Following our October 26th, 2011 announcement in relation to the planned cancellation of AVIVA Global Lifecare plans, Globalsurance.com can now confirm that policyholders are being denied the option to renew their Global Lifecare policies.
AVIVA customers who have developed pre-existing conditions whilst on their policies are having to find new coverage options due to the company’s decision to no longer continue protection under the Global Lifecare product line. However, Globalsurance.com can reveal that the decision to deny renewals on these policies is not universal – a number of customers have been able to successfully renew their AVIVA coverage in direct contrast to the announcement made by AVIVA last year.
More on this story can be found at Yahoo Finance.
If you are an AVIVA Global Lifecare customer who has been affected by this situation, or if you are a Global Lifecare customer who has been able to renew their policy since the cancellation announcement, Globalsurance would like to contact you in relation to this story.
As always, feel free to let us know what you think in the comments.
Established in 1996, Jordan based Arab Orient Insurance Company is currently one of the leading providers of general insurance in the Middle East.
Operating as a subsidiary of Gulf Insurance Company, AOIC prides themselves on reliability, quality and superior customer service and believes these characteristics have helped them to dominate the competitive market whilst showing consistent growth over the years.
With the Middle East rapidly becoming a global business hub, the economy of Jordan continues to grow and entice expanding businesses. AOIC has reacted positively to this change and has grown along with the country in which it is based. However, the company has always envisioned expansion in their future and hopes to be the first local company to establish an international presence for themselves by expanding wherever possible.
British international insurance giants Bupa are helping to fulfill this desire and have signed an agreement enabling AOIC to offer worldwide international health insurance as well as improve the quality of their local insurance services.
The collaboration will undeniably have a positive impact on both parties by combining AOIC’s local expertise in Jordan with Bupa’s knowledge and experience of global health insurance.
Bupa first entered the Middle East insurance market over 10 years ago when it successfully planted its roots in Saudi Arabia and formed Bupa Arabia. Now the kingdom’s largest health insurer, Bupa will undoubtedly continue to make its mark on the Middle Eastern health insurance industry by forming this positive partnership.
AOIC will continue to offer a range of insurance products, but those offered in the health sector will now be serviced by Bupa International and as a result, members of such products will be able to receive treatment in more than 7500 participating hospitals and clinics worldwide as well as the 24 hospitals in Jordan that have now been added to Bupa’s ever expanding network.
Deputy CEO of AOIC’s Medical insurance and customer care Mustafa Melhem is pleased by the prospects the partnership can offer, hoping they will now be able to offer customers an even more personalised experience with unique custom-made plans to fit their personal requirements.
AOIC has high hopes for its development and believes its continuous growth will help place Jordan in amongst the list of top countries providing the best insurance services in the Middle East.
With the backing power of the worlds leading expatriate health insurance provider now behind them, there is a good chance they will be able to do exactly that. Furthermore, the reputation that Bupa carries both in the UK and internationally should not only benefit AOIC but should positively impact the Jordanian insurance market as a whole.
It is partnerships such as these that enable Bupa to stay ahead of the game in international health insurance and it appears that the Middle East may witness many more alliances in the future.
This Article appeared as a Press Release on Yahoo Finance.
Globalsurance.com, an internet based international health insurance advisor, has revealed some unusual trends in the Hong Kong Medical Insurance market today.
In a departure from form, expatriates in Hong Kong, Asia’s leading financial services center, are eschewing international health insurance options in favor of locally provided Hong Kong Medical insurance products. This is the direct result of more than 10 years of increases in international health insurance premiums at a rate of roughly 10% per year; which themselves are the product of heightened levels of medical inflation in the city.
Hong Kong, along with Israel, is the second most expensive place in the world to receive healthcare after the United States of America.
In terms of the charges associated with various treatments at Hong Kong’s private hospitals examples can be seen in a scenario involving Maternity. Realistically, delivery of a child at a Hospital like the Matlida, Hong Kong’s leading maternity services provider, can easily reach HK$ 156,000 – 234,000 (US$ 20,000 – 30,000) even if there are no complications. A private room at this same hospital will run the patient HK$ 5,935 (US$ 761) for a single night.
In the last 10 years, the levels of disposable income within Hong Kong’s expatriate community have not risen at the same rate as medical inflation, and consequently the premiums charged by international health insurance providers. This is putting pressure on insurance premiums as the loss ratios of not adjusting for the heightened cost of medical care in HKSAR are not economically feasible.
With a large proportion of the Hong Kong expatriate community choosing to obtain local health insurance options, rather than their international variants, Globalsurance.com believes that further evolution of the design of international protection plans available in the city is not far off. Potential restructurings may include the provision of selected service providers given that private medical facilities in the City are amongst the most expensive in the world; leading to less comprehensive healthcare options for individuals but also reduced premium charges.
Globalsruance.com is of the opinion that any innovations within Hong Kong’s iPMI market would be an attempt to stem the tide of expatriates choosing to purchase local health insurance options, but would also need to compete with the major players in the local market whilst providing coverage enabling the policyholder to receive treatment options at superior medical facilities in order for developments to be considered a success.
India’s fast growing demand for affordable health cover is attracting greater business attention, with both life and non-life insurance companies now entering the market with innovative new protection and savings medical insurance products. This intense competition for health insurance customers has only intensified in recent months, with the introduction of new savings-linked and investment-oriented health insurance schemes by some of the country’s largest insurance groups.
India’s insurance sector first opened up to private and international investors in 2001. Over the past ten years coverage rates across the populous South Asian country have doubled and the domestic insurance industry has overtaken several more developed financial markets in the process. The overall number of insurance policies sold has increased several times over, and combined premium income is now projected to reach between US$350 to US$400 billion by 2020. Health insurance, in particular, has become as one of the country’s fastest growing insurance lines, accounting for almost a third of new written premiums last year. Sales of medical insurance products have been driven by three key factors: a low penetration rate of about 5 percent at present, surging treatment costs, and a lack of other social safety options across most of India. With total expenditure on healthcare, through both Indian government schemes and private sector activity, expected to exceed US$200 billion by 2015, even more significant opportunities for the country’s health insurance sector will likely emerge. Over the next three years, health insurance has the potential to become an INR300 billion market (US$6 billion), according to industry observers.
The introduction and increased proliferation of private sector players in India’s health insurance sector has worked to both develop innovative new coverage products and increase service standards for clients in the domestic market. Of particular note has been how the entrance of several major life insurance brands, including Life Insurance Corporation of India, Aviva Life Insurance and Max Life Insurance, has affected the market recently. These life insurers offer largely savings-based health plans that provide lump sum compensation to clients in case of a critical illness or other malady specifically defined by a specific policy. These long-term products have tenures that can last up to 20 years. When the policy expires, customers are entitled to receive the fund value. Normally this is not a cashless process as payment is reimbursed on submission of medical bills. Most of these health insurance plans sold by life insurance companies are unit-linked insurance products (Ulips), whereby returns are determined by the performance of the stock market.
While life insurer health plans are tied to equity returns, medical insurance policies sold through non-life companies tend to provide cashless hospitalization cover for policyholders in the event of an illness or accident. These plans, with premiums reviewed and renewed annually, also offer customers a variety of additional value-added benefits such as hospital cash allowance, home nursing allowance and recovery grants. Some insurance companies offer these outpatient services as add-on covers with their hospitalization plans, while others provide discounts through certain affiliated hospital networks. These products have so far proven to be the most popular in India. Health insurance policies sold through non-life and dedicated medical insurers currently dominate the market, accounting for roughly INR100-120 billion (US$1.9-2.3billion) of the country’s INR150 billion (US$3 billion) health insurance sector. It is expected that increased intra-market competition going forward will enable successful insurers to meet the country’s changing healthcare needs.
Despite the positive growth indicators, India’s health insurance market still has many problems to contend with in order to match its true potential going forward. The most important challenge for insurers remains the low level of awareness concerning the value of obtaining adequate coverage as a valuable savings and investment tool across much of the country. This problem is slowly being addressed as more insurers develop their product and distribution platforms to reach previously untapped regions and client bases with more innovative and affordable coverage products, including microinsurance and local bank and government tie-ins.
Of the Indian consumers already aware and enrolled in health insurance schemes, the industry faces the continuing challenge of keeping them happy. Customer satisfaction levels for health insurance in India have consistently ranked below comparable levels elsewhere, with critics frequently citing the low coverage of plans in terms of both the diseases and number of hospitals covered. Unlike other homogenous general insurance products, premiums for medical plans are based on the health of an individual policyholder and this had lead to confusion and fraud in the Indian market and increased policy cancellations from customers who do not find any value in their health insurance policies.
The Insurance Regulatory Authority of India (IRDA) has come to the forefront in tackling these service standard issues recently. Speaking at the first meeting of the India Health Insurance Forum in Hyderabad last Thursday, IRDA chairman J Harinarayan said the industry must now work to improve communication with its customers, particularly with regard to health insurance policy documentation, as a third of all consumer complaints this year have been directed towards health insurers. According to IRDA data, of the 92,898 complaints levied at the non-life sector so far in 2012, 38,891, or 37.5 percent have been focused on health insurance issues. “If one-third of complaints are from the health side, I will conclude that the nature of communication on health insurance policies and the understanding of the policy by the consumer are areas of concern. Probably, the lack of clarity is reflected in the increasing number of complaints,” IRDA chairman J Harinarayan said, adding that “good communication is the responsibility of the insurance company and not of the policy holder. An insurance policy, as a contingent contract, has to be specific and unambiguous.”
A massive undersea earthquake registering a magnitude of 8.6 struck off the coast of Indonesia’s Sumatra Island yesterday, causing tremors in nearby provinces and countries and triggering tsunami warnings across the Indian Ocean. Although the incident now appears to have produced little in terms of property damage or any casualties, insurers have once again been reminded of the sizeable risks that catastrophes can pose in the Asia Pacific region.Read the rest of the Indonesia Quakes Could Cause Coverage Concern article.
Vietnam’s fledgling insurance market is beginning to develop innovative new insurance products that better reflect the country’s increased consumer spending power and corresponding demand for more comprehensive coverage options.
It was announced this week that prominent local travel agent Saigontourist will sign a new cooperation deal with Chartis’ Vietnamese insurance subsidiary to provide improved insurance coverage to buyers of their luxury outbound tours from Vietnam. At a conference on Hanoi and Vietnam tourism development held on Tuesday, Saigontourist officials explained that all customers enrolled in the company’s Premium Travel program heading to Africa, America, Australia, Europe, Japan or New Zealand from next month onwards will be eligible for subsidized coverage worth up to VND2.1 billion (US$100,000) per trip.
Chartis’ input has enabled Saigontourist to improve their insurance coverage ability considerably. Previously, the travel company could only offer basic cover for its Vietnamese tourists when they visited other countries. The most they could offer was VND630 million (US$30,000) in insurance per customer while the coverage limit of VND2.1 billion (US$100,000) was only applied to certain customers from Ho Chi Min City and Hanoi. Saigontourist Travel director Vo Anh Tai, told local media at the event that this needed to change if the company hoped to attract more clients, both within Vietnam and abroad. “Insurance is one of the top five issues that tourists care about when traveling, so we’ve decided to add more benefits for customers,” Tai told Vietnam Business Times.
In raising the coverage amount, outward bound Vietnamese tourists will also soon enjoy improved benefits in line with other international travel services. Saigontourist and Chartis’ new insurance package provides 17 new benefits including overseas medical support, customer service and accident support, and added benefit riders in case of terrorism, natural disasters or other adverse events. In addition, outbound tourists from Vietnam will also now be eligible for a reimbursement of VND105 million (US$5,000) per client if the tour they selected is canceled, or if their maximum medical expense is exceeded as result of an injury or illness while abroad.
Despite facing high inflation, interest rates and other economic difficulties last year, Vietnamese citizens are spending more money than ever on travel, with the number of booked tours growing both locally and increasingly abroad now as well. According to Saigontrouist, the number of customers buying Premium Travel tours has increased considerably over the past year and now accounts for roughly 25 to 30 percent of the company’s outbound tourism business. Local travel firms expect the number of outbound travelers to keep rising steadily as a result of private sector development and improved consumer spending habits. Overall, Vietnam’ luxury tourism industry is expected to grow by 30 to 40 percent over the next decade.
The development of Vietnam’s tourism sector coincides with the country’s insurance sector, which has itself grown considerably in the years following Vietnam’s entrance into the World Trade Organization (WTO) in 2007. There are 43 insurance companies in Vietnam, 29 non-life and 14 life insurance, with more expected to enter the market soon due to the sector’s potential for sustainable premium growth. According to the latest statistics available from the Association of Vietnamese Insurers (AVI), the country’s non-life insurance sector’s premium value hit VND21 trillion (US$1 billion) in 2011, a year-on-year growth rate of 25 percent. That figure for the life insurance sector was VND16 trillion (US$768 million) last year, which was up 17 percent from 2010.
Despite this progress however, Vietnam’s insurance market remains small and underdeveloped for a middle-income country of 90 million people, and insurer output pales in comparison to many of its neighbors in the Asia Pacific region. Many local insurers anticipate a more modest growth rate of around 5-10 percent as 2012 continues, with inflation control, macroeconomic stability and regulatory issues still seen as the main obstacles going forward. One of the other chief concerns will be to address the country’s rising claims costs. According to the Vietnamese Ministry of Finance, Vietnamese insurers paid out about VND16.486 trillion (US$791 million) in compensation during 2011, an increase of 56 percent over the amount reimbursed in 2010. Of the total, the non-life insurance sector paid out VND8.785 trillion (US$422 million) while life insurance companies made settlements of VND7.7 trillion (US$370 million) in 2011. Vietnamese Insurers must better match their risk portfolio to customer obligations as the insurance market continues to grow.
As part of the national government’s upcoming insurance development strategy, standby funds held by domestic insurers will be required to double by 2015 and increase by 4 and a half times by 2020. Vietnam insurance companies will thus be required to improve their capital positions gradually over the next few years to meet evolving compensation and insurance payment obligations to policyholders. In addition to improving capital levels and business standards, Vietnam’s insurance sector will also be called on to double its tax contributions and bring more innovative products and services to market, including export insurance and micro insurance schemes, which will be piloted over the next few years in an attempt to increase coverage rates amongst the country’s sizeable rural population. As fewer than one in ten Vietnamese currently have coverage, Vietnam’s potential for further insurance growth and development remains one of the best in the Asia Pacific region. Insurance companies looking to succeed here will need to tackle new regulatory efforts, growing competition and significant operating challenges. The country’s emerging middle-class, whose demands for products like health and travel cover are rising, should however present an attractive business opportunity going forward.
Insurance companies mentioned
Chartis is a leading general insurance company with over 45 million policyholders in 160 countries worldwide. With more than 90 years experience in the insurance industry, and a range of progressive products, Chartis aims to help clients comprehensively manage risk.
More changes could soon be underway in the Singaporean insurance market, with news emerging this week that the country’s industry watchdog will likely raise capital requirements and corporate governance standards on domestic insurance companies over the next year.
Speaking at the General Insurance Association’s annual meeting on Tuesday, Lee Boon Ngiap, Assistant Managing Director for the Monetary Authority of Singapore (MAS), explained that his organization would soon be drafting a consultation paper that will put forward several new enhancements to the risk-based capital (RBC) framework used by Singaporean insurance companies.This will be the first time the country’s RBC framework is subject to review since it’s establishment in 2005. Singapore was one of the first countries in Asia to adopt a risk-focused capital evaluation service for insurance companies and while the system has served the market well, more should now be done to better align regulatory policies with evolving global market realities.
According to Mr. Lee, MAS plan to use the upcoming review to improve the scope of the existing RBC framework, increasing both risk coverage and efficiency while also ensuring that any reform proposals remain practical to local insurers and the current market environment. Unlike the conventional banking sector, Lee noted that there are no common international capital standards for insurance companies. As a result, the MAS review will be quite an arduous task, requiring both a fundamental analysis of Singapore’s current RBC framework and a comparative study of how insurance capital levels are monitored more effectively overseas.
Singapore’s insurance sector needs to keep pace with international regulatory reforms. While insurance companies have largely been able to weather the global financial crisis better than other financial institutions, lessons still must to be learned with regards to improving corporate governance, capital adequacy and risk management performance. MAS responded to this development by issuing market guidelines on best risk management and governance standards for insurance companies in 2007. These guidelines laid out sound business practices for each core insure activity, including product development, policy pricing and underwriting discipline, for local companies to look to if need be. Going forward however these practices will no longer be optional.
In a bid to further improve corporate governance standards, MAS recently drafted a proposal to extend the Insurance Corporate Governance Regulations to all locally-incorporated insurers. According to Mr. Lee, the MAS now intend to make it mandatory for all locally-incorporated general insurance companies in Singapore to maintain certain minimum corporate governance requirements. These regulations will be adjusted to take into account the size and complexity of a given insurer’s operations. Compliance with these corporate governance standards will be assessed as part of the MAS’ ongoing insurance supervisory programme.
Another part of the MAS’ plan to improve domestic insurer risk management will see the introduction of new rules governing enterprise risk management (ERM) in Singapore. ERM is becoming an ever more important tool for both international and local business strategy. In Mr Lee’s speech, he explained that the new ERM standards will both update the existing risk portfolio and take account of MAS’ input on how insurers should identify and manage interdependencies between key risks going forward. These moves could in turn have a ripple effect on both strategic management and capital planning actions across the entire market.
The MAS reforms come on the back of a particularly productive year for Singapore insurance companies. Mr Lee was quick to commend the work done by the General Insurance Association (GIA) in raising insurance agent recruitment standards, educating and advising consumers and further assisting MAS in its regulatory work. According to the GIA’s year-end statistics, the country’s general insurance market grew by a sound 4.5 percent in 2011, with total gross premiums hitting S$3.17 billion (US$2.5 billion). This premium growth accompanied a surge in profitability across all lines of domestic non-life business. The GIA reported that total underwriting profits rose by 25 percent year-on-year, from S$198.1 million (US$157.2 million) in 2010 to S$248.3 million (US$196.9 million) to 2011.This upsurge in profitability was driven by the performance of Singapore’s motor insurance segment, which surprised many by finishing in the black for the first time in 6 years.
In addition to general insurers, life and long-term insurance providers also enjoyed a fruitful 2011 in Singapore. The latest report issued by the Life Association of Singapore (LIA) showed that the country’s life insurance sector grew by a hefty 22 percent in 2011. New business premiums in the life sector also managed to pass the S$2 billion mark for the first time. While Singapore’s insurance industry will continue to be affected by global economic uncertainty, the rising protection and savings needs of the nation’s rising middle-class population should provide domestic insurers with enough business momentum to achieve premium growth going forward. The insurers meanwhile need to maintain disciplined underwriting, pricing, and sound corporate governance if they wish to survive and perhaps even thrive on the global stage going forward.
Founded in 1965, the General Insurance Association works to represent and promote the interests of all non-life insurance companies in Singapore.
Established in 1962, the Life Insurance Association works to further develop Singapore’s life insurance industry. Since its establishment, the organization has launched public education initiatives, improved industry guidelines, conducted valuable market research, and held numerous conferences and seminars for the professional development of the industry.
The Monetary Authority of Singapore (MAS) serves as the country’s central bank. Established in 1970, MAS has since come to supervise aspects of Singapore’s financial sector, including banking, insurance, securities and monetary policy.
Brazil’s insurance industry is expected to see strong growth momentum across all health, general and life insurance business lines over the next four years, according to new research from emerging markets consulting firm BRICdata.
In ‘Business and Investment Opportunity in the Brazilian Health Insurance Industry: Analyses and Forecasts to 2016,’ Bricdata explains how Brazil’s person accident and health insurance market has been able to post robust growth rates over the past decade due to the South American country’s continued economic development, increased penetration and development of medical insurance products, rising disposable income levels and an overall better consumer awareness of the need for better healthcare, protection and savings services. This increase in sales has been matched by higher than average premium retention levels, as more Brazilian companies look to provide health insurance as a prerequisite employee benefit.
During the report’s five-year review period, Bricdata noted that the value of the Brazilian health insurance industry rose from BRL9.8 billion (US$5.47 billion) in 2007 to BRL15.1 billion ($8.43 billion) in 2011, recording a remarkable double-digit compound annual growth rate (CAGR) of 11.27 percent. The overall penetration of health insurance products and services in Brazil meanwhile grew from 0.34 percent to 0.54 percent over the same review period, as many new policies were sold across the expansive Latin American country. According to Bricdata, the number of new insurance policies sold within this sector increased in value from BRL69.14 million (US$38.62 million) in 2007 to BRL88.42 million (US$49.39 million) in 2011.
Using this data and taking into account other market factors, BRICdata has forecast Brazil’s accident and health insurance market to expand by a CAGR of 6.32 percent over the next four years to reach a projected value of BRL16.2 billion (US$9.05 billion) by 2016. In accordance with this scenario, the UK-based research firm expect the number of new health insurance policies sold in Brazil to rise from around BRL95.66 million (US$53.44 million) in premiums in 2012 to over BRL116.34 million (US$64.99 million) by 2016, with sales of group policies increasing their market share the most over the forecast period. These figures would certainly place the country amongst the world’s largest insurance markets.
Bricdata’s report acknowledges however that Brazil’s health insurance industry still needs to adjust to pervasive market issues in order to better capitalize on the country’s strong growth momentum. One of the key challenges Bricdata mentions is the difficulty local insurers are now having in financing health insurance claims due principally to the rise in cost of medical treatment across Brazil. Domestic healthcare expenses have spiked in recent years, both in line with rising global medical inflation and the emerging demands of Brazilian policyholders for the latest and best medical treatment and technology available. The Brazilian government’s chief health insurance oversight body, Agência Nacional de Saúde Suplementar (ANS), has stepped in to address some of these issues, introducing several regulations over the past few years, which aim to establish market-wide disclosure norms, medical insurance pricing rules and increasing health insurer accountability overall. Whether any these moves can effectively mediate costs for both policyholders and providers in Brazil remains to be seen, but it is surely an encouraging step.
The country’s insurance market also faces noted structural challenges. The Brazilian health insurance sector at present is dominated by large public insurers. The report notes that the market remains highly concentrated with the country’s top 8 insurers accounting for almost 70 percent of total retained health insurance premiums in 2011. Smaller private-sector health insurance companies haven’t proven able to generate the necessary scale to succeed as of late and have further struggled due to capital constraints and increased pricing competition. Thus, to improve upon their competitive position in the local market, Bricdata notes that many of the country’s smaller health insurers are now looking to foreign investment and joint-venture partnerships with prominent overseas insurance groups to succeed going forward.
Bricdata found comparable growth prospects and concerns amongst Brazil’s general insurance market players in a separate report released earlier in the year, titled Non-Life Insurance in Brazil, Key Trends and Opportunities to 2015. According to the report, Brazil’s non-life market has been able to deliver healthy growth over the past decade thanks to the country’s strong economic development, the expansion of broker channels and the rise of motor, property and construction insurance lines. Despite this marked increase in capacity over the past decade however, the industry faces serious issues going forward, including low efficiency, poor underwriting discipline and false regulatory barriers to market competition. This last issue is particularly pertinent as Brazil’s regulatory environment is only expected to get worse for private insurers over the short term following new proposals by the Superintendência de Seguros Privados (SUSEP) to implement a tighter risk-based supervisory regime complete with a contentious local reinsurance mandate. Another key challenge for the industry going forward are of course the ongoing European debt crisis and fears of recession in the US, which could adversely impact Brazil’s economy and industry projections.
In another report, ‘Life Insurance in Brazil, Key Trends and Opportunities to 2015,’ Bricdata analyzed the Brazilian life market, which is forecast to reach BRL98.8 billion (US$56.4 billion) in premium income by 2015, up from BRL61.3 billion (USD35.0 billion) in 2011 at around a 12.3 percent annual growth rate. Bricdata cites Brazil’s strong macroeconomic and microeconomic fundamentals, partial relaxation of regulatory restrictions, foreign insurer market entrants and increased awareness of the need for insurance, especially amongst the younger generation, as the primary growth drivers pushing the Brazilian life industry so far. Going forward, the research firm expects sales of deferred annuity products for individual policyholders to play a more prominent role for life insurers, in addition to bancasurance development, as more of the Brazilian population gains access to more formal banking channels.
Brazil is now the largest insurance market in Latin America and ranks 17th largest in the world overall, according to Bricdata. This has occurred despite around 70 percent of the country’s employed population remaining uninsured, and thus presents a huge opportunity for both local and international insurance companies. Overall Brazil looks set to continue being one of the fastest growing insurance markets over the next decade, with rising income levels and consumer awareness of risk management expected to drive a considerable demand for coverage solutions nationwide. Furthermore, Brazilian insurers could yet make a significant mark and compete on the global stage if they are able to refine their business models and capitalize on the tremendous potential available in their home insurance market.
BRICdata publish in-depth strategic intelligence on emerging markets designed to help clients better understand better identify, understand and pursue growth opportunities in these regions. The company is headquartered in London and covers a broad range of industry sectors, including consumer, financial services, insurance, telecoms, construction and more.
The cost of private health insurance in Australia is due to rise by an average of 5.06 percent across the board this year after the government approved the latest round of premium hikes by local insurers. This rate increase will translate to roughly an additional AU$70 a year for individual policyholders with typical hospital cover and AU$150 for families based on 2011 Health Department figures for average medical fund costs. Premium increases for policyholders will of course vary depending on individual private insurance company and policy type.
The private health insurance market is tightly regulated in Australia, with premium levels regularly monitored and reviewed by the Federal Government to ensure affordable access to cover. Every year, Australian health insurance companies must provide the government with details justifying whether and how much they plan to fine-tune their health insurance premiums in order to further grow their business and adjust to industry expenses while remaining a solvent operation in the market. Once those rates are calculated, means-tested and rubber stamped, they are systematically applied from April 1 onwards of the following year.
On Tuesday, Australia’s Health Minister Tanya Plibersek announced that the government had approved the latest round of private health insurance premium increases at an average of 5.06 percent for 2012. This year’s average premium increase is slightly lower (0.5 percentage points) than the 5.56 percent rise seen in 2011 and remains more than 1.5 percentage points lower than the average rise over the last five years of the previous government administration. The adjusted premium amounts for each individual Australian health insurer will soon be available on the Ministry of Health’s website to give consumers further information.
Of the health insurance rate adjustments made public in Australia so far, HCF lead the way with a 5.94 percent planned increase in premium from April 1, followed by NIB at 5.5 percent and Westfund at 5.2 percent. All are above the recorded average. Among the other big funds, BUPA and Australian Unity remain slightly below the average with an increase of 4.91 per cent and 4.55 percent respectively. The government-owned Medibank Private, Australia’s largest insurer with around 30 percent of the market, meanwhile said it would lift its premiums by around 4.7 percent. According to health insurance consulting firm iSelect, these premium increases will yield an additional AU$780 million in revenues for health funds in 2012. Individual insurers will inform their customers about the new charges in coming weeks.
Minister Plibersek defended the annual premium increase, stating that 2012 represented the lowest annual rate rise in four years and that these new charges remained below the average fee inflation charged by doctors and hospitals over the past year. The Australian health insurance industry maintain that increases in premiums are matched against current and forecast raises in benefit outlays and are required to ensure that health funds remain solvent and can provide quality coverage options. According to the Health Minister, the amount Australian insurers paid out in benefits to health insurance policyholders rose by 7.6 percent last financial year to AU$13 billion (US$14 billion) and premium adjustments were necessary to ensure the solvency of these companies going forward. Indeed, while people are certainly paying more for private cover now they are also receiving more back. The growth in benefits outlay is expected to continue. Benefits paid out by health insurers are forecast to rise by a further 9 percent in 2012/13 “which is significantly more than the average premium increase,” Ms Plibersek added.
Tighter financial regulation has worked to improve outcomes in the Australian healthcare sector. The Health Minister further affirmed that the government had undergone due diligence in assessing insurance companies’ applications to raise premiums this year. Before the guidelines could be set, 24 out of the 34 premium increases submitted by insurers had to be sent back for review, asking for either a lower rate hike or to provide additional evidence to justify their original rate adjustments. “This resulted in seven insurers reducing their premiums, helping bring about lower premium increases for four million Australians, representing 38 percent of people covered by private health insurance,” Minister Plibersek said in a media release.
Private health insurers in Australia tend to operate within more narrow margins than their multinational peers and remain more concerned with maintaining stable underwriting practices and long term viability. Insurance groups must hold a minimum level of capital above prudential requirements to ensure they can meet obligations to policyholders and continue to operate in Australia. Thus allowing these companies to gradually increase their premium levels gives them the ability to generate more capital to cover for any adverse events, rising care costs, as well as fund proactive investments in their business, which ultimately should improve the quality of service for its members.
Private health insurance is not a compulsory purchase in Australia. The country’s healthcare system incorporates both public and private insurance institutions. Medicare was established in 1983 and provides Australians with free universal coverage for medical treatment and scalable reimbursement options for outpatient services. A Pharmaceutical Benefits Scheme has also been set up to subsidize medical prescriptions. The Medicare system is funded primarily through general revenue. Those above a certain income who remain solely on Medicare are liable for a Medicare Levy Surcharge, which is assessed at 1 percent of taxable income. Overall, Australia allocates around 8.5 percent of its GDP towards healthcare, which is on par with other high-income industrialized nations.
The Australian Government has taken proactive measures over the past few years to encourage more people to obtain private health insurance to ease both the financial and structural burden their rapidly graying population will have on the public healthcare system. Under the Private Health Insurance Rebate system, private health coverage receives a 30 percent subsidy from the federal government, of which all Australians are eligible. The Lifetime Health Cover policy was also introduced to encourage young Australians to take out insurance. Government incentives and insurance rebates introduced in the last decade have given Australians impetus to take out private health insurance and many have. Health Minister Plibersek said that an additional 1 million people had taken out private hospital insurance since 2007, with more than 10.4 million Australians now covered, the highest number since June 1975. The insurance industry in Australia has grown as a result.
Vietnam’s Ministry of Finance has announced that they will begin to restructure the country’s insurance sector this year. The move comes as part of the Vietnamese government’s 2012-2015 economic plan, which intends to revamp the Southeast Asian country’s credit institutions and securities sector in order to further develop the domestic capital market and open up to greater foreign investment.
The Saigon Times reported on Sunday that the overall goal of these insurance market reforms would be to promote financial market stability in Vietnam by supporting healthy insurers and encouraging weaker firms to either consolidate or leave the market all together. The Vietnamese government has come to accept the need to restructure some of their large state-owned enterprises, many of which have been blamed by economists for recent economic stagnantion. In addition to insurance market reform, the country’s securities sector and stock market are expected to undergo substantial restructuring over the next three years. The Ministry of Finance is currently developing a set of market criteria to assess and catalogue insurers operating in Vietnam into four separate categories, with plans to later design specific management and regulatory measures for each category.
According to the ministry’s initial proposal, the first group will comprise of insurance companies that are deemed profitable businesses and meet the guaranteed solvency rules. Insurance companies in this first category will be supported and given greater leeway to expand their operations across Vietnam if they can maintain their efficient business schemes. Group two meanwhile will focus on insurance companies that have met the prescribed solvency ratios but are otherwise struggling to run their businesses and improve their margins. Vietnamese insurance companies that cannot show a profit for two consecutive years due to high operational costs, heavy compensation rates or other factors will be dropped into the second group. Management agencies could then be brought in to evaluate the efficiency of these companies and work to reduce prohibitive operational expenses.
Insurance companies with solvency margins approaching or below the minimum threshold will be classified into group three. According to the ministry, these under-fire firms will be subject to a comprehensive financial assessment, complete with investment restructuring and debt settlement procedures. The regulator warned as well that parts of these insurance companies, be it policies or agents, could be transferred to other more stable firms in Vietnam. The last group in the ministry’s proposal is reserved for insolvent insurance companies, which will then be placed under special control and subject to further judicial review. If the group four insurer fails to overcome its difficulties during the special control period it could be forced to consolidate with another Vietnamese insurer or declare bankruptcy and go into receivership.
This industry-wide categorization project is expected to be carried out later this year. The Vietnamese Finance Ministry is currently in the process of drafting the restructuring scheme for submission to the Prime Minister. The government is also looking at setting higher start-up requirements for insurance companies in Vietnam. Current rules stipulate that local insurers are not permitted to retain risks exceeding 10 percent of their paid-in capital. Insurers who start with equity lower that the statutory capital requirements will now be asked to supplement this capital through outside loans in order to meet regulatory requirements. If the details are ironed out and the insurance restructuring scheme is approved by the Vietnamese authorities, work could begin on implementing the reforms this quarter. The Insurance Authority meanwhile is looking to introduce additional changes to better police fraud and to improve their training and recruitment efforts to ensure that the domestic insurance industry grows both larger and smarter.
Vietnam’s insurance sector has been experiencing rapid growth and development in recent years. Total written premiums have increased by around 20 percent per annum since moves were made to break-up monopolies and liberalize the Vietnamese insurance market after the country’s entrance into the World Trade Organization (WTO) in 2007. Despite this considerable progress however, the insurance market in Vietnam remains underdeveloped and small in comparison to many of its Southeast Asian neighbors, with penetration rates under 0.4 percent of GDP.
According to Finance Ministry, there are currently 39 insurance companies active in Vietnam, including 28 non-life insurance companies, 11 life insurance companies and 12 insurance brokers, with more expected to enter due to the market’s potential for growth. In the country’s non-life sector, intense competition, high operating costs and a claims-heavy environment (particularly in motor lines) have all made profitable underwriting difficult to achieve at the moment. The four big state-owned general insurers have gradually been losing market share as the market opened up to smaller largely-foreign competitors, who have been pursuing aggressive business development strategies at the expense of disciplined underwriting. The substantial catastrophe risks in Vietnam including threats of heavy typhoons and floods are also driving a demand to purchase reinsurance.
The Vietnamese life insurance sector meanwhile is less crowded than it’s non-life counterpart, with only 14 registered insurers currently operating in the country. Multinational insurers have come to dominate this market, bringing with them substantial capital and expertise to sell a product still largely unknown to the Vietnamese populace. Due to the country’s youth-leaning demographics and low per-capita income however , demand for life and other conventional insurance products remains subdued. Microinsurance is a way of accessing this large market segment, with Manulife Vietnam, for instance, providing products in an alliance with the Vietnam Women’s Union.
Overall, Vietnam’s continued demographic and economic development is expected to generate further awareness and a demand for insurance. Insurance companies looking to prosper in the Southeast Asian country will need to comply with new industry regulations, strong competition and the considerable operating challenges.
Though saddled with ongoing global economic challenges, moribund interest rates and intense competition, insurance companies will need to focus on innovation, sound business practices and emerging market opportunities in order to generate growth and profits going forward, according to a new report from international consulting firm Deloitte.
Released today, Deloitte LLP’s “2012 Global Insurance Outlook: Generating growth in a challenging economy takes operational excellence and innovation,” assesses the international insurance industry’s prospects for 2012 and the decade ahead. The report identifies that persistent global economic turmoil, high unemployment, low interest rates and a slow housing recovery have created unique challenges for insurers operating in US and Western European markets, sapping both consumer demand and investment income simultaneously. While the US economy has shown recent signs of recovery in terms of consumer spending, given Europe’s ongoing struggles with sovereign debt issues, Deloitte sees little respite for insurers on the economic front at present.
Despite these underlying macroeconomic concerns, there are still many things insurance companies can do for themselves to generate profitable growth and increase their market share. According to Deloitte, product development, distribution and customer service remain three key areas where industry innovation could reap sizeable returns almost immediately. Insurance companies in general must continue evolving their operations to improve margins and generate bottom line growth. They can do this by adopting new technologies and risk management strategies to squeeze out unnecessary costs and use their people and capital more productively.
According to Deloitte’s market outlook, insurers involved in the property and casualty sector will likely benefit from increased top line prices due largely to 2011’s unprecedented string of natural catastrophe losses and the subsequent rate hikes in reinsurance premiums. Other non-life lines will also be able to recover, as auto and general insures charge higher loss-driven rates while the pricing market in commercial lines appears to have bottomed out with both insurers and brokers reporting consistent premium increases on renewals. Meanwhile in the life and annuity market, Deloitte notes that while sales of variable annuity products are growing, products with structured guarantees will probably continue to struggle due to rock bottom global interest rates. Sales of traditional whole life insurance policies could also further improve if insurers update their marketing, sales and distribution systems to target a still largely underinsured market.
Deloitte lists several possible avenues for growth insurers could pursue in 2012 and beyond, the most attractive of which perhaps being to tap emerging insurance markets with faster-growing economies for sustainable premium growth. With mature market economies in the US and Western Europe unlikely to generate consistent growth prospects in the short-to-medium term, insurers may be able to offset any anticipated shortfall and find success by entering potentially lucrative emerging markets, with China, India and Brazil being particular highlights. The Deloitte report acknowledges that while doing businesses in these markets often comes with unique business challenges, including cumbersome regulation, poor infrastructure and distribution networks as well as cultural differences, the overwhelming demand for greater insurance coverage and financial security amongst these countries’ expanding middle class populations will likely provided sufficient growth opportunities to international insurers with the resources to adapt and capitalize on them. According to Insurance Information Institute’s 2010 statistics, the ratio of general insurance premiums to GDP is still just 1.5 percent in Brazil, 1.3 percent for China and only 0.7 percent in India. By comparison, the penetration rate is 4.5 percent for the United States, 4.1 percent for Canada and between 3.1 to 3.7 percent in the major European economies. These differences translate into a trillion dollar coverage gap between West and East, plenty of room for new insurance companies to set up shop and acquire a share of these still largely untapped markets.
Insurance companies can also expand through strategic mergers and acquisitions. Deloitte noted that m&a volume was up during 2011 although deals tended to be calculated bolt-on acquisitions with buyers adding new product lines, distribution channels, and international market share. Sellers meanwhile divested from underperforming business lines to shore up their bottom lines and left overseas markets where they lacked sufficient scale to thrive. The Asia-Pacific region has fast become the most attractive market for investment activity, accounting for 23 percent of global M&A insurance activity in the first half of 2011, up by 12 percent on fiscal year 2010. Deloitte say there is potential for an uptick in bigger deals in 2012, especially if organic growth in mature markets remains elusive. The international insurance market in fact remains ripe for more consolidation due to excess capital, bargain pricing and low returns.
As well as expanding outward, Deloitte mentioned several things insurers could do to pursue operational excellence at home, with adequate preparation for upcoming regulatory changes that could arise when the Dodd-Frank Act and Solvency II come into effect being one such requirement. The report adds that many insurers are improving the integration of enterprise risk management (ERM) and taking greater steps to prioritize good governance, infrastructure and disclosure over risk modelling into their standard operation procedures. Improving both recruitment and retention of industry talent has also become a major challenge facing insurers today.
Insurance product innovation and augmentation is also an area where Deloitte says individual companies can now exert greater control over their own destiny during these tough economic times. Going forward, insurers must use market research effectively to ensure that both new and traditional insurance policies remain relevant to the needs of consumers operating in our new global economic environment. According to the report, the predominance of international business supply chains pose new property and casualty risks which have in turn necessitated new types of insurance products, including cyber liability, green construction cover, nanotechnology insurance and global political risk cover amongst others. Meanwhile in personal lines, more hybrid products are coming to market which meet multiple needs, including long-term care benefits in life and annuity, private unemployment insurance, homeowner’s value protection, and other products. Overall, it will be incumbent on insurers to continue and explore new niche markets and develop specialty coverage products to generate additional sales.
In addition to developing new products and entering new markets, Deloitte adds that perhaps insurers should take their social media marketing efforts more seriously. While most insurance companies already have a presence on prominent social media sites, like Facebook or Twitter, many have yet to analyze this massive dataset properly. According to Deloitte, these readily available analytics can offer valuable insights about buyer needs and can improve customer experience as well as the efficiency of their operations.
Overall, the report emphasizes that smart insurers should be able to weather current market conditions and potentially even thrive through sound, strategic investments that work to secure growth, achieve operational excellence and encourage innovation. Sam Freidman, Deloitte’s insurance research leader, expalins that “while achieving growth, operational excellence and innovation in such a difficult economic and competitive environment might be easier said than done, opportunities are available for insurers that can seize the moment. There are many options insurers might consider to grow even in the toughest of economies if they can overcome the obstacles they face.”
Deloitte is the world’s largest private professional services organization. The consulting firm, founded in 1845, now has over 170,000 staff, working out of 140 different countries. Deloitte provides audit, tax, consulting, enterprise risk and other financial advisory services through its many member firms.
A special report released today by international insurance information and credit ratings agency AM Best has provided new analysis on both the opportunities and challenges facing insurers, consumers and regulators in India’s emerging insurance market as we head into 2012.
At present, India’s insurance market is composed of 23 different life and 24 non-life companies, with a total value estimated at over US$ 66 billion per annum. The development opportunity for life and non-life insurance coverage has been driven by the continued growth and expansion of India’s overall population and economy. In their new report, titled ‘Growth Anticipated for Indian Insurers but Frustrations Remain’, AM Best acknowledges that while India’s insurance sector has posted strong growth indicators in the decade since the market was first liberalized in 2000, with consistent double-digit premium growth achieved primarily through the country’s life market, achieving profitability remains a challenge for many of the country’s individual insurance companies. While the insurance sector’s overall prospects for growth still appear bright in the long term, the market’s unique idiosyncrasies will need to be addressed in order to attract and sustain the necessary investment and innovation required to take India’s insurance industry to the next level.
According to AM Best, intense competition, poor underwriting practices, and high expense ratios have been three of the chief concerns brought forward by insurance companies operating in India. The impact of de-tariffing on the Indian general insurance industry in 2007 has made it particularly difficult for companies to sustain profitable operations at present. Over the past few years, intense competition has forced insurers to drive down rates without due regard to the risks and overall profitability of the business being generated. Ten years on since the state’s insurance monopolies were officially ended, the public sector undertakings (PSU) New India Assurance, United India, Oriental Insurance and National Insurance Co, in the non-life sector, and Life Insurance Corporation of India, in the life market, remain the dominant players across their respective lines. Private sectors insurers in India have continued to find it challenging to achieve profitability and generate the necessary scale to compete with state-backed firms, citing the costs of establishing distribution channels and sustaining a consistent customer base by offering ever-more competitive prices, as prohibitive obstacles.
AM Best adds that the Indian Motor Third Party Insurance Pool (IMTPIP) has also played a significant role in driving up company underwriting losses, as claims inflation continues to rise across the country’s non-life market. Under the IMTPIP, established in April 2007, all insured losses are distributed amongst the country’s auto insurers according to their overall market share of all lines of business. This mechanism has severely tested the solvency of those involved in the general insurance sector due to the huge inefficiencies in claims, fraud, and pricing amongst the market’s participants. According to AM Best’s report, India’s third-party motor pool posted a record loss ratio of 194.2 percent for the year 2009-2010, while it maintained reserves for a loss ratio of only 126 percent. Insurers are hopeful that the upcoming reforms to the IMTPIP in March 2012 will lead to an eventual improvement in rates and enable the country’s potentially lucrative motor insurance market to properly reset and prosper.
The country’s life insurance sector has meanwhile had to deal with new regulations governing popular unit-linked insurance policies, which took effect in 2010. AM Best notes that the impact has so far proven significant, resulting in a sharp industry-wide drop in first-year premium. The ratings agency notes however that companies are now beginning to adjust their product portfolio toward more conventional policies, which should in turn improve underwriting performances.
Despite these varied challenges, AM Best notes that there are still bountiful opportunities for insurers in India, and top-line growth remains strong, with non-life gross written premiums increasing by 23.8 percent from April to October 2011. Continued economic growth and infrastructure development, together with an expanding middle class and a surging demand for health insurance are resulting in international insurers and reinsurers seeking to develop a greater presence in the world’s second most populated country. International insurers have so far found success in the country through direct investment and operating as joint venture partners alongside major local insurance and finance conglomerates, which can provide more immediate access to local expertise and distribution networks. However, while these companies would like to increase their commitment to India, in pursuit of risk diversification and mutual growth, they are facing repeated frustrations in attempting to increase their involvement in the populous South Asian country, with a lifting of the country’s onerous foreign direct investment limit from 26 percent to 49 percent unlikely to change in the near term.
Recent foreign entrants into India’s insurance market include Japan’s Tokio Marine Holdings and Berkshire Hathaway, who became a licensed corporate agent of Bajaj Allianz last year. The country’s bancassurance sector has also grown in international importance, as was evident by MetLife India’s decision to acquire a 30 percent stake in Punjab National Bank in July 2011.This was followed by Nippon Life’s move to acquire a 26 percent stake in local power Reliance Life in August 2011. The year wrapped up with moves made by US health insurance giants to take advantage of India’s emerging medical coverage demands. First Aetna purchased local health provider network Indian Health Organization Pvt Ltd (IHO) and then Cigna signed a joint-venture agreement with Indian consumer goods company TTK Group to sell a range of health, wellness and insurance products in November 2011.
Overall, India looks set to be one of the world’s fastest growing insurance markets over the next decade, with total premium income projected to reach US$350-400 billion by 2020. Rising income levels and greater awareness of risk management practices are expected to drive a considerable demand for coverage solutions nationwide. Furthermore, India’s insurance companies could make a significant mark and compete on the international insurance stage if they are able to update their business models and capitalize on the tremendous potential client base available in their home market.
A.M Best Company was founded in 1899 and is a full-service credit rating organization dedicated to servicing the financial services industries, including the banking and insurance sectors.
India’s insurance market will continue to deliver sound growth opportunities across both general and life insurance business lines for the forecast period of 2011-2015, according to two new dossiers from international research firm Bricdata.
In ‘Non-Life Insurance in India, Key Trends and Opportunities to 2015,’ Bricdata explains that despite ongoing global macroeconomic challenges, the Indian general insurance market will continue to grow at a healthy rate. Over the past few years, the level of competition within India’s non-life insurance industry has risen considerably due to the greater presence now of both private and public companies. The report acknowledges that while the large state-backed insurers will continue to dominate the market, private non-life insurers are expected to gradually increase their market share over the next 5 years through improved channel penetration and product innovation, which will be to the overall benefit of the domestic industry and customers.
According to Bricdata, there will be a number of key opportunities for private and foreign insurers in the Indian general insurance market going forward, particularly in motor insurance which is already the most popular business line and is set to grow further as Indian automobile sales continue to flourish. The report also cites the upcoming IRDA regulatory proposal, which will increase the country’s foreign direct investment (FDI) cap from 26 to 49 percent ownership, as a favorable development that will foster a larger and more diverse business and investor environment for product and service innovation if passed. “Private non-life insurance companies are, therefore, expected to substantially expand their market shares in the next five years,” Bricdata surmised.
However, while India’s general insurance industry has indeed experienced considerable growth over the past decade, Bricdata notes that it has so far failed to effectively penetrate into India’s large rural areas, where most of the population lives, due to a general lack of insurance awareness and distribution model deficiencies. To begin solving this dilemma, insurance companies need to better understand the demand-side dynamics, key market trends and growth opportunities within India’s non-life insurance industry, and to assess where competitive advantage dynamics can be sought in the market.
In a separate report, ‘Life Insurance in India, Key Trends and Opportunities to 2015,’ Bricdata analyzed the Indian life market, which is expected to continue outpacing the country’s overall economic growth, with forecasts reaching US$111.9 billion in premium income by 2015, up from US$66.5 billion in 2011 at around a 14 percent annual growth rate. Bricdata cites India’s overall population growth, robust economic expansion, lucrative tax benefits, the rising disposable income of a new middle-class population, and increased awareness of the need for insurance, especially amongst the younger generation, as the primary growth drivers pushing the life industry so far.
The number of life policies sold overall is expected to increase to 85.21 million in 2015 from 53.23 million in 2010, and this will open up new business avenues across the entire insurance industry. The individual life insurance segment, which comprised almost 75 percent of the total Indian life insurance industry last year, is expected to expand to 79.3 percent in 2015 on increased investment in individual life insurance products such as term and pension policies. Unit-linked insurance plans (ULIP) meanwhile are expected to become the fastest growing product category, growing by 21.2 percent annually by 2015, with Bricdata noting that Indian customers were increasingly demanding insurance products that offer some assured income through annuities. Bricdata predict that India will become the third-largest life insurance market in the world by 2015, only behind other fellow Asia-Pacific rivals China and Japan. At present, India is the 12th largest life insurance market in world, 4th in Asia.
According to Bricdata, India’s low life insurance penetration rate combined with the rising overall awareness of the need for adequate protection and savings services will be the key growth factors for the domestic insurance industry going forward. Improved foreign investment practices with more varied capital-raising options will also help create an environment for greater collaborations and joint ventures. With a relatively large number of insurance companies already active in the country, the Indian life insurance industry has shown early signs of entering a consolidation phase. Combined this with improving distribution infrastructure and the widespread adoption of new channels with differentiated product offerings, India competitive landscape will continue to change significantly. The research dossier notes as well that the country’s reinsurance market is also expected to continue growing, driven primarily by growth in non-life, accident and health insurance business lines.
Overall, India looks set to continue being one of the fastest growing insurance markets over the next decade, with rising income levels and awareness of risk management expected to drive a considerable demand for coverage solutions nationwide. Furthermore, Indian insurers could look to make a significant mark and compete on the global stage if they are able to refine their business models and capitalize on the tremendous potential available in their home market.
BRICdata publish in-depth strategic intelligence on emerging markets designed to help clients better understand better identify, understand and pursue growth opportunities in these regions. The company is headquartered in London and covers a broad range of industry sectors, including consumer, financial services, insurance, telecoms, construction and more.
The further expansion of insurance and pensions sectors in populous Asian countries like China and India will be both integral to the development of their own capital markets as well as offering huge potential for rapid growth for overseas investment, according to a new report published this month by the City of London Corporation.
In ‘Insurance companies and pension funds as institutional investors: global investment patterns,’ Trusted Sources, a top emerging markets research group, study how pension funds and insurance companies have historically helped to shape the financial systems of developed countries, gradually increasing liquidity in their established capital markets through the introduction of long-term and stable funding mechanisms to market. By contrast, the contribution of such institutions towards China and India’s development has been limited so far due to the evolving nature of their insurance and pension sectors as well as tighter government restrictions placed on their investments and business decisions. If these two emerging Asian superpowers want to increase the depth and diversity of their respective financial markets, greater liberalization of investment mandates for insurance companies and pension funds may be needed going forward to match their rapid growth potential.
The report first observes the role insurance companies and pension funds have played in developed markets and what experiences can be garnered for emerging economies now. Generally speaking, as a country grows richer, they develop more active insurance sectors and the markets benefit overall. This has been especially true in the United Kingdom and United States, where the pension and insurance industries have grown rapidly in tow with their more sophisticated financial systems and with more people demanding protection and retirement planning services as they grew richer. The report cites that in the past 30 years, insurance company assets in the UK have increased from 20 percent of GDP in 1980 to 100 percent in 2009, with pension assets growing four-fold as well. In the US meanwhile similar growth was occurring, with pension funds and insurance companies investing more in equities and corporate bonds.
As a result of these developments, huge sums of stable, long-term funds have been pumped into the UK and US’s respective capital markets over the past three decades. This deep and stable pool of capital provided by the insurance companies and pension funds has worked to reduce market volatility and fund other ventures. In the UK, this influx of capital has been behind the development of the country’s stock market, helping it turn into one of the most efficient and sophisticated financial centres in the world. Before foreign investors became major shareholders on the FTSE, UK pension funds and insurance companies held the majority of issued shares. Insurance company and pension fund investors in the US meanwhile have contributed both significantly to equity markets as well as the growth of the corporate bond market, which is now the world’s largest at 140 percent of GDP.
Trusted Sources’ report also examined the approach other Western markets have taken. Continental Europe has used a more bank-based financial system, where the role insurance companies and pension funds have played in the markets has historically been much smaller. Furthermore, investments remained much more focused on government bonds, partly due to regulations that are stricter than in the UK and the US. As a result, the financial system remained centred on bank lending and growth has been more limited. However more recently these same European institutional investors have grown and have diversified their investments into equities and corporate bonds considerably. This has facilitated a move towards market-based financing through stocks and bonds, following the likes of the US and UK. While in the US, the insurance sector has stabilised at around 40 per cent of GDP, in Germany it is at 60 percent, and France near 100.
Insurance companies and pension funds in Asia have much to do to match the overall contribution made by their Western counterparts toward their respective economies but time is on their side. The report notes that while the insurance and pension sectors in India are underdeveloped now, with assets at 7 percent and 16 percent of GDP respectively and limited investment activity in equities and bonds, there is considerable potential for growth going forward.
The county’s insurance sector in particular has progressed rapidly over the past decade, driven by an expansion of life products, which dominate the market. Since the insurance sector in India was first opened up to the private sector with the passage of the Insurance Regulatory and Development Authority Act in 1999, total insurance penetration has doubled with the domestic protection industry overtaking several developed markets in output. According to the report, the market share of state-run firms has decreased to 65 percent for life insurance and 60 percent for non-life insurance during this period. Foreign multinational insurers have been integral to the sector’s overall development so far. Despite a 26 percent cap on foreign ownership, 20 out of the 22 life and 16 of the 18 general insurance firms that have been set up since 2000 have been joint venture operations with foreign partners. One of the first recommendations Trusted Sources makes is to of course lift these restrictions to increase overseas stimulus.
India’s pension funds and insurance companies are expected to grow as the overall economy matures, as has happened of course in the UK, US and other developed markets. Regulation permitting, there is of course considerable room for insurers and pension funds to shift their assets from government bonds into equities and corporate bonds. The country’s expansive, high-inflation market environments make equity investment attractive and this, according to Trusted Sources, will drive the popularity of index-linked insurance products (ULIPs) for the foreseeable future. Despite this considerable potential however there are several restrictions holding India back. Insurance companies are, in general, barred from investing more in equities, and have been blocked moving into corporate bonds and derivatives as well. Pension funds face even more obstruction. Trusted Sources notes that the Employees’ Provident Fund Organisation (EPFO), which accounts for around two-thirds of India’s pension fund market, is prevented from investing its sizeable reserves into equities at all.
These restrictions are obviously limiting the overall contribution pension funds and insurance companies could make towards growing India’s capital markets. To improve upon this situation, Trusted Sources made several policy recommendations including: lifting restrictions on equity investments, corporate debt and derivatives, allowing the EPFO to invest in equities and removing burdensome tax and regulatory constraints which would increasing incentives for institutional investors to buy Indian corporate bonds.
In China, like India, the insurance and pension sectors have traditionally had a small presence in the domestic stock market, each holding only around 2 percent of issued shares at present. According to Trusted Sources however, that will soon change with both institutions likely to start playing a larger role in both equity and corporate bonds in the near future. China’s insurance industry has grown dramatically over the past few years and currently ranks as the sixth largest protection market in the world with assets under management now worth CNY4.6 trillion (US$720 billion) at the end of 2010, up from CNY1.4 trillion (US$171 billion) in 2005. Despite increased competition as of late, the Chinese insurance market is dominated by four state-backed insurers, China Life, Ping An, China Pacific Insurance Corporation (CPIC) and People’s Insurance Corporation of China (PICC). The market share for foreign insurance companies (who operate principally through joint ventures) remains at around 5 percent. More than 70 per cent of total premium income of China’s insurance industry currently comes from life insurance companies. As the country grows richer, demand for more sophisticated savings products will likely rise in tow, driving further expansion.
In spite of this pronounced industrial growth, institutional investment in China’s capital markets from insurance companies has been perhaps overly risk averse. Chinese Insurance companies invest only around 11 percent of their holdings into equities, with the rest held in bank deposits and bonds. According to Trusted Sources, this is occurring due to several factors. The first is that most insurance activity in China still involves conventional insurance products, which offer returns of only around 4 and 2.5 percent respectively. These returns are backed by government bonds and negotiated-term deposits with limited downside risk, and provide little incentive for insurers to diversify their investment portfolios at present. Trusted Sources inferred however that this could soon change “ULIPs occupy only a marginal position. If they increase in popularity, as happened in the UK and the US when competition increased, a shift into equities is expected.”
Chinese insurance companies, in general, are finding the stock market too volatile to invest in at the moment, with dividend guarantees effusive. The report claims furthermore that strict regulatory control over corporate bond issuance is affecting supply, and is thus restricting overall investment growth. To encourage greater participation from Chinese pension funds and insurers in capital markets, Trusted Sources listed several policy recommendations including increasing competition amongst local insurance companies, tax incentives for ULIPs, clearer dividend-payout rules for listed companies, and the relaxation of qualification rules for private companies allowed to issue bonds.
Overall, the report believes that, in China and India, increased liberalization of local insurance and pension markets could foster greater liquidity and depth in their domestic capital markets, which will of course be needed to support the effective growth of businesses in each country going forward.
Government health ministers, academics and healthcare industry consultants from over 20 African countries are attending the first annual Pan-African Health Congress on Universal Coverage in Accra, Ghana this week to discuss the best ways to implement and sustain successful long term social insurance systems across the continent, and improve on the overall healthcare standards for their citizens.
The Congress, now underway between the 15th and 17th November 2011, is hosted by Ghana’s Centre for Health & Social Services with principal support by the Rockefeller Foundation and World Health Organization (WHO). The three day event has been planned to foster a recurring dialogue between healthcare industry analysts, company stakeholders and government officials, to address the current state of national health insurance schemes across Africa and to help craft policies which could expand and improve the service quality of these coverage networks. The keynote speaker is WHO Deputy Director General Dr Anarfi Asamoa-Baah. Representatives from each country and organization will present papers that analyze the effectiveness and feasibility of their respective social health insurance system, both pro universal coverage and con, and these insights in turn will be reviewed by Congress attendees to provide additional prospective on what to do going forward.
In the commencement address, Dr. James Nyoro, Africa Managing Director for the Rockefeller Foundation, outlined the necessity of building and maintaining a strong political will in order to achieve greater health coverage results in Africa. “A great deal of work has already been done in health insurance, but there is a need to draw available material together, focus on the neglected issues and integrate insights on these areas into the overall health insurance policy framework,” he said. It is hoped that by the end of the event a consensus framework for action will be drawn up that includes a platform for intra-party support and a sustainable economic plan addressing the issue of universal coverage in both sub-Saharan Africa and the developing world at large.
Over the past twenty years, health insurance has been promoted as a valuable development tool across Africa, one which can improve access to vital healthcare services because it avoids direct payment of expensive medical fees by low-income patients and pools the financial risk among all those insured. Many mutual health insurance organizations have sprung up in sub-Saharan Africa since then and, most recently, the national governments themselves are getting involved, experimenting with state-backed social insurance systems to reduce barriers to medical care and hopefully limit the contagion of communicable diseases. Because of the lack of adequate healthcare infrastructure and coverage options, developing countries have suffered disproportionately from diseases and other public health problems in the past.
Different African governments have instituted different national health insurance mechanisms, including those based on donor contributions, tax-based systems, and pension funds, all to varying effect. In several countries like Senegal, Namibia and Rwanda, local authorities, public sector employers, and third party mutuals are supposed to provide third party support for low-income constituents, resources permitting. The two countries that have made the most progress in universal healthcare coverage so far have been the United Republic of Tanzania and Ghana, which is why they are hosting the conference. Both countries offer quite comprehensive outpatient and inpatient services to policyholders, and they are eligible for treatment in both public sector and accredited non-government facilities. Tanzania was the first to introduce a compulsory coverage plan in 1999, with the National Health Insurance fund for civil servants and now covers about 10 percent of the population. Ghana’s NHI system, introduced in 2003, has proven the most successful thus far with 38 percent of the populace covered.
More prominent nations are now looking to develop their own health insurance systems. Looking at the progress made in neighbouring West African countries, the Nigerian government recently approved a compulsory national health insurance scheme for their public sector workers, to be run through private employers, with the ambitious goal of eventually covering their entire population; Africa’s largest. In Kenya, the government has also started rolling out a similar scheme to engage with lower income clientele. The most pertinent recent development though is perhaps occurring in South Africa, the continent’s largest private insurance market. In April, the South African government began testing their compulsory medical insurance scheme in 10 districts, and will expand the program out across the rest of the country over the next 14 years. South Africa have estimated that the scheme will cost R255 billion (US$31.3 billion) once completed in 2025, and could in fact be much more due to the shortage of skilled staff, limited tax-returns and failing infrastructure.
Indeed, it has been these persistent infrastructure and funding shortfalls that continue to hamper insurance sector development in most sub-Saharan African countries. A considerable majority of the region’s populace still resides in rural and largely informal economies that remain difficult to tax, monitor and fund a robust health network with effectively. When these citizens do need medical care they are forced to pay out of pocket, and this, according to the World Bank, is the number two cause of impoverishment in region, behind job losses. This lack of resources thus creates problems both when it comes time for a consumer to pay a premium, and when the insured need to use decent quality health care services. Thus, because the taxable base in Africa is low, various methods have been used by government to mobilize resources for healthcare, including now the international insurance industry.
Luckily, these multinational insurers are gladly shifting their focus to up-and-coming insurance industries in emerging markets anyway. According to The International Finance Corporation (IFC), public insurance schemes are expected to represent a US$1.4–US$2.5 billion investment opportunity in Sub-Saharan Africa over the next ten years. These low-penetration markets offer better opportunities for growth in premium returns, and could work to offset the more static performance in mature European and North American markets. While much of the international focus has thus far been on the lucrative Asia Pacific and Gulf regions, Africa should present a reasonably attractive business opportunity for multinational insurers as well. Overall market penetration for insurance products in the region is low and many standard coverage services remain untapped on the market, including most life, health, property and savings-related insurance options. The insurance premiums collected in Africa currently represent only two percent of total world premiums, and the contribution of the domestic insurance sector towards the GDP of the region remains small by international standards. This demonstrates that insurance policies are not yet being used effectively as a vehicle for protection and savings these countries.
As Africa’s economies grow, urbanize, develop and further open their markets, demand for healthcare and insurance services will increase in tow. As Ghanaian Minister of Health, Joseph Yieleh Chireh, explained at the conference, the government and insurance industry must be there and work together to meet these mounting needs. “Universal health insurance is very important to Africa’s development. It is crucial to offer all, regardless of economic standing, quality health care at an affordable cost. It is important to engage in the dialogue on ways to make universal health care work in Africa.”
India’s nascent health insurance industry may finally be turning the corner with the news that foreign joint-venture investors in the market could at last be generating significant returns on their activity in the populous South Asian country.
In the 10 years since India’s insurance market first allowed private and international sector involvement, total insurance penetration across the country has doubled, with the domestic protection industry overtaking several more developed markets in the process. There has been a considerable rise in insurance coverage, with both the number of life insurance and non-life insurance policies increasing many times over, and combined premium income is now projected to reach between US$350 to US$400 billion in India by 2020. Health insurance, in particular, has become as one of the country’s fastest growing business lines, accounting for 20.8 percent of the overall market in 2010. With total expenditure on healthcare, through both Indian government schemes and private sector activity, expected to exceed US$200 billion by 2015, even more significant opportunities for the country’s health insurance sector will likely emerge. A recent IRDA ruling, which permits health insurance portability, has further provided private companies with the impetus to tap into India’s healthcare protection needs.
In their third quarter statement released this week, Max Bupa Health Insurance posted sales of Rs 21.9 million (US$4.37 million) worth of gross written premiums through to September 30, 2011. These figures were up 268 percent on the Rs 5.9 million (US$1.17 million) reported during the corresponding period last year. The private health insurance company, which became active in 2010 as a 76:24 joint venture between local firm Max India Ltd. and UK-based healthcare giant Bupa, added an additional 40,000 policyholders onto their books during the summer months, taking their number of active policies in India to near 100,000 since the standalone business commenced operations. Bupa would likely now look to increase their involvement with Max Bupa but under current industry regulations, Indian insurance companies are forbidden to offer more than a 26 percent maximum stake to foreign business partners when their joint venture operation is first incorporated.
Overall Max Bupa Health Insurance has done well as one of the newer entrants into India’s health insurance business, collecting Rs 356 million (US$7.1 million) in premiums so far this year, a 335 percent increase on the Rs 8.2 million (US$1.6 million) premiums reported for 2010. The joint venture insurer now has a presence in nine large cities in India and has established a robust healthcare provider network, featuring over 700 hospitals across the country. The company, which began with an equity commitment worth Rs 7 billion (US$140 million) from its joint venture partners, now expects to break-even on their initial investment by their fifth year of operations, 2015.
Max Bupa has been able to effectively distinguish themselves from their competitors in India by introducing innovative new coverage options and service plans to the market. In a country where the average sum insured by health cover has traditionally been around Rs 200,000 (US$400), Max Bupa has been able to capture the emerging middle class demand and ability to pay for greater service, with policy covers ranging from Rs 1,500,000-5,000,000 (US$3,000 to US$10,000). In line with India’s rapid macroeconomic development over the past decade, there has now emerged a sizeable segment of the population who want the most robust healthcare coverage options money can buy. Furthermore, as the average Indian consumer spending power improves, healthcare inflation and medical costs are rising rapidly in tow, and this forces even more people to address long term coverage concerns and to consider policies with a higher sum insured. Max Bupa has been amongst the first to recognize and capitalize upon this trend. Indeed, the company was the first in India to offer more robust health insurance products with cover exceeding Rs 1,500,000, and upon seeing its success many other companies have since followed suit.
Max Bupa are now aiming to report Rs 700 million (US$14.25 million) worth of new business premiums in India by the end of the fiscal year 2012. To help achieve these goals, the insurer has been working with banks, post offices, and other administrative branches to expand their distribution network and better engage with the rural and largely underinsured masses across India. Max Bupa has, until now, offered and promoted their insurance products through agents, telemarketing, direct sales or online channels. However, in order to reach the more remote areas of the country, gaining access to more entrenched business networks, like community banks and post offices, becomes important. The company is also working to further diversify their insurance product portfolio. In the third quarter, India’s insurance industry regulator The Insurance Regulatory and Development Authority of India (IRDA) approved two more Max Bupa products, Employee First Classic & Health Companion, which will come to the market shortly.
It is not only the protection and savings aspects that Bupa is concerned with in India, but also the general state of health in the country. According to their recently released international healthcare and lifestyle survey, Bupa found that around 40 percent of Indians could be classified as unhealthy, while one out of every 10 surveyed was obese. It is ironic perhaps that the rapid development of the national economy, the same thing that is enabling more citizens to spend on and insurance, is driving more middle class people in India to neglect their health and wellbeing due to the now ever more demanding hustle of everyday life. Indeed, over half of the Indians polled by Bupa in August thought that their work life was preventing them from exercising more and making healthier lifestyle choices overall. Of these respondents, it is the 25-34 age-group that will lose the most productivity due to medical illness in the coming years and they will need adequate insurance to address this. According to Bupa, diabetes and heart disease are the most common health concerns across all India.
Max Bupa has responded to this study with a new website: www.YourHealthFirst.in. On the site the company offers lifestyle and fitness advice, designed to support policyholders and encourage them to improve their health for both themselves and their beneficiaries. Efforts likes this will no doubt help Bupa establish an even stronger position in India, a market that will further expand as economic conditions strengthen. Bupa now intend to build upon this momentum and further develop their international medical distribution network, expanding the scope and rage of their operations in the Asia Pacific region in particular.
Insurance Companies Mentioned
Max Bupa Health Insurance is a 74:26 joint venture between Max India Limited and UK-based Bupa. Bupa is a leading private healthcare provider with more than 10 million customers worldwide and over 60 years experience in the health sector. The Max India Group has expertise in both health and insurance related services including hospitals, clinical research and life insurance.
Bupa is a leading international healthcare provider, offering personal and corporate health insurance, workplace health services and health assessments. The insurer today has ten million customers in over 190 countries, and over 52,000 employees around the world.As a provident association Bupa has no shareholders, because of this it uses its profits to invest in healthcare and medical facilities around the world. Bupa has operations around the world, principally in the UK, Australia, Spain, New Zealand and the US, as well as Hong Kong, Thailand, Saudi Arabia, India, China and across Latin America.
Indian private hospital chain Fortis Healthcare Ltd have announced that they will fully acquire their Singapore-based sister firm Fortis Healthcare International for US$665 million, in what will be the biggest ever deal struck in India’s healthcare services industry.
The board of Fortis Healthcare, owned by the billionaire brothers Malvinder and Shivinder Singh, had approved the merger of their privately held Asia-Pacific healthcare services firm into their majority-owned publicly-listed firm Fortis Healthcare (India) in September, but agreed to leave the terms of the buyout (an all-cash deal) to be set later by an independent valuation agency due to the fact that the transaction involved related party assets. The move follows the similar intra-group acquisition of the previously privately held diagnostics firm Super Religare Laboratories from Fortis shareholders earlier in the year.
On November 1st, Fortis Healthcare revealed that the committee of independent directors had valued the deal at US$695.7 million, based on the recommendations of independent valuation agency Haribhakti & Co. Fortis’ board however agreed to a lower price of US$665 million, around 4.4 percent lower, to complete the buyout. Managing Director Shivinder Singh explained in a company statement that the purchase price was intended to only cover the cost of investments made by the founders of Fortis International for their overseas acquisitions and the multiple international businesses set up in the past year. “We felt that as a family we did not want to profit from this deal, and we therefore requested the independent committee and requested them to lower the price,” Singh explained.
The proposed transaction is still subject to regulatory approval in certain jurisdictions and is expected to be concluded by mid-December 2011. According to Fortis officials, the acquisition will initially be financed through bank loans, which will increase the Indian parent company’s total debt to around US$1 billion. Once the transaction is complete the firm then plans to raise capital and reduce the combined entity’s debt-equity ratio starting next year, although exact details have not yet been forthcoming. “We have multiple capital raising plans already in place to do at various entities and we will announce so at the right time,” Malvinder Singh said.
While questions remain about whether in fact Fortis Healthcare, with just Rs 48 crore (US$100 million) in available cash as of March 31, can fund such an expensive acquisition at this time, investors certainly indicated that they were confident enough about this development. After Fortis Healthcare announced the valuation of the upcoming transaction last Tuesday, the company’s share prices rose by over 3.6 percent to close at Rs 128.35 a piece in India. At that price, the firm has a market cap worth little over US$1 billion.
Fortis Healthcare International is the group’s Singapore-based healthcare delivery firm, with a multi-line presence across primary healthcare facilities, hospitals, speciality day care healthcare, and other diagnostic operations. The Singh family set up the Singapore branch, first named Fortis Global then later Fortis Healthcare International, in October 2010 to continue the group’s international healthcare operations in the aftermath of their aborted corporate takeover for Parkway Holdings Ltd, which they lost to Malaysian sovereign wealth fund Khazanah last year. Since then, the new firm has embarked on an aggressive overseas expansion strategy, using acquisitions and setting up new private hospital across the Asia Pacific region, to match the soaring global demand for quality healthcare services. Fortis’ international operation have now in fact become the same size of their home Indian market operations.
Today, Fortis Healthcare International operates out of nine prime international markets including Australia, Canada, Dubai, Hong Kong, Mauritius, New Zealand, Singapore, Sri Lanka and Vietnam. Amongst its most important global medical assets, Fortis Healthcare International owns Quality Healthcare Ltd, Hong Kong’s largest primary healthcare network, as well as the Dental Corporation Ltd, the largest dental care group active in Australia and New Zealand. The company also holds a majority stake in two specialty hospitals in Singapore and the UAE, as well as shares in the 350 bed Lanka Hospitals Corporation, Sri Lanka’s biggest specialty hospital. Most recently, Fortis Healthcare International acquired a 65 percent stake in one of Vietnam’s largest private healthcare provider groups, Hoan My Medical Corporation, for US$64 million in August. According to company filings, overall international operations are expected to generate roughly US$500 million in sales this year.
The deal will integrate Fortis Healthcare International and the public-listed Indian parent company into a combined entity, renamed Fortis Healthcare Ltd. Management structure will of course change in tow. Vishal Bali, previously heading Fortis Healthcare International, will become CEO of Fortis Healthcare Ltd. Aditya Vij will head the company’s Indian operations, while Eng Aik Meng will run international business and further overseas expansion activity. Malvinder and Shivinder Singh will continue acting as executive chairman and executive vice-chairman of Fortis Healthcare respectively.
As a consolidated firm, Fortis Healthcare will be the owner of over 74 hospitals (with more than 12,000 beds combined), 190 diagnostic facilities, 580 primary care clinics and 191 day care centers across 10 countries, making it one of the leading integrated healthcare delivery networks active in the Asia and number one in India, overtaking Apollo Hospitals in the process. The newly combined company will pool the strength of over 23,000 employees, including 4,000 doctors, to better challenge the previously potential purchase, Parkway Holdings, for supremacy amongst private healthcare service providers in the Asia-Pacific region. While these two conglomerates are concentration on international expansion aimed primarily at treating local clients, their ever-expanding global healthcare networks will no doubt also be used as valued multinational medical tourism destinations where global travelers can find high quality medical treatment at competitive prices.
In the company statement Malvinder Singh concluded that consolidating their Asian health businesses at this time would enable them to establish a firm position in a market that is only looks to grow and grow. “Our vision is to create a leadership position in integrated healthcare delivery in the pan Asia-Pacific region. This integration is a fundamental step in that direction. With the region’s increasing urbanization, ageing population and greater access to new medical technologies, the demand for more and better healthcare is rising sharply. Fortis is keen to capture this opportunity. This integration provides us the model and the scale to harness the opportunity.”
Fortis Healthcare Limited
Founded in India in 1999, Fortis Healthcare is a healthcare provider that currently operates 46 hospitals in India, which are organized as a hub and spoke model around their specialty hospitals. They offer laboratory, wellness, information technology, travel and financial services through the wholly owned Religare Enterprises Limited
Parkway operates 16 hospitals in Asia, with over 3,400 beds throughout Singapore, China, Malaysia, India, Brunei, and the UAE. Parkway also boasts a nursing and health science college, extensive diagnostic, imaging and laboratory resources and the largest foreign owned medical network in Shanghai.
As November approaches, many of the world most prominent multinational insurers are releasing their third quarter earnings reports, the cumulative results of which could present some interesting insights on the future of the international insurance industry.
Metlife, the United States’ largest life insurance group, posted the most considerable gains this week. The New York based insurer announced on Thursday that net income had grown more than tenfold during the third quarter reporting period, beating market estimations on the back of substantial investment gains and the continued development of its international sales division from its Alico acquisition last year. For the three months ending September 30, Metlife earned US$3.55 billion, or US$3.33 per share, a significant improvement over the US$286 million, 32 cents a share, earned during the corresponding period in 2010. Total revenues meanwhile hit US$20.46 billion for the period, up from US$12.34 billion in the same quarter a year ago. The insurer also reported US$4.2 billion in total net derivative gains for the quarter, compared with a US$244 million loss last year.
Metlife attributed much of their quarterly success to their Alico acquisition and the impact this has had on the investment portfolio, which was up from US$383.2 billion a year ago to US$493.2 billion now at the end of the third quarter 2011. Metlife had long been looking to expand its international presence and distribution platform, and in 2010 the company decided to purchase American Life Insurance Company (ALICO) from AIG for US$15.5 billion to achieve these objectives. The acquisition of Alico, which operates out of 50 countries, has given MetLife immediate access to new Asian, European, Middle Eastern, and Latin American insurance markets and they been rewarded already as the international segment reported operating earnings had increased by US$578 million from US$189 million in the year-on-year for the quarter. This has come while the operating earnings in Metlife’s home US market have fallen 23 percent to a comparable US$655 million, due to increased insurance reserves, high catastrophe losses and flagging consumer confidence.
This influx of new international business, led by the ALICO deal, has helped MetLife’s premiums grow by a remarkable 41 percent year over year to a record US$12 billion in q3 2011. As the global economic order subtly changes in the wake of the 2007-2008 financial crisis, multinational insurers such as MetLife are finding value in re-positioning their activities to ensure that they have greater access to the emerging markets that are now providing all insurers with the most profound sales and earnings growth opportunities.
Companies active in the US health insurance sector have also put forth their third quarter earnings. This week, Aetna Inc reported US$490.4 million in earnings as well as a US$117 million after-tax gain for the period, due primarily to reduced claims exposure in the United States. The nation’s third largest health insurer noted that while revenue and medical enrolment dropped during the quarter (by about 1 percent to US$8.4 billion and 18.2 million policyholders), disciplined underwriting and cost management trumped performance expectations and have enabled the company to raise its 2011 earnings forecast. The company’s overall healthcare costs have in turn dropped by 5 percent to US$5.36 billion, mainly because insured Americans in general are choosing to file fewer health insurance claims.
The declining utilization of healthcare benefits in the US has been a recurring issue for the past few quarters as more Americans choose to abstain from elective treatment, doctors visits, and any other absence from work during these uncertain economic times. Aetna’s total medical-benefit ratio, which is the amount of premiums actually paid out in patient medical costs, has fallen from 81.8 percent to 78.9 percent this year. The ratio was aided by a considerably higher reserve development, which indicated that the company had overestimated what it would in fact be paying out in patient claims. Because this lower-than-expected claims ratio has not however put any serious downward pressure on premium pricing, Aetna and its health insurance competitors are able to keep turning in strong performances. Analysts expect Aetna’s 2012 operating earnings to further improve, due to an expected decline in medical claims trends coupled with constructive regulatory adjustments in medical claims expenses.
Aetna’s two largest rivals based on enrolment and revenue, WellPoint and UnitedHealth, have also reported better than expected third quarter earnings and have raised their 2011 earnings reports in tow. On Tuesday, WellPoint noted that company enrolment had increased by 2 percent to 34.4 million members amid strong revenue performance for the quarter, with particular growth witnessed its newly acquired senior business. The demand for Medicare-supplement insurance services offered by private companies will increase as the burgeoning ranks of US retirees have come to expect similar benefits to those they have enjoyed throughout their career and appear willing to pay for them. UnitedHealth were also able to beat quarterly performance expectations but warned that medical costs are expected to increase in the fourth quarter and will bite into earnings throughout 2012.
Insurance groups from America’s greatest economic partner and rival China also presented quarterly performance figures this week. China Life Insurance Co, The mainland’s largest life insurance firm, said that its net profits declined by 45.7 percent to CNY3.75 billion (US$586 million) during the third quarter. In a statement filing to the Shanghai Stock Exchange on Thursday, the company acknowledged that the decline in profit came as a result of declining investment returns and losses from asset devaluation. Overall, China Life’s profits for the first three quarters have dropped by 33 percent annually to CNY 6.72 billion (US$1.03 billion), according to Chinese accounting standards. As this has happened however, the company’s total insurance premiums have continued to rise, amounting to CNY262 billion (US$41.2 billion) at a 2.6 percent annual growth rate. China Life’s performance relies heavily on investment income and thus it is more sensitive to stock-market swings than some of its domestic rivals. Going forward though, low interest rates and national and global economic volatility will require the company to be more disciplined than ever in their underwriting and investment decisions.
Ping An Insurance, the mainland’s number two insurer, also reported a considerable 44 percent decline in third quarter profits this week. However, the source of these shortfalls was different to that of their big domestic rival China Life. According to a company filing, Ping An’s earnings were hit by the one time CNY1.95 billion (US$310 million) acquisition cost of Shenzen Development Bank(SDB). Ping An completed its restructuring with SDB in July, with the banking business now contributing CNY5.32 billion (US$840 million) in earnings during the reporting period. Excluding the cost of the acquisition, Ping An said it would have recorded a 29.1 percent year-on-year rise in net profits attributable to shareholders worth CNY16.47 billion (US$2.59 billion). Ultimately the acquisition could prove fruitful to Ping An as having a more diversified business portfolio will ultimately help protect the Chinese insurance giant from adverse global financial market volatility in the future.
Insurance Companies Mentioned
With over 140 years of insurance expertise, MetLife aims to be an innovator in the field of international Life insurance. Globally, MetLife is able to offer its clients accident and health insurance, life insurance, disability income protection, and retirement and savings products.
The American Life Insurance Company, known as Alico, provides a broad, innovative range of insurance and savings products for individual customers, corporate customers and high net worth clients. Their products include; health insurance, life insurance, savings plans, accident insurance, retirement planning and travel insurance among others services.
Aetna international health insurance Aetna is a leading global diversified health care benefits company head-quartered in the U.S., serving approximately 35.8 million people with information and resources to help them make better informed decisions about their health care. Aetna offers a broad range of traditional and consumer-directed health insurance products and related services, including medical, pharmacy, dental, group life and disability plans, medical management capabilities and health care management services for Medicaid plans.
WellPoint is the largest health benefits company in USA, with more than 33 million members in its affiliated health plans. As an independent licensee of the Blue Cross and Blue Shield Association, WellPoint serves members as the Blue Cross licensee for California; the Blue Cross and Blue Shield licensee for Colorado, Connecticut, Georgia, Indiana, Kentucky, Maine, Missouri, Nevada, New Hampshire, New York, Ohio, Virginia, and Wisconsin. In a majority of these service areas, WellPoint does business as Anthem Blue Cross, Anthem Blue Cross Blue Shield or Empire Blue Cross Blue Shield. WellPoint also serves customers throughout the country as UniCare.
China Life Insurance
China Life Insurance Company Limited (China Life) is a People’s Republic of China-based life insurance company. The products and services include individual life insurance, group life insurance, accident and health insurance. The Company operates in four business segments: individual life insurance business, group life insurance business, short-term insurance business, and corporate and other business.
Ping An Insurance (Group) Co. of China Ltd.
Ping An Insurance is the first integrated financial services conglomerate in China that blends its core insurance operations into services including securities brokerage, trust and investment, commercial banking, asset management and corporate pension business to create a highly efficient and diversified business profile. The group was established in 1988 and headquartered in Shenzhen, Guangdong Province, China.
Global reinsurer Swiss Re have added to their impressive international microinsurance platform this month with the announcement of a new three-year partnership with USAID to provide customizable, market-based insurance products for vulnerable communities throughout the Americas, Africa and Asia.
Microinsurance refers to insurance products designed to provide basic, inexpensive cover for low-income individuals and families who require protection for typical risks including the affects of severe weather conditions, healthcare, crop, life and non-life products. Microinsurance offers vital security options for populations that need insurance protection but until now have been unable, or even aware of, the ability to afford the relatively high cost of coverage. The premiums and coverage are kept at a low level in order to make the products affordable and attractive to these first time policyholders. For the insurers meanwhile, microinsurance presents a key commercial opportunity due to the high volume of available policyholders combined with low cost margins. Insurers also benefit from working with local partners in largely under-penetrated markets and through mircoinsurance they can establish a substantial market presence, putting them in a good position to sell traditional insurance policies going forward. According to a Swiss Re sigma study, the global microinsurance market is estimated to be worth over US$40 billion. The Asia Pacific region is cited as the fastest growing region for microinsurance development, with Africa and Latin America both having smaller, but growing, markets.
Swiss Re’s three-year partnership with USAID, a federally funded humanitarian organization, will target poor farmers in vulnerable communities on three continents. The two organizations will work together to develop cost-effective strategies that enable these farmers to prepare for and efficiently manage the cataclysmic impact that upcoming droughts, floods and other severe events could have on the livelihoods of themselves and their families. Overwhelming scientific evidence suggests that large natural disasters and other catastrophic weather events have and will become increasingly more common worldwide as a result of climate change. Unfortunately many of the areas that will be most affected by the considerable rise in worldwide temperature will be farming lands, and the communities that rely almost exclusively on them for subsistence. The results of climate change and extreme weather conditions are becoming apparent to insurers too, with floods, droughts, earthquakes, hurricanes and tornadoes all having had a significant impact on insurers’ claims and loss ratios over the past few years. It thus becomes incumbent on aid organizations and insurers to build resistance to climate change in these areas and reduce the future costs of natural disasters if possible.
Both Swiss Re and USAID recognize that providing farmers in poor areas with the appropriate tools and information to manage risk will enable them to more easily obtain the loans necessary to invest in technologies that improve their crop yields and productivity, a considerable benefit to the whole community. Swiss Re has agreed to contribute its substantial risk management expertise towards assisting two ongoing USAID initiatives in particular. Swiss Re will first address weather-related risks through The Global Climate Change Initiative, which focuses on resisting extreme climate events and accelerating the global transition into a more sustainable low-carbon economic environment to reduce the occurrence of natural disasters in the future. The world’s largest reinsurer will also work with USAID on the United States Global Hunger and Food Security effort, which helps emerging market countries develop more stable and productive agricultural sectors to deal with the root causes of widespread hunger and mal-nutrition. More resilient farming systems are urgently required due to the predicted increasing preponderance of extreme weather events and the instability that reaps on agricultural output.
Swiss Re’s partnership with USAID has come amid a flurry of similar venture activity for the company. In September, the reinsurance group announced two new microinsurance initiatives at the Clinton Global Initiative (CGI) Annual Meeting in New York, USA. At the meeting Swiss Re outlined plans for a new cholera insurance scheme for female entrepreneurs in Haiti, which is designed to tackle the outbreak of the disease on the island nation. Working in conjunction with a local Haitian operation, Swiss Re will offer insurance policies that provide a guaranteed payout once certain health and sanitation conditions are met. It is hoped this policy will build off an effective catastrophe microinsurance scheme developed by Swiss Re earlier in the year.
The second plan outlined at the CGI is designed to protect farmers in Senegal from potential crop losses due to climate change and other adverse weather events. To accomplish this, Swiss Re has partnered with Oxfam America, the World Food Program and USAID again, to establish an innovative ‘insurance for work’ scheme that would give farmers the option to pay for their insurance premiums with their hard labour instead of cash. The initiative was first brought into Ethiopia earlier in the year and is part of Swiss Re’s overall US$1.25 million commitment to reinsurance in the region. Participants in the program will work on irrigation and forestry projects in the local area, which are intended to ultimately reduce the impact of climate change and strengthen their communities.
Other multinational insurers have come to recognize the importance of microinsurance and want to capitalize on this relatively new line of business for the mix of opportunities it offers, both in business and, of course, in ethics. Canadian insurer Manulife recently announced its intentions to expand its microinsurance operations in Vietnam, a product line that has become integral to their success in the Southeast Asia country. To date Manulife has already sold around 80,000 microinsurance policies in Vietnam, far exceeding the company’s expectations. Microinsurance alone made up 6 percent of Manulife’s total sales in Vietnam last year. German insurance giant Allianz has also had success in the region, securing over 230,000 new Indonesian customers with microinsurance policies last year. Insurers clearly have the opportunity now to develop policies to meet the protection needs of the more vulnerable element of the world’s population. As Michel Liès, Swiss Re’s chairman of global partnerships, explained, there is an obligation to increase insurance penetration across the world as it is a frequent contributor to overall economic development.“Insurance is a cornerstone of economic growth and stability, and [we at] Swiss Re are proud to contribute our expertise so that even the poorest farmers and their families can cope when crops are ruined by drought, flood or other climate related impacts.”
The Swiss Reinsurance Company Ltd was established in 1863 and is present in more than 20 countries. Swiss Re provides reinsurance products and financial service solutions. It offers various reinsurance products covering property, casualty, life and health insurance as well as special lines such as agricultural, aviation, space, engineering, HMO reinsurance, marine, nuclear energy, and special risks.
Allianz Insurance is one of the leading global services providers in insurance and asset management. With approximately 153,000 employees worldwide, the Allianz Group serves approximately 75 million customers in about 70 countries. On the insurance side, Allianz is the market leader in the German market and has a strong international presence.
Manulife in Vietnam
Manulife Vietnam was the first 100 per cent foreign-owned life insurance company in Vietnam, beginning its operations in September 1999 as a joint-venture called Chinfon-Manulife Insurance Company (CMIC). Manulife in Vietnam has grown rapidly to become a world class company providing a competitive array of financial protection products and services to Vietnamese customers. Since commencing operations, Manulife has helped more than 300,000 middle to upper-income Vietnamese plan right for their life
Worldwide insurance broker Willis Group has partnered with Lloyd’s of London underwriter Kiln to co-develop and launch a new product designed to protect hotels from any financial loss that results from negative publicity.
Bad news, poisonous reviews and fraudulent behavior can travel fast in our 21st century world of instantaneous international communication and social media. Such actions, often anonymous, irreversible and without provocation, can ruin a businesses’ hard-worked reputation and affect their bottom line for years to come. The cut-throat hospitality industry is particularly vulnerable to consumer opinion and one negative event, justified or not, can lead to empty rooms.
For these reasons and more, the Hotel Reputation Protection 2.0 policy has been launched. The reputation protection product has been designed to anticipate and respond to incidents that could lead to financial losses from adverse publicity, be it through traditional media channels or through new online social networks. The events Willis and Kiln have agreed to cover include some of the most common causes of brand damage for hotels. Hotel Reputation Protection 2.0 covers reputation damages associated with the death or permanent physical disability of a guest, food poisoning caused by both deliberate or accidental contamination, and other food-borne illnesses. Also covered are fiscal damages resulting from outbreaks of Norovirus, responsible for around 90 percent of stomach illnesses, and outbreaks of Legionnaire’s disease, a hazardous lung infection usually contracted through the consumption of contaminated water.
The Hotel Reputation Protection 2.0 policy will determine how to provide cover for lost revenue using Rev-PAR statistics, a performance metric commonly used by the hotel industry to measure revenue per available room. In addition to financial considerations, the Willis-Kiln policy will subsidize the cost of hiring a crisis management consultant to assist the policyholder in the immediate aftermath of an incident. Overall, The Hotel Reputation Protection 2.0 policy caps the payout associated with both Rev Par related reimbursement and crisis management costs at €25 million.
Commenting on the launch of the product, Laurie Fraser, Willis’ global markets leisure practice leader, explained in a statement that hotels have needed reputation cover for some time. “In the extremely competitive hotel industry, reputation accounts for approximately 30-40 percent of a business’s overall worth. Therefore, damage to reputation, which spreads virally through social and other media channels, can have a significant financial impact. Our product is designed to tackle both the actual loss of revenue and the costs of containment.”
Paul Culham, a Kiln underwriter, added that innovative insurance policies such as this could become more commonplace if they can deliver results. “This development is yet another example of how Kiln’s focus on innovation and our partnership approach can enable pioneering products like this to be brought to the market. Our cover will provide peace of mind for businesses worried about the impact of potential brand damage on their bottom lines.”
Threats to a company’s reputation and brand image are more common and wide reaching today than they ever have been before. The rise in inter-connectivity presents both challenges and new opportunities for insurance companies to engage new clients and expand their customer base as well as develop innovative products to help sniff out fraud, protect reputations and police the global marketplace more effectively.
Insurance Companies Mentioned
Willis Group Holdings plc is a leading global insurance broker. Through its subsidiaries, Willis develops and delivers professional insurance, reinsurance, risk management, financial and human resource consulting and actuarial services to corporations, public entities and institutions around the world. Willis has more than 400 offices in nearly 120 countries, with a global team of approximately 17,000 employees serving clients in virtually every part of the world.