joint venture outside of India would not be allowed to enter into the domestic Indian insurance market.

Although there is a drive to make certain that Indian companies wishing to start operations abroad will have the financial wherewithal to do so without putting domestic business at risk, there are no concrete financial guidelines at the moment, whether with regards to the minimum net worth necessary to apply to the regulator for authorization or the capital requirements for establishing joint-venture’s overseas. However, the guidelines do mandate any losses incurred or capital requirements that must be met by foreign branches must be paid for by shareholder funds only, so as not to interfere with the policyholders’ funds in the domestic Indian business.

This could open a doorway to many opportunities for Indian insurance companies to globalize their business. In many places such as countries in the Middle East, there is a sizable Indian Diaspora which some insurers may already be considering tapping in to, however the opening of an office would also allow them to underwrite local business as well as expatriate Indians.

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