July may have brought the end of Europe’s deadly e. coli outbreak, but the economic repercussions will continue to be felt for some time. European farmers are demanding compensation for millions in lost earnings, and the EU slapped a ban on Egyptian agricultural exports after identifying Egyptian fenugreek seeds as the source. Elsewhere, Hong Kong saw a steep rise in scarlet fever cases and a study identified systemic vulnerabilities in the US drug supply. Finally, if you’re feeling ill you might want to tweet about it—research has shown Twitter may be a useful channel for doctor-patient communication.
Here are some of the top international health stories of the past 30 days:
E. coli outbreak ends
The deadly e. coli outbreak that ravaged Europe during June petered out in July. Toward the end of the month both the World Health Organization (WHO) and Germany’s Robert Koch Institute declared the threat had passed. An investigation by European health officials fingered a batch of fenugreek seeds imported from Egypt as the cause—this triggered a spat between the EU and Egypt’s Ministry of Agriculture when on July 25th, the EU announced a ban on agricultural imports from Egypt (a move that could cost the North African country USD 4.2 billion). Egypt continues to deny its seeds were responsible, claiming all produce has tested negative for e. coli. The outbreak sickened 4,000 people and killed 50, the majority of them in Germany. The Robert Koch Institute warned that though the worst is over, isolated cases may still crop up periodically.
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Study finds US drug safety lacking
40% of finished medicines and 80% of active ingredients on US store shelves are manufactured overseas, and recent years have seen several high-profile cases of illness and death as a result of adulteration (replacing ingredients with cheap or even fake substitutes). A 2008 case involving heparin resulted in 81 deaths and nearly 800 severe illnesses. A recent Pew study titled “After Heparin” focused on ways government regulators and pharmaceutical manufacturers could improve drug safety, partly by amending outmoded legislation that dates to the 1930s. ExpatHealth.org spoke to Gabrielle Cosel, Project Manager for the Pew Prescription Project, who said regulators and industry players must work together to tackle this global health risk.
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Scarlet fever strikes Hong Kong
Hong Kong has faced a steep rise in scarlet fever cases this year. Mainland China and Macau have also seen increased numbers of cases, leading a top health official to call the outbreak “a regional phenomenon.” Scarlet fever is in the same family of diseases as strep throat. While it was once a major cause of death among children, fatalities dropped off sharply after a vaccine was developed in 1924. Today scarlet fever is usually treated with antibiotics. The Asian outbreak has health officials concerned because it appears to involve a mutated, drug-resistant strain. “We will be monitoring the situation very closely,” said Dr. Thomas Tsang, Controller of Hong Kong’s Center for Health Protection. “If genetic mutation is responsible for the increased transmissibility of the bacteria, the outbreak may be sustained for some time.”
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Research shows Twitter could help doctors, patients communicate
A study by the International Association for Dental Research (IADR) concluded Twitter is an effective means for the public to communicate health concerns and offers healthcare providers a new channel for contacting patients. The IADR based its findings on 772 tweets specifically mentioning dental pain. Of these, it categorized 83% as “general statements of dental pain;” 22% as “action taken or contemplated” and 15% as “describing impact on daily activities.” 14% of users who either took action or were considering it sought advice from other users.
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Be sure to check back on this space for more updates in August.
ExpatHealth.org offers a one-stop source for international best practices in expatriate healthcare, expat trends and regulatory changes impacting the health industry. The site covers both global and regional health issues. http://expathealth.org
India’s second biggest public sector lender, Punjab National Bank (PNB), has agreed to acquire a 30 percent stake in MetLife India for an undisclosed amount, becoming the single largest shareholder in the private insurance company. The move marks the bank’s first foray into the insurance business. Once the transaction is finalized, the two parties have agreed the joint venture company will be renamed PNB MetLife India Ltd to leverage the combined strength of the two brands in the Indian market.
MetLife India, affiliate of global insurer MetLife Inc., the largest life insurer in the United States, was incorporated as a joint venture operation between MetLife International Holdings, The Jammu and Kashmir Bank, M Pallonji and Co, and other private stakeholders in 2001. PNB officials announced that the acquisition of a 30 percent stake in the insurance company would come through issuance of fresh equity, which would in turn dilute the existing percentages of MetLife India’s stakeholders proportionately. After the deal, MetLife US’ stake would reduce to from 26 percent to an estimated 19 percent. India’s current foreign direct investment (FDI) regulations prevent foreign entities from holding more than 26 percent of any Indian insurance enterprise, a rule that could soon change. With FDI capped as it is in India, investments from local entities through fresh shares have become the only option available for companies looking to raise their overall capital base. MetLife would plan to increase its stake back to the 26 percent limit within the first few months of the closure of the deal.
William J Toppeta, President of MetLife’s international operations, told reporters on Thursday that the deal with PNB would grant the insurer the necessary capital to service its growing business in India. “Given its global significance, India is a strategic focus market for MetLife. We believe that the addition of an outstanding financial institution like PNB as a shareholder and partner will greatly enhance MetLife India’s ability to move into the top tier of life companies here. We value PNB and our current shareholders for their integrity, market knowledge, distribution power and financial strength,” Toppeta told the press, adding that if and when the country’s FDI limits are relaxed, Metlife would consider increasing its stake further in their Indian branch.
The path which lead PNB to purchase a stake in Metlife India began in December 2010, when the bank invited expressions of interest (EOI) from both Indian and foreign insurance companies to set up a strategic partnership. PNB received responses from some 26 different insurance companies, each offering their own business model proposal. After evaluating the technical bids, the bank put three life insurance companies on the final short list: Aviva, Metlife and Bharti AXA. Based on the financial bids and a more diversified shareholding, PNB ultimately accepted MetLife India’s offer although the fiscal details of the deal have yet to be disclosed. The transaction is still subject to the approval from The Reserve Bank of India, Insurance Regulatory and Development Authority (IRDA) and other regulatory bodies. The deal would be expected to close by end the end of 2011.
In addition to this influx of fresh capital, the two companies will benefit from a 10-year exclusive distribution arrangement. As part of the deal, PNB have agreed to promote and distribute MetLife India’s insurance products through its branch network. MetLife already has a similar agreement with Karnataka Bank and Barclays in India. The distribution platform PNB provides could prove to be the most distinctive advantage for MetLife. PNB is the largest nationalized bank in India, with a network exceeding 5,000 branches and over 60 million active customers. According to Metlife India Managing Director Rajesh Relan, this strategic affiliation would enable the insurance company to more than double its existing customer base, diversify its products offered, and quickly establish itself amongst the country’s leading insurance providers. “With 60 percent branches in the rural and semi-urban areas, PNB is uniquely positioned to take insurance to the deep pockets of India. This partnership has the potential to drive the company into the top tier of Indian life insurers and more than double its market share,” Relan told reporters in New Delhi.
PNB Chairman and Managing Director K.R. Kamath added that the deal would be beneficial to the bank as it would give them more options in interacting with clients, helping to maintain its leadership position in the Indian financial services market. “The partnership with MetLife will provide PNB insurance expertise and bancassurance capabilities that will be an asset to the bank as it pursues its growth strategy in India and seeks to expand its leadership in the Indian financial services market,” Kamath said.
Since the insurance market in India was first opened up to the private sector and international investment in 1999, total insurance penetration has doubled and the domestic protection industry has overtaken several developed markets in output. There has been a substantial rise in insurance coverage, with both the number of life and health insurance policies increasing many times over. While premium income in the Indian insurance market within the upcoming decade is projected to reach US$ 350-400 billion, a combination of regulatory issues and fierce competition between both local and international companies (including AIG, Allianz, Standard Life and AXA) is expected to hamper profitability and constrict many insurers’ margins in the short term. Recent moves made by India’s regulatory authorities have opened up many of the country’s industries to greater foreign capital investment. This would be a particularly welcome development for the international insurance industry.
Insurance Companies Mentioned
Possessing 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.
Chinese insurance companies will need to raise more than CNY110 billion(US$17 billion) of fresh external funding to support their industry’s further growth and development over the next three years, according to credit analysts from Standard & Poor’s Ratings Services. Although the credit outlook for China’s life and property insurers will remain stable to positive, the ratings agency expects the industry to slow down.
The Chinese insurance industry has experienced rapid growth within the past decade and still has much to look forward to due to favorable economic conditions and an under-penetrated market. Total written premiums in China’s insurance market reached RMB1,452.8 billion (US$221.4 billion) in 2010, a year-on-year increase of over 30.4 percent. According to the latest China Insurance Regulatory Commission (CIRC) figures, the total premium income reported by Chinese insurance companies’ surpassed CNY 805.66 billion (US$123.95 billion) in the first half of the year, a 13 percent rise on last year’s figures. The largest increase in income in the first six months of 2011 came from the property insurance sector whose premiums surged 16.9 percent from a year previous to CNY 235.96 billion (US$36.49 billion). Meanwhile, the total value of life insurance premium income stands at CNY 569.7 billion (US$ 88.1 billion).
Earlier this year, Standard & Poor’s (S&P) updated its forecast on the Chinese non-life insurance sector to positive from stable and maintained the stable outlook for the Chinese life insurance sector. However, while S&P expect the operating performances of China’s predominant insurers to remain favorable over the next one or two years, these companies will soon face moderate industry risk due to problems involving their relatively low capitalization, unrefined risk management practices and limited asset and liabilities management options. Weaker economic growth and unforeseen catastrophe losses could also pose substantial industry risk in the coming years. “This is particularly true for non-life insurers, given their relatively low capitalization,” S&P insurance analyst Connie Wong told the media at a news briefing on Wednesday.
“Though the credit profiles of the Chinese life insurers are expected to be stable and non-life insurers positive, rating upgrades are unlikely over the next one or two years.” Wong added.
Based on the latest 2010 financial figures released by the CIRC, at least eight non-life insurers, including the leader The People’s Insurance Company of China Ltd (PICC), had an indicative ratio (shareholders’ funds versus total company assets) under 30 percent, which is low in comparison to international standards. According to S&P, Chinese property and casualty insurers will need a capital injection of about CNY82 billion (US$12.72 billion) over the next three years to support a more respectable 40 percent ratio, while achieving an assumed 15 percent growth in premiums over the same period. The ratings agency also expects the underwriting performance of the non-life sector to continue improving on account of further regulatory changes and greater diligence on the part of company shareholders in recent years.
S&P disclosed that at least seven companies in China’s life insurance market had an indicative ratio under 4 percent, and that these insurers would need to raise about CNY32 billion (US$4.96 billion) in fresh capital investment to both improve upon this and meet similar premium growth targets to the non-life sector in the next three years. According the S&P analysts none of the key Chinese companies in the life sector, including China Life, China Pacific Life and Taikang Life Insurance Co Ltd, would require additional funding in the short-medium term nor would most international joint-venture operations present in the country.
While the Chinese insurance industry is technically open to foreign players, they have faced restrictions and a more active regulatory authority than in most other countries. Foreign insurance companies have tended to exist in China through investing and operating as joint venture partners with local Chinese insurance and financial conglomerates. Though the market share for foreign insurers’ has remained below 10 percent in China’s insurance sector, gradual increase is expected. S&P notes the example of CITIC-Prudential Life Insurance Co Ltd, Beijing’s largest international joint-venture business in terms of premium income, which last year saw its market share for new policies sold through insurance brokerages, an important marketing and distribution channel for most life insurers, increase by over 20 percent.
A recently published article by S&P, titled ‘Have Rapid Growth And Regulatory Changes Improved The Credit Profiles Of Chinese Insurers?,’ points out that the performance of Chinese insurers could be slowed down marginally in the short term in conjunction with the country’s economic expansion developments, which would force companies to refocus on more profitable product lines. The report further states that while the recent rise in interest rates will improve investment returns for the country’s insurers, it could ultimately slow down future premium growth if banking and pure investment products become more attractive to consumers than insurance.
Earlier this month, CIRC Chairman, Wu Dingfu confirmed sales of some general insurance products in China had already suffered as a result of the central bank’s decision to raise interest rates. The Chairman told Chinese media outlets that despite the growth potential of the country insurance industry, there remained many challenges to the insurance market in the midst of inflationary pressure, macroeconomic policy changes and weak global capital markets. Insurance companies will need to adapt to changes in the Chinese economy, adjust their business models and increase both equity investments and bank deposits, all while making sure to maintain a healthy solvency ratio.
Despite these noted concerns on the horizon, the Chinese insurance market will continue to be seen lucrative investment opportunity for many large multinational insurance companies as well as investors from the financial-services sector. Around US$25 billion in share offerings in Hong Kong and Shanghai could be coming to the market over the next 12 months from Chinese insurance companies alone. PICC has announced plans to raise between US$5 billion and US$6 billion in a dual listing this year. New China Life Insurance, China’s third-largest life insurance firm with RMB93 billion (US$14.38 billion) in premium income for 2010, has also recently applied to the Hong Kong stock exchange for a dual listing. The insurer is aiming for HK$31.2 billion (US$4 billion) in fresh funds by the end of the year. Taikang Life Insurance, the nations’s fifth-largest insurer by premiums, has also targeted between US$3 billion and US$4 billion from a Hong Kong listing in the next couple of years, all according to industry reports.
New China Life
New China Life Insurance Co.,Ltd (NCI?has headquarters in Beijing and was established in 1996 It is a large national insurance company, with products including traditional protection products, bonus products as well as the products that have a strong financial management function. With sustained, healthy and harmonious development of the company, the brand value of NCI is a valuable asset.
People’s Insurance Company of China (PICC) is a state-owned holding company in the PRC, founded in 1949, that sponsors its subsidiaries: PICC Asset Management Company Limited and PICC Property and Casualty Company Limited (PICC P&C) among others. PICC P&C was established in 2002 and is now China’s largest non-life insurer. The insurer remains the designated agent within the People’s Republic of China for most major international insurance companies. In 2005, PICC announced a life-insurance joint venture with Sumitomo Life Insurance Co called PICC Life Insurance Co., which is now the sixth largest life insurer in the country.
Standard & Poor’s
Standard & Poor’s (commonly referred to as S&P) is a business branch of publishing house McGraw-Hill. Operating out of 20 countries, S&P provides the investment community with independent credit ratings on important financial vehicles such as stocks, municipal bonds, corporate bonds and mutual funds. In addition to its risk management, investment research and credit rating services, Standard & Poor’s is known for its indexes, in particular the S&P 500 index.
Taikang Life Insurance was founded in Beijing in 1996 and offers life, annuity and health insurance through 120 offices throughout China
There may be boom times ahead for the Philippines insurance industry after some difficult years. The Southeast Asian country’s life insurers are particularly confident about the performance forecast for their sector, projecting double-digit growth in written premiums for the second consecutive year due to the country’s positive economic indicators and an increased demand for insurance products.
Mayo Jose B. Ongsingco, president of both the Philippine Life Insurance Association Inc. (PLIA) and Insular Life Assurance Co, told the local press at a briefing on Tuesday that major players within the Philippines life insurance market expect premiums to rise by 23 to 24 percent in the coming year, with first year premiums (premiums for new insurance policies) predicted to expand a further 60 percent. Ongsingco commented that these figures would closely match the growth rate in total premiums the industry reported for 2010. “Based on what we’ve been hearing from the industry, this year’s growth would be close to that seen in 2010,” Ongsingco confirmed.
Newly released PLIA data showed that the insurance industry’s total premium income increased to PHP70.727 billion (US$1.67 billion) from PHP57.241 billion (US$1.34 billion) last year, a 23.5 percent increase. First year premiums meanwhile rose by a significant 59.4 percent to PHP34.28 billion (US$800 million) from PHP21.508 billion (US$507 million) in 2010. Of the first year premiums, the PLIA noted that almost two thirds were sold through bancassurance, with the remaining third being provided through the conventional agency distribution channel.
The Philippines life insurance industry remains largely concentrated with large insurers accounting for over 80 percent of the sector’s combined premiums. The PLIA reported that for 2010 the top five insurance companies in terms of premium income performance were Philam Life with PHP11.255 billion (US$ 265 million) in premiums or 16 percent of total, Sun Life with PHP10.63 billion (US$250 million) at 15 percent; AXA Life, PHP8.36 billion (US$197 million) at 11.8 percent; Pru Life UK with PHP7.36 billion (US$173.5 million) at10.4 percent, and Insular Life, PHP7.13 billion (US$168 million) at 10 percent. The next five were PhilamLife, Manulife, Grepalife, United Cocolife and Generali Pilipinas respectively.
The continued steady development of the Philippine economy has enabled the country’s insurance sector to maintain its positive outlook for sustained premium growth. The six to seven percent rise in the Philippines gross domestic product (GDP) combined with improved consumption patterns, remittances from the overseas Filipino Diaspora, sustained development of business process outsourcing (BPO) fundamentals, and the high liquidity present in the country’s financial system, are all strong internal factors that enable investor confidence to prevail in the emerging Southeast Asian market. Improved structural fundamentals and favorable economic conditions have provided Philippine citizens with more personal disposable income with which to now purchase insurance. Most of the Philippine working population is technically covered by a public health insurance scheme provided through Philippine Health Insurance Corporation (PhiHealth) and this may enable them to pursue other avenues for coverage as well.
The PLIA noted that variable life insurance and group insurance policies have proved to be popular choices among the country’s new emerging consumer class. Variable life insurance policies build cash value and link investment to life insurance. Part of the premium acts as conventional life insurance coverage while the other part is invested in a fund chosen by the policyholder to be paid to the beneficiary upon death. These policies have proven particularly popular and accounted for PHP26.506 billion (US$264 million) of the industry’s total premium income last year. The PLIA disclosed that sale of group insurance policies are also on the rise as more Filipino businesses recognize the value of providing coverage to their employees as a powerful retention tool for their companies. “Insurance is now being included as part of the benefits of employees, and it helps companies keep their people,” Ongsingco stated. Group insurance contributed PHP9.921 billion (US$233.8 million) towards the industry’s cumulative premium income for 2010.
The Philippines, similar to other emerging Asian economies, is also benefiting from the weak economic performance of established industrialized countries in the West. The ongoing debt crises facing both the United States and Europe have pushed substantial capital into emerging economies in the Asia Pacific region. This increase in direct foreign investment has buoyed local bond and equity markets, which will further boost the Philippine insurance industry by increasing companies’ yields on investments. President Ongsingco noted that the weakening of the global economy is currently working in the favor of the Philippines. “A weakening global economy would lead to higher foreign direct investments in the Philippines, including in securities and bond markets. The fundamentals of the Philippine economy are also improving—inflation is in check, the deficit is below target, and remittances continue to grow even with the unrest in the Middle East and North Africa,” Ongsingco said.
While these external international debt issues are currently helping the country attract investment, the PLIA is wary that these developments could change and pose significant risk to insurance growth going forward. Domestic life insurance companies are monitoring these events closely and may prepare for an eventual disruption. If the United States fails to resolve its policy on raising the debt ceiling by the August 2nd deadline and they default on their obligations it could have a ripple effect on markets across the globe, similar to the aftermath of the 2008 financial crisis. For the local insurance industry this would particularly affect interest rates and funds inflow. Ongsingco explained that this would be the most immediate concern for the Philippine insurance sector. “All the negative factors that may work against the industry’s growth is basically external,” the PLIA president said, adding “A lot of the growth now is anchored on expectations that the US is turning the corner.”
Improving insurance awareness and broad financial literacy in the Philippines is something the local industry has control over however. According to government data, life insurance premiums accounted for only 0.75 percent of the country’s GDP in 2010, putting the Philippines on par with Indonesia, but far below that of neighboring Asian countries such as Malaysia and Thailand at 2.8 and 1.8 percent respectively. The PLIA expect this figure to increase significantly with increased participation from overseas Filipinos as well as the introduction and development of innovative new products, such as micro-insurance targeted towards the country’s poorer members of the population.
Mr. Ongsingco concluded that explaining the diversity of protection and investment opportunities available through all insurance disciplines will become the most effective way to further the development of the industry. “Individual insurers are taking it upon themselves to educate the public about the value of insurance. Hopefully with these efforts, we can increase the penetration of insurance in the country,” he finished.
Dutch financial services company ING Groep NV reached an agreement this week to sell off most of its insurance businesses in Latin America to Colombian conglomerate Grupo de Inversiones Suramericana SA for a reported €2.6 billion (US$3.7 billion). The deal, expected to close by year’s end, is part of ING’s attempt to divest assets and repay the Dutch state and could also instigate a slew of activity from other multinational insurers in the region.
Grupo de Inversiones Suramericana, also known as Grupo Sura, will pay ING about €2.62 billion (US$3.7 billion) in cash and assume some €65 million (US$93.4 million) in debt held within the insurance operations, according to a statement released today. The deal includes ING’s pensions, investment management and life insurance businesses in Chile, Colombia, Mexico and Uruguay as well as two stakes in Peruvian insurers. This transaction is the largest ever foreign acquisition by a Colombian company and will establish Grupo Sura as a major player in Latin America’s insurance and pensions industry, a market primed for growth due to the region’s youth leaning demographics and promising economic forecast. According to ING, once the deal is completed Grupo Sura’s combined business will include over 25 million customers and US$120 billion worth of assets across Colombia, Chile, El Salvador, Mexico, Panama, Peru, the Dominican Republic and Uruguay.
The deal, subject to regulatory approval, values ING’s Latin American insurance assets at around six times its cumulative forecast 2011 earnings and at 1.8 times its estimated €1.5 billion (US$2.16 billion) book value, based on International Financial Reporting Standards. Included in the deal were the operations ING acquired from Banco Santander in 2008 for US$1.3 billion. The unit has over 10 million clients and €49 billion worth of assets under management in countries such as, Chile, Columbia, Peru and Mexico. Grupo Sura reportedly beat out rival bids from Chile’s Alvaro Saieh, Mexico’s Grupo Financiero Banorte SAB and Metlife, to acquire these businesses. Among the notable pension funds and insurance groups Grupo Sura also now controls are Integra of Peru and ING Fondos. The transaction hasn’t however included ING’s 36 percent stake in Brazilian insurance company Sul America SA, which will be sold separately at a later date.
Grupo Sura, with holdings in Colombia’s largest bank and pension fund, has been a dominant business force in its home country and has embarked on an aggressive expansion strategy in recent years, diversifying into cement and food production earlier this year. David Bojanini, chief executive of Grupo Sura, explained in a statement that their latest acquisition would enable them to take a leadership position in regional pension and insurance markets. “This acquisition expands Grupo Sura’s presence in the region and continues our growth and internationalization strategy. ING’s operating strength and experience will complement our existing platform and will drive value for our current and future investors”, he said.
Grupo Sura will look to add significant value to its portfolio through this transaction, with an expected US$172 million in additional dividends from its investments by 2012. David Bojanini added that recent acquisitions, once integrated, will maintain Grupo Sura commitment to growth and strong corporate governance. “The similarities between the ING business model and the pension operations of Grupo Sura create an opportunity to increase the value of services for our clients. This acquisition strengthens our participation in the market and confirms our commitment to a variety of Latin American countries,” he said in a statement.
ING meanwhile expect to make a €1 billion (US$1.44 billion) profit from the sale of its Latin American operations. The proceeds will be used to further reduce leverage on the company’s insurance unit by approximately €2.8 billion (US$4 billion). The price ING managed to sell for has been considered a success by market analysts given the circumstances. The Netherlands’ biggest financial services company began selling its worldwide insurance operations earlier this year in preparation for a European Union mandated split and subsequent sale of its insurance operations. ING must divest its entire insurance division and become a pure banking business, to meet the conditions of the €10 billion (US$14.38 billion) bailout package it received from the Dutch government during the 2008 global financial crisis. ING still owes some €3 billion (US$4.3 billion) on its bailout, plus another €1.5 billion (US$2.16 billion) in penalties, and plans to fully pay back the government by May 2012.
The deal marks the latest in a series of disposals by ING as it attempts to repay the Dutch state. Earlier this month the company sold off its European auto leasing division to BMW for €637 million (US$916 million). In June, ING sold its American online banking service, ING Direct USA, to Capital One Financial for around US$9 billion in cash and stock. ING is planning initial public offerings to divest its remaining insurance and investment management businesses in the US, Europe and Asia, worth between €18-19 billion (US$26-27.5 billion), but have yet to set a date.
While ING is probably loathe to be parting with its valuable presence in Latin America, the company is making noted progress with its mandated divestments. ING released a statement that heralded the sale of its assets to Grupo Sura as “the first major step in the divestment of ING’s insurance and investment management activities.”
Jan Hommen, CEO of ING Group, was proud of the work his company had done in the region and was sure Grupo Sura would continue to develop the Latin American region into a first rate business environment for insurance. “Over the years we have built a first rate Latin American franchise with a terrific management team and leading market positions in most countries we operate in. I am pleased that we have found in Grupo Sura a very solid and complementary owner with the ambition to further build on the success of this leading Latin American pensions and insurance provider, in the interests of both our customers and our employees,” he said in a statement.
Insurance Companies Mentioned
ING provides banking, investments, life insurance and retirement services and operates in more than 50 countries. It serves more than 85 million private, corporate and institutional customers in Europe, North and Latin America, Asia and Australia.
Grupo de Inversiones Suramericana is a Medellin-based conglomerate that either directly or through its subsidiaries holds stakes in over 100 companies belonging to the insurance, energy, food and finance sectors amongst many others. With over 60 years experience, its financial businesses enjoy leading positions, including the number one player in insurance and pensions in Colombia.
Zurich American Insurance Co. (ZAIC) is going to court to determine whether or not they are liable in underwriting or defending Sony Corporation against the subsequent lawsuits and investigations related to the devastating hacker attack and data breach that afflicted the media and electronics conglomerate earlier this year. The outcome of this legal dispute could be a harbinger for further claims as both the threats to the security of information networks and the losses related to our interconnectivity continue to escalate. How to write and police policies that protect online data has now become a contentious subject of debate in the international insurance industry.
In April, Sony suffered a massive data breach when an unknown group of hackers skirted security protocols and gained access to some 100 million user accounts, potentially with corresponding credit card numbers, on the PlayStation Network. The attack was the second-largest online data breach in US history. The global video-game and movie-streaming network was then shut down again for another month as Sony reviewed its safety measures. On May 5th Sony CEO Howard Stringer apologized and offered free identity theft insurance coverage for all their US customers. The total cost of this breach and subsequent network outage is estimated to be 14 billion yen (US $178 million), not mentioning the losses related to scores of now disaffected Sony customers. While the company had agreed to payout compensation to anyone who suffered financially as a result of the incident, Sony is still being sued by a number of users and herein lays Zurich America’s complaint. Investigations conducted by US state and federal regulators looking into the incident are also underway and could end-up before the courts as well.
Zurich American filed suit with the state Supreme Court in New York last week, seeking ‘declaratory relief’ from having to defend and possibly compensate Sony over the 55 class-action lawsuits currently filed against it in the US, or any other subsequent action in response to the data breach. Each lawsuit has alleged in principal that the plaintiffs suffered damages resulting from unauthorized access to personal identification and financial information and also by an alleged delay in notifying members about the cyber attack. The most notable suit brought forward has been from an Ontario woman, filing on behalf of a million Canadian users for US$1 billion in damages. Sony has demanded Zurich American and Zurich Insurance Co. Ltd., both units of Zurich Financial Services, defend and indemnify them against this assortment of class-action claims related to the hacking scandal through their commercial general liability insurance policy written for the company as of April 1 2011. Zurich argues that its policy with Sony only covers claims related to bodily injury, property damage or personal and advertising injury and thus is not liable to indemnify the company for cyber-intrusion. According to the complaint, Zurich’s policy with Sony features exclusions related to ‘class-action complaints and miscellaneous claims’, which would deny coverage from such a circumstance and only apply to certain subsidiaries within the corporation anyway. Sony has 30 days to respond.
Sony intimated early on that the company would look to insurers to help pay for their massive network security breach. The costs associated with cleaning up their network were estimated to be US$20 per member, for a combined total surpassing US$2 billion. Zurich however wishes to clarify that while Sony could claim there was real-world property damage as a result of the network breach, the general liability insurance policy signed with them wasn’t eligible to cover cyberspace attacks or theft, even if all other underlying insurance is exhausted. Sony in fact has held a separate cyber insurance policy with another company but was looking to Zurich American for help covering the expected high costs associated with defending itself against upcoming class-action lawsuits. Zurich American doesn’t believe they are bound to take on such responsibilities going forward and have furthermore sued units of ACE Ltd, AIG and Mitsui Sumitomo Insurance, asking the court to declare what is in fact covered under the various insurance policies they had written for Sony. It is yet to be determined who should pay for upcoming lawsuits or how in fact the loss burden could be shared.
Zurich America’s attempt to extricate itself from these financial liabilities demonstrates the precarious coverage situation currently involving computer hacking and online identity theft and fraud. While Sony’s balance sheet certainly has suffered, the real-world servers housing their afflicted networks have not and thus the question of whether cyber-property damage amounts to real property damage and who covers it remains. One thing is for certain though; internet security is fast becoming a large concern for businesses today. As commerce continues to move online, the gap between technological innovation and the ability to protect data offers criminals an opening to launch attacks and steal sensitive industry information. Network security is fast becoming an issue for business of all sizes. Cyber liability insurance is thus becoming a more necessary and strategically important part of any company’s insurance coverage considerations. Sony’s experience will certainly serve as a lesson to many and if Zurich’s claim succeeds it will set a huge precedent in deciding who has responsibility over these massive online networks and the data within them.
Insurance Company Mentioned
Headquartered in Zurich, Switzerland, Zurich Financial Services Group is an insurance-based financial services provider with a network of subsidiaries and offices in North America and Europe and also in Asia-Pacific, Latin America and other markets. Zurich is one of the world’s largest insurance groups, and one of the few to operate on a truly global basis. With 60,000 employees serving customers in more than 170 countries, our business is concentrated in three business segments: General Insurance, Global Life, and Farmers.
New figures released this week by the Vietnamese government shows that, despite an economic slowdown, the Southeast Asian country’s insurance market grew by 20 percent cumulatively in the first half of the year.
The Vietnamese Ministry of Finance’s Insurance Supervisory Authority reported that total insurance premiums in the first half of 2011 reached VND17.4 trillion (US$826.8 million). Non-life insurance policies accounted for more than VND10.1 trillion (US$482 million) worth of premiums, a 22 percent increase over the same period last year. Life insurance meanwhile experienced a 16 percent growth rate in the first six months of the year. Although the life insurance sector contributes less to the industry’s total premiums, it has shown more consistent growth in recent years.
The Insurance Supervisory Authority credits the development of new innovative products in the Vietnamese life insurance market, like joint insurance, with the continued development of the sector. Joint insurance is a life policy written in the names of at least two persons whereby benefits would only be paid on the occasion of the first death claim. The insurance authority claimed this new product clearly met some nascent domestic demands as the ratio of policyholders who would cancel their joint insurance policies was reveled to be much lower than that of other kinds of insurance.
The insurance industry in Vietnam has benefited so far this year from the increasing involvement of brokerage companies in the market, particularly foreign-lead enterprises. They have been credited with introducing both better business practices and more innovative promotion efforts which has lead to increased professionalism in the market. Vietnam’s insurance authority revealed that the total amount of premiums now being brought in by insurance brokers has risen by over 80 percent in the first half of the year to VND1.8 trillion (US$86 million).
The Insurance Supervisory Authority Director, Trinh Thanh Hoan, told local media that he believes the domestic insurance industry will be able to maintain its current growth rate throughout the rest of year and has targeted a year end total insurance premiums collected of VND35.3 trillion (US$1.68 billion). This would represent a 19 percent increase of last year’s VND30.8 trillion (US$ 1.57 billion) totals. Non-life insurance would be expected to make up roughly VND20 trillion (US$952.4 million), between a 23 and 25 percent increase.
To realize these ambitious targets, Mr. Hoan outlined what Vietnamese insurance companies would need to achieve, including increasing their operating capacity to meet solvency requirements, further research and development into new products, restructuring and consolidating business to retain investors, and utilizing new technological developments. Current rules stipulate that local insurers are not permitted to retain risks exceeding 10 percent of their paid-in capital. Many Vietnamese insurers have small capital bases and the Insurance Authority expect more companies to list on the country’s stock exchanges to raise capital and to become financial holding companies.
Vietnam’s insurance market has been growing at a rapid pace in recent years, with total direct written premiums increasing around 20 percent annually since moves were first made to liberalize the industry following the country’s accession to the World Trade Organization (WTO) in 2007. Prior to these developments, domestic insurers were treated much more favorably than international insurers and the market stagnated as a result. When considering its’ true size however, the insurance market in Vietnam remains underdeveloped and small in comparison to many of its Southeast Asian neighbors.
Starting on 1 July 2011, the amended Law on Insurance Business took effect in Vietnam to further codify and standardize business practices. While the law is expected to tighten regulation on multinational companies and brokers offering cross-border insurance services it will also finally enable foreign non-life insurers to establish branches in Vietnam. Previously overseas companies could only participate in the non-life market through joint venture operations with a local firm or through licensing their business off. The Insurance Authority is also looking to introduce a raft of additional changes to better police fraud and to improve their training and recruitment efforts to ensure the industry can grow both larger and smarter.
According to A M Best’s report, ‘Vietnam’s Insurance Market Awakening to Further Change’, there are currently 29 insurance companies (mainly domestic firms) operating in Vietnam’s non-life market, with more expected to enter due to the potential for growth. However, the intense competition, high operating costs and an increased frequency and severity of insured losses has made profitable underwriting difficult to achieve in the current environment. As the market has opened up, the 4 big, partially state-owned non-life insurers have been losing market share to smaller largely-foreign competitors who have implemented aggressive growth strategies at the expense of cost-effective underwriting.
The life insurance industry in Vietnam remains less crowded than the non-life sector, with only 12 registered insurers operating in the country. Foreign insurers dominate this market, and have brought with them substantial capital, expertise and innovative distribution channels to sell a largely unknown product to the Vietnamese people. Due to the young-leaning demographics and low-per-capita income however, demand for life insurance and some other conventional insurance products has remained moderate. This is where innovative products like microinsurance could find significant market share.
Vietnam’s continued demographic and economic development will generate further awareness and demand for insurance. Although the considerable growth potential there, any foreign insurer looking to establish a presence in Vietnam’s insurance market will need to comply with tightening industry regulation, strong competition and operating challenges common to a developing economy in order to prosper.
Over the past few weeks, the various worldwide credit analysis and ratings agencies have weighed into the current political gridlock taking place in Washington D.C. and are now forecasting the effect a possible U.S. default could have on the international insurance industry.
The creditworthiness of the United States, which has always enjoyed a top AAA rating internationally, is now being threatened as President Obama and opposing Republican lawmakers continue to clash over how to best resolve the nation’s considerable debt problem. Republicans would like any increase on the US$14.3 trillion debt ceiling to feature substantial cuts in government spending, while the Obama Administration wants to generate significant revenue through tax increases. The country at large is facing an August 2 deadline, after which the federal government will not have enough funds available to pay all of its obligations without being able to borrow more. Two days after that deadline, the Treasury has a US$90 billion bond due to mature.
International insurance analysis and ratings agency A.M. Best has been at the forefront with concern over the continued inability of the U.S. government to resolve a potential debt crisis that will impact the global economy. The agency has been stress-testing US-based insurers to see how their balance sheets would fare if in fact the United States was downgraded from AAA credit rating to AA., and may consider adjusting its outlook for the entire US life and annuity sector to negative from stable.
A.M. Best conducted the tests with its proprietary capital model, Best’s Capital Adequacy Ratio (BCAR), and have thus far found that a U.S. sovereign downgrade would lead many insurers to reevaluate their underwriting leverage, as they would not be able to maintain their operations at historical levels without negatively impacting their long term financial strength. The company released a statement on the findings this week that explained why insurance companies in particular are vulnerable to the effects of potential credit downgrade. “As large-scale investors in U.S. Treasuries and government-backed instruments, insurers would experience a larger impact from a decline in the credit quality of the U.S. government than many other industries because of the asset leverage insurers hold,” A.M. Best noted, adding that too much time had now passed on US debt ceiling negotiations to not consider the gravest of consequences. “Therefore, even though A.M. Best expects a compromise to be worked out to raise the debt ceiling, the probability of a U.S. sovereign downgrade is no longer negligible, and the risk inherent in virtually all investments has increased,” the credit agency reported.
Data from the reports indicate that life insurance companies’ risk-adjusted capital positions in particular would be vulnerable to the effects of credit downgrade as they performed less admirably under extreme stress scenarios. A.M. Best explained that continued economic uncertainty will constrain most US life insurers’ ability to maintain their revenues and earnings. “The life insurance industry is clearly more adversely impacted than the property/casualty (P/C) industry because of its exposure to investment risk through higher asset leverage. In addition to the larger impact to the life industry in this stress test, there are other significant issues the life industry would face (disintermediation, liquidity, etc.).”
Life insurance companies, who always need to safeguard their assets to pay off long-term liabilities, have been major holders of debt for governments around the world. The current economic uncertainty surrounding not only the US but failing European Union members Greece, Portugal and Ireland have left life insurance companies exposed. A.M. Best notes that the current circumstances reflect our interconnected global economy and thus problems become more pervasive and require innovative solutions. “Typically, during economic crises, a global flight to quality would cause portfolios to shift away from emerging market assets toward high credit quality assets in the developed world – traditionally to the “guaranteed safety” of sovereign debt,” A.M. Best stated.
A.M. Best has not been the only ratings agency to recently warn insurers over the threat of a sovereign default. Standard & Poor’s warned last week that a whole range of the US’ most important financial companies, including insurers, could be downgraded if a deal is not struck to raise the debt limit. Moody’s Investor Services came out on Wednesday and said that if the US government defaults on its loan obligations it would result in a ratings downgrade for the four US-based AAA rated insurers. Moody’s identified the four American insurers as New York Life Insurance Company, Northwestern Mutual Life Insurance Company, Teachers Insurance & Annuity Association of America, and United Services Automobile Association. “Moody’s believes that the linkages between an insurer’s credit profile and that of the sovereign should limit the insurer’s financial strength rating to one or two notches above the sovereign bond rating…The AAA-rated US insurers are currently not on review because the rating agency regards them as resilient to a one-notch downgrade of the sovereign rating. However, should the sovereign rating be lowered by more than one notch, these insurers’ ratings could be lowered as a consequence,” Moody’s said in a statement.
The criticisms leveled at national governments by these ratings agencies are certainly interesting when you consider the events following the 2008 global financial crisis. The same demands for greater fiscal responsibility and transparency were being levied at the ratings agencies by these same governments who now may need the same oversight reforms. Whoever is calling the shots at the time, the international insurance industry will only benefit from greater financial stability across as many markets as possible.
Ratings Companies Mentioned
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.
Moody’s Investor Services provides credit ratings, research, credit risk management, and other services for more than a hundred thousand commercial and government entities around the world.
Standard & Poor’s
Standard & Poor’s (commonly referred to as S&P) is a business branch of publishing house McGraw-Hill. Operating out of 20 countries, S&P provides the investment community with independent credit ratings on important financial vehicles such as stocks, municipal bonds, corporate bonds and mutual funds. In addition to its risk management, investment research and credit rating services, Standard & Poor’s is known for its indexes, in particular the S&P 500 index.
The March 11, 2011 earthquake that struck off the coast of northeast Japan, and the devastation resulting from the subsequent tsunami and nuclear fallout threat that followed, have had a significant impact on the previously under-utilized local catastrophe insurance market.
The catastrophic event is now reported to have destroyed or damaged more than 530,000 Japanese homes, many due to the accompanying tsunami generated by seismic disturbance. Insurance payouts from the earthquake surpassed 1.05 trillion yen (US$12.4 billion) as of July 14, according to the General Insurance Association of Japan (GIAJ).
The GIAJ reported that the country’s 25 top nonlife insurance companies have received 738,373 claims inquiries related to earthquake insurance on housing risks, with 701,558 claims already settled. These same insurers have now paid out 708.4 billion yen (US$ 8.9 billion) on insured properties in the northeastern Tohoku region, settling 353,712 claims in the area associated closest to the catastrophic event. In the eastern region of Japan including Tokyo, insurers have paid out 362.12 billion yen (US$4.6 billion) in claims with 346,417 settled cases. The Hokkaido region has for the moment reported 615 million yen (US$7.8 million) in insurance claims, according to the insurance association.
Japanese life insurers meanwhile have paid out 128.7 billion yen (US$1.63 billion) in claims from the earthquake, including 98.7 billion yen (US$1.25 billion) in life insurance payouts and a further 30 billion yen (US$380 million) in accident related insurance benefits from settling 12,520 claims. Usually these accident benefits would have excluded cover for earthquake-related damages, but the Life Insurance Association of Japan said members had agreed to pay out benefits without applying de jure policy restrictions, a previously unheard of conceit in Japan.
New GIAJ chairman Mr. Shuzo Sumi released a statement on the association’s website, discussing the results and acknowledging that Japan had been reminded of the true purpose and value of insurance in experiencing this unprecedented natural catastrophe. “Difficult circumstances surround us, however, consumers and businesses have an increased awareness of risks following the Earthquake,” Sumi said, adding “the general insurance industry is expected to play an increasingly important role in ensuring protection and safety. It is strongly recognized that the industry should stand to demonstrate its value.”
The association has pledged to do more to ensure people who have not yet made claims in the earthquake-hit region be made aware and receive the necessary information to do so. Sumi further commented that “[T]he GIAJ will make every effort in our post-disaster responses centered on encouraging prompt payments of insurance claims. Further efforts should be made to improve the market penetration of Earthquake Insurance, based on lessons learned from the disaster and the voices of consumers and businesses.”
The Japanese government has planned to increase awareness and the overall penetration of earthquake insurance through improvements to its basic disaster management plan. The national tax regime will provide additional support for this endeavor by approving income tax deductions for local policyholders with earthquake insurance.
Indeed the Japanese public has already heeded this advice. According to the latest GIAJ figures, earthquake insurance policies taken out by homeowners in April grew more than five times from a year ago. A total of 130,776 new policies were sold in April, compared with just 23,847 from the same month a year earlier. Japanese insurance companies had a total of 12.87 million earthquake policies in the month, a 5 percent increase from 2010’s figures, the report said.
The earthquake insurance system in Japan is at present a private-public mixed scheme, whereby domestic insurance companies retain most costs locally by reinsuring each other with backup support from the national government. The insurance claim mechanism allows for indemnity liability to be shared, with a reinsurance system limiting exposure for a single insurer. Japan’s government has also kept an earthquake relief fund, with reserves to help the insurance industry meet cost obligations. To the GIAJ, the government reinsurance system is seen as critical for maintaining the stable operation of the system. However, in lieu of these cataclysmic disasters, there are calls for the government to explore pre-event funding mechanisms for managing the economic losses generated by such large events. These solutions are only available through Japan’s increased involvement in the international reinsurance markets. The present system may not be able to adequately manage the level of risk Japan has experienced. Pressure is rising in the country to increase the maximum coverage for earthquake insurance policyholders substantially up from the current 50 million yen for structure and 10 million yen for contents.
In addition to the natural disasters, the forecast for the Japanese general insurance industry will remain muted due to the significant aging and depopulation of the country, the mature market conditions, and profitability issues surrounding the auto sector, which has seen payments for car insurance increase by 2 percent already this year. Automobile insurance, a stalwart business in Japan, has been under duress due primarily to an increase in the frequency of traffic accidents, injury claims, and skyrocketing prices for auto parts. This consequently keeps underwriting results for these businesses at a level often below the break-even point.
While Japanese insurers remain well positioned and capitalized to absorb the net losses from the record-shattering earth quake and tsunami, look for global reinsurers to raise rates and turn this all into a possible earnings event.
Although the health insurance sector in India has experienced rapid growth in the past decade, the complexities currently involved in policing the industry has prevented the overall benefits of this positive development from permeating down to the common Indian citizen. The Health Insurance Advisory Group from the Federation of Indian Chambers of Commerce and Industry (FICCI) is now putting together a series of policy recommendations to better standardize the relationship between health insurer and provider and to ensure greater affordability and accessibility of care for all.
Last year, India’s public health insurance sector was in a state of crisis as policyholders were left stranded following a deadlock between the four leading public sector insurers (New India Assurance, Oriental Insurance, United India Insurance and the National Insurance Company) and major private hospitals over the cancellation of cashless medical insurance reimbursement for treatment, known as mediclaim. The state-owned insurers alleged that the hospitals were routinely overcharging consumers, and thus pushing their businesses towards unsubstantiated losses. Following heated negotiations and an intervention by the high court, a truce was brokered between public insurers and private hospitals and the cashless services were partially restored, with the number of enrolled facilities reduced and many treatments now reserved primarily for cases of emergency. Almost 5 percent of India’s 1.2 billion population is estimated to be covered by some form of mediclaim policy and they were left with little option but to pay out-of-pocket for hospitalization during the lockout period.
The Insurance Regulatory and Development Authority of India (IRDA) has been tasked with developing draft norms that better define and standardize terms such as critical illness and hospitalization cost, amongst others, to hopefully reduce the scope for future claims disputes between Indian insurance companies and hospitals. The FICCI has also been brought in to help the insurance regulator and to present a wide range of recommendations, including its own list of excluded expenses in hospital indemnity policies, standard treatment guidelines, and administrative contact norms and billing procedures, all ultimately to ensure better regulation of the public healthcare sector. More details about the FICCI’s plans will no doubt be revealed at its annual conference on health insurance on July 19, 2011 at Hotel Lalit, New Delhi. The title of the conference this year is “Efficiency in Delivery: Win-Win for Stakeholders.”
To further address these operational issues and push towards better national health outcomes, the FICCI and IRDA have been looking to establish a multi-stakeholder group, with representatives from the World Bank, healthcare insurers and providers and other key persons of interest who could work towards streamlining and synchronizing business protocols in the healthcare and health insurance sectors. The healthcare industry should recognize the imperative to now develop innovative models to lower the costs of medical treatment and make care more widely available in India. Much more work can be done to make quality healthcare both accessible and affordable using India’s significant economies of scale.
“The long-term vision to make quality health care affordable for the country should be to increase the health insurance penetration to at least 50 percent of population by the year 2020 and 80 percent by the year 2030,” FICCI said in a statement.
The FICCI noted that the affordability of health care across the socio-economic pyramid in India would be crucial in achieving the South Asian country’s noble objective of providing quality healthcare to everyone. Currently, only 15 percent of the population has access to any form of health protection from catastrophic loss. The government is concerned that an increasing number of people in India are going deep into debt due to medical expenses. The rising costs of inpatient medical treatment, low levels of health insurance penetration, and the accompanying high out of pocket expenditure are all placing an undue burden on individuals, in particular those who remain below the poverty line and the sizeable elderly population. The newfound prevalence in both communicable diseases and the arrival of lifestyle diseases across urban and rural India have also contributed to escalating health cost concerns.
According to the latest data compiled by the National Sample Survey Office (NSSO), around 65 percent of India’s poor population has gone into debt and a further 1 percent, which equates to millions of people, falls below the poverty line segment every year due to a lack of adequate healthcare coverage. The NSSO also estimates that by 2025, over 189 million Indians will be at least 60 years old. Therefore, it is evident that in the face of rising costs, seeking better value for money in long-term care will become a priority. Efficiency discussions regarding long-term care expenses have thus far received relatively little attention in India and better evidence and proactive action based upon what works is urgently required.
The threat of skyrocketing inflation and increasing interest rates has also dampened the ability of many Indians to adequately prepare themselves for health issues later in life. Various pressures are pushing inflation up across Asia, including growing wage bills and the rising global prices of commodities, food and fuel in these emerging resource hungry Asian economies. According to the International Monetary Fund, consumer prices rose by 13.2 percent in India last year. The considerable speed at which these prices are rising on the Subcontinent means that people will become poorer if they cannot invest their earnings successfully, despite the fact that, broadly speaking, Asia is getting richer. This particularly affects the elderly population who watch the value of their savings depreciate as health costs continue to rise.
Public sector insurers in India have long succumbed to losses as their pricing strategy cannot match the true costs of operating in this developing and populous healthcare market; private insurers have been able to manage their claims better. If the goal of the Indian government’s fundamental healthcare reform is to provide some level of base cover for every citizen, either premiums or medical costs will have to be lowered substantially. What is certain is that the demand for greater healthcare services and protection will not go away and that this will present significant business opportunities for both domestic and international insurance providers.
Federation of Indian Chambers of Commerce and Industry (FICCI) is India’s head chamber representing over 500 industry associations and business units employing over 20 million people. FICCI works closely with the Indian Central and State governments and regulatory bodies to research and implement policy change.
New data released this week by the China Insurance Regulatory Commission (CIRC) confirms what many industry analysts have already noted; that the Chinese market is fast becoming one of the most lucrative in the world and will continue to present distinct business opportunities.
According to the latest CIRC figures, the total premium income reported by Chinese insurance companies’ surpassed CNY 805.66 billion (US$123.95 billion) in the first half of the year, a 13 percent rise on last year’s figures. The largest increase in income in the first six months of 2011 came from the property insurance sector whose premiums surged 16.9 percent from a year previous to CNY 235.96 billion (US$36.49 billion). The total value of life insurance premium income meanwhile now stands at CNY 569.7 billion (US$ 88.1 billion).
These Chinese insurance firms overall have reported a 72.3 percent year-on-year rise in profits to CNY 49 billion ($7.6 billion) so far this year. The CIRC reported that these insurers cumulatively earned CNY103.11 billion (US$15.95 billion) off their investments in the first half of the year, an average return on investment of 2.1 percent. The total asset value of these companies in turn rose 7 percent to now account for CNY5.75 trillion (US$ 890 billion) collectively. These results could be further augmented by the planned IPOs of several prominent Chinese insurers. Around US$25 billion in share offerings in Hong Kong and China could be coming to the market over the next 12 months from insurance companies alone, Credit Suisse estimated in an analysis report last week.
The CIRC Chairman, Wu Dingfu, told Chinese media outlets that despite these promising figures, there remained a great many challenges to the insurance market in the midst of inflationary pressure and climbing interest rates. Insurance companies will need to adapt to changes in the Chinese macro economy and increase both equity investments and bank deposits all while maintaining a healthy solvency ratio, Wu Dingfu argued.
The Chinese insurance industry has experienced rapid growth within the past decade and still has much to look forward to. The development of the country’s insurance sector only truly began in 1979 when the People’s Insurance Company of China (PICC) resumed its operations, the only insurance company in China at the time. By the CIRC’s latest documentation, there are now a total of 121 insurance companies active in China, including 8 group companies and 10 asset-management firms. Of these 121 insurance companies, 69 are completely Chinese owned and 52 incorporate foreign investment. The Chinese companies include 34 property and casualty insurers (p&c), 32 life insurers and 3 reinsurance businesses. The foreign venture companies meanwhile involve 18 p&c insurers, 28 life insurers and six reinsurance firms.
Now, according to Swiss Re’s latest sigma study, China represents the sixth largest insurance market in the world and will become the second largest, behind America, within the next 10 years. The continued urbanization, increases in per capita income, an improved social security system, enhanced distribution reforms and service level optimization combined with stronger insurance awareness, are all positive factors contributing to the brisk development of the domestic Chinese insurance industry. As interest rates rise, profitability forecasts for insurance companies could also see further improvement. Total written premiums last year reached CNY 1,452.8 billion (US$221.4 billion), a year on year increase of 30.4 percent.
2011 marks the first year of the Chinese government’s twelfth Five?Year Plan and the country has considerable decisions to make in view of it’s future economic development. In the aftermath of the 2008 global financial crisis, China has continued to apply pragmatic fiscal and monetary policies in an effort to accentuate steady economic development throughout the country. The domestic insurance industry is looking to match these social and economic development trends in China with increased comprehensive insurance service capabilities. Thus the Chinese market is pivotal for global insurers to gain access to, not just for its absolute size and growth potential but also the high savings rate of its citizenry coupled with a financial environment in which life insurance remains a particularly attractive investment opportunity. China’s current insurance penetration rate (as a percentage of GDP) is only around 3.8 percent and is expected to increase by 18 percent within the next five years.
The leaders in the Chinese life insurance market remain China Life, Ping An Life and China Pacific, with market shares of 29, 13 and 8 percent respectively. The property market is similarly dominated by three state owned players, PICC, Ping An and China Pacific, who hold a combined market share of 64.22 percent. These entrenched companies have extensive strength in terms of branding and infrastructure and operate on a tremendous scale even by the standards of the multinational insurers originating from mature markets. There has been increased competition in recent years as local and multinational insurers attempt to strengthen their reach in the country. While the Chinese insurance market is technically open to foreign players, they are faced with more restrictions and a more active regulatory authority than in many other large countries. Foreign insurance companies thus tend to find success in China through investing and operating as joint venture partners with local Chinese insurance and financial conglomerates.
Major multinational Chinese insurance company joint ventures currently include the Sun Life Everbright and the Aviva-Cofco partnerships. Other notable foreign insurers with partnering agreements in China include Zurich and Generali, with associations involving both New China Life Insurance and China National Petroleum Corporation respectively.
Earlier this year, Goldman Sachs acquired a 12.02 percent stake in Taikang Life Insurance Co Ltd, China’s fifth-largest insurer by premiums. The acquisition gave the US Investment bank a long-sought-after foothold in the world’s largest insurance market. This was followed by Bermuda-based private insurance holding company, Starr International’s purchase of a 20 percent stake in the Chinese property insurer Dazhong Insurance Co Ltd.
Merger and acquisition activity throughout the rest of Asia is set to continue at a fervent pace throughout 2011 due to rebounding investor confidence in the various regional markets. The emerging insurance markets in Asia are now widely expected to outperform that of other more mature markets, with China leading the way.
In what could be the first fraud conviction of its kind in the UK, a Welsh man who made a false insurance claim has been found guilty of contempt and jailed for nine months after photos of him holidaying around Europe with his wife were found on social media website Facebook.
Graham Loveday, a former truck driver, claimed to be seriously disabled after being injured in an automobile accident in 2006. He sued for a six-figure sum in damages plus lost earnings of over £25,000 (US$40,000) a year from senior motorist Edward Nield, who was insured by Acromas (known as Saga at the time). Mr. Loveday claimed to be wheelchair dependent, unable to drive and phobic about travel and other activities.
The UK auto insurance industry is particularly sensitive towards egregious bodily injury claims. Acromas was given permission to pursue a legal case last year, and followed through with surveillance over the subject. While the insurer believed Loveday’s damage claims were exaggerated beyond his housebound statement, it did not contemplate the full scale of the deception. After the initial evidence was obtained last year, Acromas agreed to pay out over £3,000 (US$4,800), which would be offset against upcoming legal fees.
Upon discovery of Mr. Loveday’s Facebook profile and accompanying pictures, Acromas determined that the couple had been caravanning across Italy from May to July 2009, just a few weeks before the claimant had signed an insurance document claiming that he continued to be tormented by a ‘crippling’ fear of travel. The thorough evidence readily available on Mr. Loveday’s Facebook page documented him driving all the way from his home in Port Talbot, Wales, to the Italian lakes and back; a 2,000-mile road trip. The Lovedays had been the subject of a parallel investigation by the UK Department for Work and Pensions, who first uncovered the holiday photos.
After viewing the overwhelming evidence and sentencing the insurance fraudsters, High Court Judge Sir Anthony May, commented that the Loveday’s deceitful claim was a “public wrong, not just a private matter between you and an insurance company,” adding that “ telling deliberate lies in court proceedings undermines the fabric of justice which itself is part of the fabric of society.” It is hoped that this conviction will send out a strong deterrent against others who may act in bad faith.
Marcus Grant, legal counsel for Acromas, acknowledged that Loveday had suffered damages from his 2006 accident but was very far from the level of housebound disability he claimed for. His dishonest actions and statements since then have made matters worse and neither the insurance industry nor the UK judiciary will tolerate such behavior. Furthermore, Acromas’ counsel explained that if a user has an open profile on Facebook, and there exists reasonable grounds to suspect fraud, under current law there is nothing wrong with using your online material in relation to data privacy.
Indeed, your friends and coworkers are not the only ones who are now interested in what you are sharing on social media sites like Facebook and Twitter. Insurance companies are looking to these online social networks to learn about and engage with their clients. These online resources have proven particularly valuable to insurers looking for potential evidence that certain claims are illegitimate.
While insurers don’t have the capacity to check everyone’s individual Facebook page, investigating suspicious and expensive claims on social media sites is becoming a common industry practice. This was evidenced in 2009 when Canadian insurance giant Manulife allegedly cut a depressed woman’s disability benefits after viewing photos on her Facebook profile page showing her as ‘happy.’
Technology companies have taken note and are developing tools that will enable insurers to better monitor social media data to improve marketing attempts and perhaps even adjudicate risk and pricing strategies. Insurers are demanding a more automated process for searching social media to improve their marketing and communication efforts. Drawing a large online audience and building a solid subscriber base on sites like Facebook, Twitter and LinkedIn has important value to many insurers. When a social media user ‘likes’ or ‘follows’ a brand’s content, it can further develop and build traffic among that user’s interconnected social group. These companies remain very interested in what consumers are saying about them online and want to use the same social networking tools to rapidly engage with them, address any grievances and hold onto their customers.
The rise of social media is an astounding modern phenomenon. In some developed nations, upwards of eighty percent of computer users are member of at least one online social media network and they are connected to these networks for nearly a quarter of their time online. This rise in inter-connectivity presents new opportunities for insurance companies to engage with and expand their customer base as well as enhance their ability to sniff out fraud and police their market more effectively.
Insurance Company Mentioned
Acromas Holdings, through its subsidiaries, sells a variety of protection products in the United Kingdom and Ireland, including roadside assistance, motor insurance, home insurance, health insurance and travel insurance policies. The company was founded in 2007 and is based in Folkestone, the United Kingdom.
India’s emergent healthcare industry, which features an abundance of specialist medical facilities, an extensive network of healthcare providers and increasing demand for services, is fast becoming an attractive investment opportunity for many multinational companies. On Monday, the international arm of American health insurance powerhouse Aetna became the latest firm to enter the market through the complete acquisition of a 100 percent stake in Indian Health Organization Pvt Ltd (IHO).
The move marks Aetna International’s first foray into India and will provide the US-based health benefits company with a solid customer base of 80,000 enlisted IHO members upon which to further develop its platform in the country. Aetna will also be given access to IHO’s robust network of healthcare providers as well as the preventive care and wellness programs specially tailored to the Indian market. While the financial details of the transaction have not yet been disclosed, Aetna has intimated that they plan to retain the management and all employees at IHO. The Indian company will maintain its existing leadership structure and continue to operate as a separate business within Aetna International, reporting out to the Southeast Asia region office.
IHO is just a three-year old business, started up by two Delhi-based entrepreneurs Visham Sikand and Sunando Sen to provide medical and dental care to participating policyholders at a discount through an accredited healthcare provider network encompassing over 2,500 doctors, 500 dentists, 800 pharmacies and 300 clinics is 18 different cities across India. The company supplies a health card for an annual fee which enables clients to access diagnostic tests and health consultations at discounted rates. The annual charges for an IHO health card range from INR 1,545 (US$35) for individuals to INR 2,648 (US$60) for a one-year family plan and Rs.3,971 (US$90) for a two-year membership. The company has also unveiled a priority plan, which offer higher levels of discount for INR 3,530 (US$80) annually for single membership and Rs.4,853 (US$108) for couples.
Commenting on the acquisition of IHO, Aetna’s Managing Director for Southeast Asia, Derek Goldberg explained that their interest in the Indian healthcare marketplace was well founded. “India’s growing health care market presents tremendous opportunity. The out-of-pocket medical spend in India is more than $30 billion annually, which is more than 60% of the total health care expenditure in the country. The service offered by IHO targets that direct consumer spending on health care by providing access to primary and preventative care,” Goldberg said.
Aetna believes that combining their global expertise and resource strength with IHO’s provider network and local market insight will ultimately be of benefit to consumers, making healthcare products even more affordable and accessible in India. Goldberg added that it was important for Aetna to diversify its operations further into South Asia, stating “IHO provides Aetna with the opportunity to develop a presence in India and build out a broader provider network, serving both the local market and our expatriate members.”
Aetna International has been of the market leaders in the expatriate healthcare business, supporting over 400,000 members worldwide. Aetna recently launched a new suite of International Healthcare Plans (IHP) designed to cater to both expatriate employees and employing companies in order to make health benefits more accessible for members while abroad. India has a sizeable middle-class workforce overseas and it will become increasingly important to have an understanding of how best to provide them health benefits and security.
Visham Sikand, IHO’s co-founder and business development head, confirmed that Aetna’s involvement will be of great benefit to his company and India’s healthcare network as a whole. “As a global leader in health care, Aetna has the expertise and resources to take IHO’s business to the next level. I am excited about the prospects of making quality health care and wellness programs more affordable and accessible for consumers in India,” Sikand told the media.
Aetna’s acquisition of IHO has followed a slew of deals conducted by private equity firms looking to fund India’s escalating healthcare needs. These investments include HDFC PE’s purchase of a 12 percent stake in e-hospital MediAngels and Sequoia Capital and Elivar Equity INR 1.5 billion (US$3.4 million) outlay for a minority stake in Glocal Healthcare System’s hospital chain. The Indian government has also been looking to develop public-private partnerships in hospitals to improve and expand healthcare access towards the more remote and impoverished areas of the country. Recent moves made India’s regulatory authorities have opened up many of the country’s industries to greater foreign capital investment. This has been particularly welcome development in the insurance industry.
Since the insurance market in India was first opened up to the private sector in 1999, total insurance penetration has doubled and the domestic protection industry has overtaken several developed markets in output. There has been a substantial rise in insurance coverage, with both the number of life and health insurance policies increasing many times over. Despite this progress, Indian insurers themselves have yet to make a mark internationally in either sales or market capitalization. While premium income in the Indian insurance market within the upcoming decade is projected to reach between US$ 350-400 billion, a combination of regulatory adjustments and fierce competition between both local and international companies is expected to hamper profitability and constrict many insurers’ margins in the short term.
Insurance Companies Mentioned
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, behavioral health, group life and disability plans, and medical management capabilities and health care management services for Medicaid plans. Our customers include employer groups, individuals, college students, part-time and hourly workers, health plans, governmental units, government-sponsored plans and expatriates.
2011 has been a crushing year for the reinsurance industry, with a slew of destructive natural disasters leaving huge damage claims in their wake and putting reinsurers under intense financial pressure.
Munich Re, the world’s largest reinsurer, spoke for the reinsurance industry this week when the company reported that insured losses for the first half of 2011 are five times the average since 2001, with economic losses totaling $265 billion. This is due to an “exceptional accumulation” of intense natural disasters, such as the Japan earthquakes, the Christchurch earthquakes in New Zealand, the floods in Queensland, Australia, and the tornadoes in the USA.
Munich Re’s specific monetary losses are not due to a lack of planning, however. Board member Torsten Jeworrek said that Munich Re was “not surprised by any of the events when seen as single events, since they were within the range of what our risk models led us to expect. The accumulation of so many severe events of this type in such a short period is unusual, but is also considered in our scenario calculations.” However, CFO Jorg Schneider did say that “the earthquakes in Japan and the natural catastrophes in Australia and New Zealand have made this the most difficult start to a financial year that we [Munich Re] have experienced for a long time.” Munich Re’s first quarter losses totaled $1.3 billion, while Swiss Reinsurance Co (Munich Re’s greatest rival) lost $665 million and Allianz SE and Axa SA had their costliest first quarter ever. David Smith, a senior vice president of Eqecat, a US company that advises the insurance industry on catastrophe risk management, said that “an average annual loss for severe convective storms – tornadoes, hail, thunderstorms, and wind-is about US$ 6 billion.”
In Japan in March, the earthquakes killed 16,000 people and damaged/destroyed 125,000 buildings, leading to insured losses totaling $30 billion, making it the costliest and most damaging natural disaster of the aforementioned events.
In New Zealand, the Christchurch earthquakes caused US$20 billion of damage, with US$10 billion specifically from insurance. The Christchurch earthquakes were the third-costliest earthquakes worldwide, damaging hundreds of buildings and homes and also managing to completely destroy buildings that had been previously damaged by the 2010 quakes. IAG has increased premiums in New Zealand by 15-20 percent in order to compensate for the resulting climbing reinsurance costs.
Severe flooding occurred in Queensland at the beginning of this year, flooding homes and businesses before Australia’s first Force 5 storm in 100 years hit in February, with winds traveling at over 280 kilometres per hour. RBS analyst Richard Coles said that “Aon has noted that Australian insurers are seeing price increases ranging from 15 to 70 per cent, while Willis Re says rate rises are closer to 30 per cent for Australian loss-hit catastrophe risk.”
Southern and Midwestern America have also been hit hard by natural disasters such as storms, flooding, fires, and earthquakes this year, with US$27 billion in economic losses. Munich Re reported that this is more than double the 10-year average of US$11.8 billion, and Carl Hedde, a risk analyst for Munich Re, suspects that 2011 will be “the year of the tornado.” Bob Hartwig, head of the Insurance Information Institute said that the upward trend the amount of events in the United States “is pushing up the cost of providing insurance in many parts” and that “insurers have begun to reflect that in their rates and will continue to do so.”
These natural disasters are causing reinsurance companies to evaluate their risk policies and plan more for the future, as theories continue to develop on the negative effects of climate change. Last year was ranked one of the warmest years ever recorded by the World Meterological Organization, supporting the theory of a “long-term warming trend.” Nikola Kemper, Munich Re’s media chief, affirmed this, saying that “it would seem that the growing number of weather-related catastrophes can only be explained by climate change.” The effects of this trend could be devastating to the reinsurance industry, as warm air holds more water, ultimately creating more evaporation which generates energy to intensify droughts, floods, and storms. In order to maintain profits, companies may have to raise premiums, declare certain areas uninsurable (i.e. refusing coverage to customers who have property on top of floodplains), and simultaneously insure “green technology” that hopes to slow warming. Munich Re is one company that is doing its part; it has partnered with the London School of Economics in order to discover “more detailed information on the link between climate change and the observed increase in losses due to weather extremes.” Munich Re is also providing warranties for US company SolFocus’ solar-power systems. Insurance companies could also reduce premiums for customers and companies that have “greener” buildings.
The agricultural sector will be especially affected by possible rising insurance premiums. Grain harvests in Russia and Australia have suffered from droughts this past year as vegetable prices in China have increased by 40 percent due to flooding there. Although rural villages and food prices will continue to be negatively affected if insurance premiums do rise and risky areas are denied coverage, there may be a positive effect on climate change, as governments may be forced to address more sustainable environmental policies for consumers and companies that produce fossil fuels.
As insurance companies and reinsurers cope with the risks of a world whose climate is changing, people must be willing to do their part to lessen global warming and protect society, the environment, and the economy. Based on the rising numbers of natural disasters this year, if the government does not make more of an effort, it will surely be the taxpayers, insurance industry, and most importantly, the environment, that suffers. As Bob Hartwig, head of the Insurance Information Institute, summed it up, 2011 is “one for the record books” and that “we are rewriting the financial and economic history of disasters on a global scale.”
Insurance Companies Mentioned:
Swiss Re: As the second-largest re-insurer in the world, Swiss Re maintains a presence on all continents, providing reinsurance for Property and Casualty and Life and Health related issues, as well as risk management services for corporations.
Munich Re is one of the world’s largest reinsurers, focusing on financial stability, risk management, insurance, reinsurance, and health. Munich Re is an international company that employs over 47,000 people all around the world.
IAG: Insurance Australia Group provides personal and corporate insurance policies under several different brands, including NRMA Insurance, CGU, SGIC, SGIO and Swann Insurance. In addition to being the largest general insurer for Australia and New Zealand, IAG is expanding out of its home markets and looking to Asia.
Allianz has a growing international presence, employing over 153,000 people and providing services to about 75 million customers in 70 countries. The company provides insurance and asset management while it commands the German market especially.
AXA offers life insurance, health insurance, and asset management services. A worldwide leader in financial serivces, AXA has operations in Europe, North America, and across Asia-Pacific.
The United Arab Emirates is working hard to revise many of its regulatory policies to better conform to GCC laws, applicable through its membership in the Gulf Union. This restructuring effort could involve the adjustment and merger of some of the nation’s legislative and regulatory institutions, most notably the dissolution of the UAE Insurance Authority.
The insurance sector has continued to develop admirably in the United Arab Emirates. The Insurance Authority’s most recent report revealed that the total volume of underwritten insurance premiums in the UAE was AED22 billion (US$6 billion) for 2010, a 10 percent increase over the AED 20.1 billion (USD 5.5 billion) recorded in 2009. The total invested funds in the insurance sector meanwhile topped AED 27.6 billion, with national companies enjoying more of the windfall than ever before.
The UAE, long known as a broker market, has retained an institutional distinction between banking and investment services. Banking has been supervised by the UAE Central Bank, while insurance services are regulated through the UAE Insurance Authority. This has unfortunately resulted in numerous grey areas whereby regulators have been unable to properly apply and monitor their market reforms. Reorganizing the relationship between the Central Bank and Insurance Authority will hopefully produce a standard set of regulations across the UAE to properly address risk and guarantee the necessary consumer protections now required in a global economy.
Sources close to the situation have confirmed that the UAE Insurance Authority will likely be dissolved later in the year. The institution was first established in 2007 to oversee and pass legislation governing the regulation of the insurance industry in the UAE, including accreditation for both local and foreign registered insurance entities. In the wake of the global economic downturn, the Insurance Authority began tightening its regulatory efforts to closely match their regulatory frameworks in line with best industry practices elsewhere. The Insurance Authority was among many regulators in the Gulf at the time seeking to better police the insurance industry, particularly the intermediary sector. These businesses were failing to comply with the new capital requirements first set for brokers in December 2006. Last year, the Insurance Authority singled out and removed almost sixty firms, now leaving around 145 brokers still standing in the region. These efforts have lead to the institution extending its supervision to insurers already regulated by other bodies in the region, such as the Dubai Financial Services Authority, which also created perhaps an oversight redundancy.
To date the UAE Insurance Authority has issued nine licenses to insurers who wish to operate in the Emirates insurance industry. In March, the institution put forth draft resolutions aimed at better controlling investments within the country’s insurance market. The proposal would both set maximum limits on funds invested as well as minimum cash reserves held by active insurance firms that would be proportional to their standing capital. The Insurance Authority has also recently embarked on a process of unifying its electronic database across all insurance companies in order to soon provide a one-stop location for those interested in UAE motor vehicle insurance online, with the option ready to extend its services into other countries in the region as well. It is hoped that efforts likes this will gradually lead to either a harmonization of requirements across the region, or reciprocal arrangements between the various countries, and ultimately allow for better cross-border provision of services
Similar to other Middle Eastern states, the UAE authorities have also expressed concerns about the dominance of the expatriate workforce in the local insurance sector. Fatima Mohammed Ishaq Al Awadhi, deputy director of the Insurance Authority, intimated that the UAE may not give approval for another insurance firm to operate in the country unless it employed a sufficient number of Emirate citizens. Out of 7,271 employees currently working for insurance companies in the UAE, only 397 are citizens, an ‘Emiratization’ rate of 5.5 per cent.
The regulatory tasks and responsibilities of the Insurance Authority will be redistributed to other organizations as the institution is phased out during the year, including the issuance of new licenses for insurance, financial and investment companies looking to set up business in the country. More specifically, responsibilities for the license accreditation of UAE investment companies will be removed from the jurisdiction of the Security and Commodities Authority (SCA) and bestowed upon the Central Bank, while licenses involving insurance companies and brokerages (previously the Insurance Authority’s responsibility) will be now reassigned to the SCA. The SCA has also been authorized to monitor and process the licenses of all brokerages in the financial sector as well. These consolidation moves have been made to make domestic regulatory authorities better adhere to international best practices.
The increased involvement by the Central Bank in the insurance sector comes as the UAE considers setting up a system to guarantee small bank deposits of below AED1.5 million (US$410,000). Similar insurance plans were approved for larger deposits earlier in the year as part of a strategy to better ensure long-term financial stability in the region. The amount insured would either be carried by the banks or jointly by both banks and depositors as it is in financial systems in other countries. Many bankers in the region have thus far rejected the proposal citing unnecessary costs and the UAE banking sector’s strong capital position as a guarantee of stability.
Other countries in the Gulf region have also been busy updating their regulatory infrastructure and implementing social reforms to address institutional difficulties. This week, the Kuwaiti government signed an insurance contract worth GBP 1.8 million (US$2.8 million) with BUPA to provide private health insurance for all Kuwaiti students currently pursuing higher education in the United Kingdom.
BUPA currently serves over 2,000 students in the UK, and provides the necessary experience to ensure Kuwaiti expatriates will be well protected while abroad. The insurance policy with BUPA will include treatment for most medical and dental services available in both private and public hospitals and clinics. While visiting the United Kingdom it is important to have health coverage. The British government has renewed efforts to clamp down on the abuse of its NHS services by foreign nationals.
Kuwait Health Minister Dr. Hilal Al-Sayer told reporters that this deal demonstrated Kuwait’s intentions to provide the best services for its students to help them better learn and compete with their counterparts from other countries on more equal footing. The Ministry also planned to raise allocations for foreign medical treatment across the rest of Europe and the US. This policy was important as it would enable Kuwaiti expatriates to better adjust to high standards of living in European countries, the minister added.
Insurance Companies Mentioned
Bupa was established more than 60 years ago in the UK and now has ten million customers in over 190 countries, and over 52,000 employees around the world. Bupa is a leading international healthcare provider, offering personal and corporate health insurance, workplace health services and health assessments. 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.
This past week, Malaysia became the latest Southeast Asian country to announce plans to further develop its private hospital network in an attempt to better compete in the lucrative global medical tourism industry.
Skyrocketing healthcare costs in developed Western countries coupled with the continued progress of the global economy has encouraged many people to now venture abroad to more cost effective destinations when seeking medical treatment, a practice known as medical tourism. These macroeconomic factors combined with the falling costs of travel and communication has enabled world class healthcare facilities to establish themselves all around the world. International clients seeking alternative healthcare solutions to what is available in their home countries are now presented with many opportunities at competitive prices. Popular locations for medical travel include countries in South East Asia and Latin America, where many surgery procedures, including transplants and cosmetic procedures, cost a fraction of the price they would do in North America or Western Europe and usually can offer shorter waiting times for treatment as well. The convenience and efficiency of pursuing international medical tourism options is something to be considered for patients seeking to fully evaluate their future health procedures.
South Asia’s medical tourism industry in particular has grown at a remarkable pace, with an estimated total value of US$100 billion projected annually by 2012. National governments and private enterprise in countries, such as India, Singapore, and Thailand have been quick to recognize this lucrative marketplace and have been investing heavily in their healthcare infrastructure to meet the global demand for quality-assured medical care together with highly trained medical specialists and the latest advancements in medical technology. Countries such as Taiwan and South Korea are not far behind and have also taken measures recently to improve their performance in the international private healthcare market.
The medical tourism industry in Malaysia has progressed admirably in recent years from 75,000 foreign patients in 2001 to 297,000 in 2006, and the country now hopes to establish itself among the elite players in the region. Demand for high quality healthcare is rebounding following the global economic crisis and last year Malaysia claimed to have attracted 392,956 healthcare tourists to their facilities. In comparison to some of its Asia Pacific neighbors however, the country has a long way to go in the medical tourism field. Thailand, Singapore and India, for example, capture around 90 percent of the market and last year managed to attract 1.5 million, 720,000 and 730,000 foreign patients respectively. India’s medical tourism facilities in particular have become such a significant player that US President Barack Obama singled them out as a threat to his planned healthcare reform law.
Malaysia’s Ministry of Health has recognized the need for improvement and recently added seven hospitals and eight more ambulatory-care facilities to its existing private healthcare facility network. The country now features over 35 different private healthcare facilities accredited to handle foreign patients, including Gleneagles Hospital Kuala Lumpur, International Specialist Eye Centre and Penang Adventist Hospital. To become accredited, the Malaysian government has a lengthy set of clinical health indices a private facility must pass. The process takes up to two years for new hospitals and expenses incurred while receiving accreditation are compensated. The Ministry of Health wants all unaccredited private hospitals to become certified by the end of 2011.
Malaysian Health Minister Seri Liow Tong Lai has always made patient safety the chief priority of the Malaysian healthcare system in guiding many of its quality improvement activities in recent years. Malaysia has been a strong advocate of the World Health Organization’s World Alliance for Patient Safety and was one of the earliest signatories when the decree passed in May 2006. The health minister explained that it was the government’s wish to see all specialist hospitals fully equipped with proper facilities and personnel and that the updated criteria for selecting private hospitals “will ensure that Malaysia can offer a range of services at affordable prices. These include healthcare screening; complex treatments such as cardiothoracic, hand and microsurgery; and post-treatment such as physiotherapy.” The minister added that competition in the region for affluent health tourists was only going to grow, “Singapore, Thailand and India have captured a large portion of the healthcare travel industry in this region. Countries like Indonesia, South Korea and the Philippines are also looking at venturing into this industry in a big way,” he said.
Within the next five years the Health Ministry also plans to increase the number of cardiothoracic, urology and neurosurgeons serving in the general hospitals throughout the country. This will be done through increasing the number sponsored places for university places as well as through importation of foreign surgeons on a contract basis.
To spearhead the promotion and development efforts of the medical tourism industry the Malay government launched the Malaysia Healthcare Travel Council (MHTC) in 2009. The MHTC is tasked with facilitating greater public-private collaboration and formulating international promotion strategies for the 35 internationally accredited medical tourism hospitals currently licensed in the country. While the medical tourism industry will remain driven by the robust private medical sector, the MHTC will serve as the focal point for overseas clients and use its position to hopefully raise Malaysia’s medical tourism profile internationally as a country that provides high-quality, safe and affordable care for all comers. Through this new united national body, the government hopes to further encourage the private healthcare sector to invest more in attracting overseas clients, and plans to support them further by resolving policy and administrative impediments affecting healthcare travel, such as fast-track immigration clearance, visa applications and more.
According to a new research report from RNCOS, the Malaysian medical tourism industry’s revenue is projected to grow 16 percent annually between 2011 and 2014. The increased number of medical travelers has opened up many new opportunities for additional medical and tourist operations in the country as well. So far Malaysia has proved willing to meet this demand with pronounced investment, remarkable human resources and further market liberalization. Additional attempts to assure would-be clients of the high quality and safety standards of the nation’s private medical facilities will only help their profile in the lucrative global medical tourism industry.
Worried that someone could hijack that jewel-encrusted battleaxe you worked tirelessly for in World of Warcraft, or sabotage your long-standing account on EVE Online? Those of you spending an inordinate amount of time playing massively multiplayer online games may soon have a way to protect your hard-fought virtual assets from loss. In what could be the start of a new trend, a Chinese insurance company has teamed up with a videogame developer to launch the world’s first “virtual property” insurance to ensure the intangible liabilities of its online game players.
Virtual property can be defined as any asset collected or awarded to a player in an online game world, such as currency, land rights, weapons, abilities, characters and other goods. These all can be used, traded, exchanged and sold within the context of the game and thus can hold some genuine ‘value’ to the player. Difficulties however can arise once these virtual goods attain a sufficient value in the real world, such that players would barter in actual currency to obtain the virtual property. When this occurs, players may require real world legal intervention to solve disputes with other players and perhaps even the games developers themselves. There are still many questions surrounding the rights of virtual property but there exists a demand for services right now to provide security to those engaged in these online marketplaces.
This past week, Beijing-based Sunshine Insurance Group Ltd. announced a strategic collaboration treaty with online game designer GAMEBAR to provide a virtual insurance service for the hotly anticipated 3D multiplayer online game “Ju Xian” expected later this year. The game has been in development for 3 years and aims to provide a massively multiplayer online battlefield experience for the eager Chinese online gaming audience. Within Ju Xian, players can buy into a subsidiary currency, through which various digital items, property and weapons are purchased and sold. An insurance policy, taken out by the player for a small monthly premium, would cover such exchanges in the event of technical error. For example, if a player purchased the 11-yuan wolfram-steel sword offered in the game and then the item was lost, compensation would be provided. This basic liability insurance is also available to the operators themselves and will help to reduce GAMEBAR’s operating risks, covering select damages resulting from player disputes over the loss of virtual goods. Furthermore, the game designer hopes that providing additional security will encourage more online micro transactions and commerce.
Lian Zizhi, vice president of Sunshine Insurance Group, explained that their virtual product insurance would closely resemble traditional liability coverage policies currently available on the market used to insure property. The insurer is looking forward to working with online game developers to work out the best mechanisms to ensure the interest of their game players and themselves. “Basically it is a kind of liability insurance and has no big difference from common liability insurances. Such insurance comes into effect when the players lose their equipment and the operators concerned are responsible for that,” Lian Zizhi told CCTV.
Sunshine Insurance further added that the Copyright Protection Center of China may become involved to help determine the actuarial value of virtual property claims. The state organization could be introduced as an independent videogame oversight body, supervising game data in China and providing analysis over future online compensation standards. China has been slow to develop laws that distinguish virtual property and the problems therein. A number of East Asian countries now recognize virtual property as interdependent assets that are moveable in cases of fraud. Both South Korea and Hong Kong meanwhile have dedicated police departments that investigate in-game and technology crime.
According to China Internet Network Information Center, over 300 million people engage in online gaming, just under two-thirds of the entire Chinese internet user base. Many of these online games now incorporate massive virtual worlds with real, functioning economies, in which players can cash in their virtual goods for real money. These virtual societies also manage to mirror some of the problems of our own, with many players occasionally made to suffer economic losses as their accounts or equipment are stolen or lost. Game developers are the most concerned about this development as more gamers are electing to seek justice through courts over stolen weapons and items accumulated in their games. In 2003, a gamer in China who had his ‘Red Moon’ game account hacked and lost all his credits, took his case to court and demanded compensation from the game company. The court ruled in the player’s favor and since the cases have been piling up.
Disputes over virtual property have even impacted divorce hearings in China. In December 2010, a wife attempted to claim a share of virtual assets from her former husband because they had shared the same game account. The two originally met through an online game although marital life fast became a struggle as both parties blamed each other for being too lazy to do housework. The Beijing court approved the divorce but denied the claim.
Occasionally virtual theft and fraud has lead to real-world violence as well. A Shanghai-based gamer was sentenced to life in jail in 2005 after stabbing his friend to death in a fit of rage for selling off a rare weapon he lent to him in “Legend of Mir 3” for 7,200 Yuan. Perhaps the existence of some form of virtual insurance would have prevented such tragedies occurring in the past.
There are still many issues to resolve when actions in online virtual game worlds impact on reality and the Chinese insurance market is well poised to be at the forefront with solutions. The country’s appetite for online gaming is only matched by its overall trade and industry potential. According to Swiss Re’s latest Sigma study, China posted a significant 26.2 percent growth in 2010 premiums, and is poised to become the second-biggest insurance market within a decade. This growth will help spur both legal and commercial innovations in handling future virtual property issues. How game developers and publishers react to more regulatory involvement is yet to be seen but the demand for increased security for your online life is already here. Who is to say that gamers who are prepared to purchase virtual goods with real world cash would not react favorably towards some new form of insurance protecting their time, online status and financial investment? The millions of people logging onto popular titles such as World of Warcraft and Farmville each moth present a real opportunity for the international insurance industry.
Insurance Companies Mentioned
Sunshine Insurance Group Corporation was founded in 2005 by a conglomerate of state-owned Chinese enterprises including Sinopec, Chinalco and China Southern Airlines. The company is headquartered in Beijing and recorded 5.8 billion yuan (US$ 4 billion) in premiums last year, ranking as the eighth largest insurer in China.
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, health and special lines – such as agricultural, aviation, space, engineering, HMO reinsurance, marine, nuclear energy, and special risks.
In what could be seen as positive news for the international insurance industry, around 90 percent of European insurers and reinsurers have met minimum solvency requirements and passed the second stress test conducted by the European Insurance and Occupational Pensions Authority (EIOPA) this week. These tests are important as they examine how insurance companies would cope with varying degrees of macroeconomic crisis.
EIOPA, a body set up recently to oversee insurers and pension funds alongside local European regulators, surveyed the earnings of 221 insurance companies across Europe, representing roughly 60 percent of the continent’s combined insurance market. Between March and May of this year, the balance sheets were first tested against basic macroeconomic scenarios provided by the European Central Bank and then subject to simulated fiduciary shock scenarios that would be particularly applicable to insurance companies. These stress scenarios took into account severe macroeconomic assumptions about interest rates, falling equity and real-estate markets and a series of major natural disasters, and assessed how this would impact future capacity to handle changes to credit and insurance risk. It is the second such set of tests issued for insurance companies, now occurring parallel to a similar assessment of the banking sector by the European Banking Authority.
The stress tests are geared towards preparing for the European Union’s proposed Solvency II capital requirements. Starting in 2013 or perhaps 2014, the new capital regime will prioritize greater risk-based capitalization and require insurance and reinsurance companies based in the 27 Member States to set aside sufficient capital for future investments that regulators deem risky. The rationale behind these solvency rules is to ultimately develop a singular market for insurance services in Europe and offer adequate protection for all policyholders within. However, many countries have been critical of the EU’s requirements and have instituted their own reforms, leading to a muddled patchwork of market regulations across the continent. Short term concerns persist that Solvency II could lead to insurers increasing their capital position at the expense of tackling new business ventures and damaging their overall competitiveness on the global insurance marketplace.
Once initiated, Solvency II will implement fundamental changes in the way the European insurance industry evaluates risk and risk management practices. The EU’s new capital requirements will force a convergence of all aspects of risk quantification and decision making processes within the insurance trade. All businesses that have operations and affiliates in Europe, offer insurance products in Europe or do other business with European insurers, should now be preparing for these across-the-board changes.
The participating European insurers had on aggregate a size-able solvency surplus of €425 billion (US$615 billion) before all stress test scenarios were applied. According to the EIOPA, once adverse economic scenarios were applied the group’s surplus fell to €275 billion (US$398 billion) and €367 billion (US$531 billion) under more specific inflation circumstances. In addition, around 10 percent, of the group wouldn’t be able to meet new Solvency II capital requirements under more severe market conditions. These insurers who could not meet the threshold show a solvency deficit of €4.4 billion (US$6.4 billion) if the adverse market scenario were to occur and €2.5 billion (US$3.58 million) if the inflation scenario were to materialize, EIOPA reported
Gabriel Bernardino, chairman of the EIOPA, told reporters that the results from the stress test show ““The insurance industry in Europe remains robust at an aggregate level [and] overall the European insurance industry has a good shock absorber in its capital position. Now each company will have an analysis of the areas where they are more exposed, and they can take action.” The regulator underscored however that all tests were based on hypothetical data and that severe stress scenarios were not a forecast of what it necessarily expected to happen. Despite the failure of some companies, there is hope that most Europe-based insurers would still be able to obtain new clients and produce significant revenue in a more adverse market environment.
EIOPA maintained that it would not be appropriate at this time to reveal the identify of the insurers who failed stress tests and are potentially facing a shortfall because further adjustments to the Solvency II regime could occur before 2013. Industry analysts have speculated that those who failed were probably small mutually owned insurers and that the larger publicly-traded companies, such as Allianz SE, Axa SA and Munich Re, are expected to have passed comfortably. The supervisory body did disclose however that European insurers main vulnerabilities would remain unfavorable developments in both yield curves and sovereign-bond markets or a future string of severe natural catastrophes. The industry’s exposure to critically indebted peripheral eurozone nations remained manageable in the foreseeable future, despite news this week that German insurer Allianz would reissue a €300 million (US$430 million) bond to the Greek government. “We do not expect a major stress from exposure to Portugal, Ireland, Italy, Greece and Spain,” Bernardino added.
Critics of the exercise believe that the results may lack credibility as the tests assessed companies according to whether they achieved minimum capital requirements and furthermore that the insurers that did fail have not yet been named. There are also concerns that the stress scenarios were not taxing enough, both the simulated 15 percent drop in equity markets and adverse 12 percent fall in property values were far below the actual values experienced during the recent global financial crisis or the dot com bust in the nineties.
While the insurance industry in Europe has emerged from the financial crisis in better shape than the banks, a recent slew of losses and the impact of government bailouts on the sector have prompted regulators to inspect the industry more closely. The EIOPA tests may allay some concerns. Most companies appear to be able to reduce their surplus capital before being put at significant financial risk. Cumulatively, the European insurance sector’s €425 billion (US$608.2 billion) surplus absorbs the shortfall brought about in the stress tests and may demonstrate that the industry is still financially robust overall.
Nippon Life Insurance Company, Japan’s largest life insurer by revenue, has announced plans to expand overseas and invest €500 million (US$725 million) in a unit of Allianz SE, with the transaction expected to close later in the week. This deal marks the Japanese company’s first investment in a European peer, and it is also the first time that the German insurance giant has issued contingent capital through 30-year convertible bonds, an asset class known commonly as cocos.
The purchased Allianz subordinated bonds can be converted into equity within 10 years (and under certain undisclosed conditions apparently even earlier), which would give Nippon Life between a 1.5 to 2 percent stake in the German insurer. Nippon Life also has a venture with Schroeder’s of the United Kingdom, but this would be its first direct investment into a company in Europe.
Speaking on the deal, Nippon Life president, Yoshinobu Tsutsui, told reporters that the transaction was part of Nippon Life’s long-term business strategy to establish more robust overseas alliances as the traditional Japanese life market shrinks: “The objective of this investment is to establish a long-term partnership that is mutually beneficial for both companies,” Mr. Tsutsui said, adding “We are very pleased to have the opportunity to strengthen our relationship with Allianz, which shares similar values and beliefs with Nippon Life regarding the insurance business.”
This considerable acquisition reflects the pressing need for all Japanese insurers to search out alternative sources for growth and extend international operations, given the limited prospects in their domestic market due to both saturation and an aging population. The currency exchange rate would particularly favor acquisition activity in Europe, where the Euro has fallen against the yen by 30 percent since 2007. Despite these market conditions, consolidation efforts in Japan’s life insurance sector have remained relatively slow because most insurers are structured as mutual companies, and can thus be overtly conservative as they are owned, and held accountable, by domestic policyholders
Nippon Life has long recognized the need to generate new premium income outside their home market and have been involved with a series of overseas acquisitions in the past few years. In March, the Japanese insurer agreed to purchase a 26 percent stake in India’s Reliance Life Insurance, a unit of Reliance ADA Group, for US$680 million, which still represents the most significant foreign direct investment in the Indian insurance industry. This followed a period of interest in US-based companies, which included a US$250 million investment in Northwestern Mutual Life Insurance Co. last year, and a US$500 million venture in a Prudential Financial Inc unit in 2009.
Of Nippon Life’s Japanese life insurance rivals, only Dai-ichi Life Insurance have demonstrated similar ambitious expansion plans, recently acquiring a controlling stake in Tower Australian for US$1.2 billion in a move to gain access to the Australian life insurance market. Dai-Ichi has also invested in several emerging Asian markets, including a competitor in India. Non-life insurers from Japan have also been actively expanding their global reach. Last year, MS&AD Insurance Group acquired a 30 percent holding in Malaysia-based Hong Leong Assurance Bhd. and NKSJ Holdings acquired a majority stake in Fiba Sigorta Anonim Sirketi in Turkey, both for about US$35 million (¥27 billion).
For Allianz, the successful sale of €500 million worth of 30-year convertible subordinated notes to Nippon Life will enable the insurer to better prepare itself for the upcoming Solvency II rules, which will require EU-based insurers to hold more capital to match outstanding risks by 2014. Cocos, bonds that can be converted into equity pending pre-approved financial circumstances, are now becoming increasingly popular because they enable the issuers to raise capital reserves and benefit from a better solvency ratio without necessarily forfeiting equity. Michael Diekmann, CEO of Allianz, lauded the insurer’s deal with Nippon Life as a forward thinking move for the company: “With this transaction, we are among the first companies to participate in the growing market for contingent convertible notes,” he said in a statement. More insurers may soon test this new asset class.
Despite ongoing concerns about the economic future of the Euro zone and a fresh €300 million commitment to a second Greek rescue, Allianz Group, as a whole has continued to grow following its sound 2010 performance figures. The financial services conglomerate reported in February that annual net income for Allianz in 2010 had increased by 22.4 percent to total €5.2 billion (US$ 6.94 billion), with revenues reaching €106 billion (US$ 151 billion) and total assets under management of €1518 billion (US$ 2.17 trillion), cumulatively representing the best figures in the 120 year history of Allianz. The company has maintained itself at the forefront of the international insurance and worldwide asset management industry while looking towards mitigating policyholder risks and exploring new opportunities, despite operating in a difficult global economic environment.
While investment from Japan is welcome, other Asian countries have become pivotal markets for European-based international insurers to enter into themselves. Allianz Group has established a presence in several key emerging Asian economies through joint ventures including: Bajaj Allianz in India, Allianz China Life, PT Asuransi Allianz Utama in Indonesia, Ayudhya Allianz in Thailand and most recently, Allianz Lanka in Sri Lanka. These operations give The Allianz Group prime access to the rapidly developing Asian markets that are driving, in particular, the demand for protection, savings and investment products as the wealth of the substantial populations in these nations grow further.
Insurance Companies Mentioned
Nippon Life Insurance
Nippon Life Insurance – Japan Nippon Life Insurance Company was established in 1889 in Japan and through its subsidiaries offers various life and non life insurance products and services. Nippon Life operates in North America, Europe, Oceania, Asia, Central and South America, and the Middle East.
Allianz Group 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.
Reliance Life Insurance
Indian life insurance company, Reliance Life Insurance, is an associate company of Reliance Capital. Reliance Capital is one of India’s top 3 financial services companies by net worth. Both Reliance Life Insurance and Reliance Capital are part of the Reliance – Anil Dhirubhai Ambani Group.
Dai-Ichi Life Insurance
Dai-Ichi Life Insurance Company was founded in Tokyo in 1902 and operates in the life insurance market in Japan and overseas. Dai-Ichi Life offers whole life, term insurance, annuities and endowment products. The insurer has operations in Asia, Europe and North America offering saving and protection products for individuals and groups.
This week, the Commission on Funding of Care and Support presented its long-awaited findings to the British government in its landmark Fairer Care Funding Report. This commission, headed by economist Andrew Dilnot, was launched last year by the coalition government to present an independent review of the funding system for social support in Britain and to offer recommendations on how long-term care for the elderly and those on disability must be handled in the future.
The report first acknowledged widespread concerns surrounding the shortcomings of the current care system. At present, the British social care scheme provides support through a means-tested system, administered by local authorities. Under this system, council-funded in-house and nursing home services for the elderly and adults with disabilities are only offered to those who hold under £23,250 worth of assets. The social care system has been the only insurance system in the UK structured this way. In areas such as motor and housing coverage, Britons are encouraged to purchase private insurance to pool risks and cover themselves against potential exposure to high costs. In healthcare, the NHS pools risks through providing social insurance to everyone. For social care costs, however, the state does not provide a universal support system and thus people are unable to take out private protection. This has been the only major sector in Britain in which everyone still faces significant financial risk and yet no one has been able to protect themselves against it. This uncertainty manifests itself into a large national financial burden. The UK government currently spends £14.5 billion a year on adult social care in total, half of which is directed towards services for older citizens. A report from the OECD issued earlier this year confirmed that aging populations will cause global spending on long-term care to double or even triple by 2050. This is indeed a national problem that needs to be confronted promptly.
The current social care framework, which has been in place for 70 years, has not properly taken into account the rise in living expenses, medical inflation and demand which has left many Britons exposed to potentially very high care costs without state support. Seniors with assets just above the value threshold are often unable to protect themselves without leveraging their income and estate – a situation the general public has widely viewed as unfair. The report calculates that a quarter of all UK residents aged 65 and over will need to spend relatively little on care for the rest of their lives. Half of UK residents could have long-term-care costs of up to £20,000, but over 10 percent will likely incur costs of over £100,000 and for some many times over. There is no true way of predicting in advance what the long-term-care costs might be for any one individual and the current system leaves too many households at risk.
To address this problem and protect people from extreme healthcare costs later in life, the commission has recommended capping the lifetime contribution to adult social care costs that any individual in Britain would need to make at around £35,000. Those with care costs exceeding the cap would become eligible for full financial support from the state. A cap on contributions is thought to benefit the struggling middle classes as they pay far more towards their social care than those on lower incomes. The report also maintains that the asset threshold for means-tested state support for those in residential care should increase from the paltry £23,250 up to £100,000. The commission believes broadening the requirements will allow greater access to the state support system and could bring greater peace of mind to pensioners and reduce anxiety for both individuals and care professionals in Britain.
The Fairer Care Funding report broadly believes that care costs should not consume more than one third of a person’s assets. In addition to raising the means-test threshold four times over and updating the funding system, the commission has looked into addressing many of the more pervasive administrative concerns that continue in the UK care system. There have been frequent complaints about the high variation in eligibility for care across the country and of poor integration between different services and individuals. The report calls for all eligibility criteria to be finally standardized nationally to end the “postcode lottery” and improve transparency during the assessment process. Portability of care across localities would also be instituted to prevent citizens from needing to reapply for care if they change localities. Finally, the study recommends a significant promotion strategy to build awareness about upcoming changes to the care system, as well as a nationwide campaign to encourage citizens to put more towards savings to prepare for retirement related care costs.
Going by the commission projections, lifting the asset cap to £35,000 would cost the national purse £1.7bn in the first year, equivalent to just 0.22 percent of the country’s GDP. The cost would then increase to £3.6bn at current rates by 2015. This is all on top of a projected £22bn increase in costs due to Britain’s ageing population in the coming decade. The commission concludes the report claiming these resources and more will be necessary to institute the vital systemic reforms to update the British social care service for the 21st century: “We believe that our proposals are fairer than the current system. There is a clear, national offer, which should be backed up by better information and advice. The system facilitates choice and puts people in control. By focusing resources on those with the greatest need, while enhancing the well-being of everyone, it offers value for money. It is sustainable and resilient in the longer term. It is a better deal – one fit for today and for tomorrow.”
The Fairer Care Funding Report envisions a more robust partnership between the state support services and individuals whereby individual costs are capped while substantial risks would be covered by the government. It is hoped however, that the private insurance industry would step in and develop solutions that will help individuals meet a greater share of their care obligations. Social care insurance has yet to take off in the UK market, but now by defining the amount people will have to pay, insurers could offer viable savings plans (equity release on property, life, pension etc.) that enable policyholders to pay up the full contribution. The lessons learned from any profound changes to the UK social care infrastructure will no doubt influence what other industrialized nations attempt to do themselves.