The cost of private health insurance in Australia is due to rise by an average of 5.06 percent across the board this year after the government approved the latest round of premium hikes by local insurers. This rate increase will translate to roughly an additional AU$70 a year for individual policyholders with typical hospital cover and AU$150 for families based on 2011 Health Department figures for average medical fund costs. Premium increases for policyholders will of course vary depending on individual private insurance company and policy type.
The private health insurance market is tightly regulated in Australia, with premium levels regularly monitored and reviewed by the Federal Government to ensure affordable access to cover. Every year, Australian health insurance companies must provide the government with details justifying whether and how much they plan to fine-tune their health insurance premiums in order to further grow their business and adjust to industry expenses while remaining a solvent operation in the market. Once those rates are calculated, means-tested and rubber stamped, they are systematically applied from April 1 onwards of the following year.
On Tuesday, Australia’s Health Minister Tanya Plibersek announced that the government had approved the latest round of private health insurance premium increases at an average of 5.06 percent for 2012. This year’s average premium increase is slightly lower (0.5 percentage points) than the 5.56 percent rise seen in 2011 and remains more than 1.5 percentage points lower than the average rise over the last five years of the previous government administration. The adjusted premium amounts for each individual Australian health insurer will soon be available on the Ministry of Health’s website to give consumers further information.
Of the health insurance rate adjustments made public in Australia so far, HCF lead the way with a 5.94 percent planned increase in premium from April 1, followed by NIB at 5.5 percent and Westfund at 5.2 percent. All are above the recorded average. Among the other big funds, BUPA and Australian Unity remain slightly below the average with an increase of 4.91 per cent and 4.55 percent respectively. The government-owned Medibank Private, Australia’s largest insurer with around 30 percent of the market, meanwhile said it would lift its premiums by around 4.7 percent. According to health insurance consulting firm iSelect, these premium increases will yield an additional AU$780 million in revenues for health funds in 2012. Individual insurers will inform their customers about the new charges in coming weeks.
Minister Plibersek defended the annual premium increase, stating that 2012 represented the lowest annual rate rise in four years and that these new charges remained below the average fee inflation charged by doctors and hospitals over the past year. The Australian health insurance industry maintain that increases in premiums are matched against current and forecast raises in benefit outlays and are required to ensure that health funds remain solvent and can provide quality coverage options. According to the Health Minister, the amount Australian insurers paid out in benefits to health insurance policyholders rose by 7.6 percent last financial year to AU$13 billion (US$14 billion) and premium adjustments were necessary to ensure the solvency of these companies going forward. Indeed, while people are certainly paying more for private cover now they are also receiving more back. The growth in benefits outlay is expected to continue. Benefits paid out by health insurers are forecast to rise by a further 9 percent in 2012/13 “which is significantly more than the average premium increase,” Ms Plibersek added.
Tighter financial regulation has worked to improve outcomes in the Australian healthcare sector. The Health Minister further affirmed that the government had undergone due diligence in assessing insurance companies’ applications to raise premiums this year. Before the guidelines could be set, 24 out of the 34 premium increases submitted by insurers had to be sent back for review, asking for either a lower rate hike or to provide additional evidence to justify their original rate adjustments. “This resulted in seven insurers reducing their premiums, helping bring about lower premium increases for four million Australians, representing 38 percent of people covered by private health insurance,” Minister Plibersek said in a media release.
Private health insurers in Australia tend to operate within more narrow margins than their multinational peers and remain more concerned with maintaining stable underwriting practices and long term viability. Insurance groups must hold a minimum level of capital above prudential requirements to ensure they can meet obligations to policyholders and continue to operate in Australia. Thus allowing these companies to gradually increase their premium levels gives them the ability to generate more capital to cover for any adverse events, rising care costs, as well as fund proactive investments in their business, which ultimately should improve the quality of service for its members.
Private health insurance is not a compulsory purchase in Australia. The country’s healthcare system incorporates both public and private insurance institutions. Medicare was established in 1983 and provides Australians with free universal coverage for medical treatment and scalable reimbursement options for outpatient services. A Pharmaceutical Benefits Scheme has also been set up to subsidize medical prescriptions. The Medicare system is funded primarily through general revenue. Those above a certain income who remain solely on Medicare are liable for a Medicare Levy Surcharge, which is assessed at 1 percent of taxable income. Overall, Australia allocates around 8.5 percent of its GDP towards healthcare, which is on par with other high-income industrialized nations.
The Australian Government has taken proactive measures over the past few years to encourage more people to obtain private health insurance to ease both the financial and structural burden their rapidly graying population will have on the public healthcare system. Under the Private Health Insurance Rebate system, private health coverage receives a 30 percent subsidy from the federal government, of which all Australians are eligible. The Lifetime Health Cover policy was also introduced to encourage young Australians to take out insurance. Government incentives and insurance rebates introduced in the last decade have given Australians impetus to take out private health insurance and many have. Health Minister Plibersek said that an additional 1 million people had taken out private hospital insurance since 2007, with more than 10.4 million Australians now covered, the highest number since June 1975. The insurance industry in Australia has grown as a result.
Malaysian insurance company Syarikat Takaful Malaysia Bhd (STMB) has posted another year of strong business growth in their most recent financial statement, providing further evidence of the rapid development of the Islamic finance sector in South Asia
In their annual report released last week, Syarikat Takaful Malaysia revealed that pre-tax profits grew by 55 percent during 2011 to MYR101.4 million (US$33.6 million) by year-end, surpassing the MYR100 million (US$33 million) profit threshold for the first time since the company was founded in 1984. The insurer further detailed that after tax profits increased by a considerable 204 percent year-on-year to MYR78.5 million (US$26 million), while operating revenue increased by 17 percent to MYR1.4 billion (US$460 million) in 2011.
Syarikat Takaful Malaysia attributed these promising returns to improved shariah-compliant investment results, underwriting discipline, the continued expansion of their provider network and the introduction of new updated family and general takaful insurance products in the Malaysian market. The insurer also noted a significant improvement in their bancatakaful and group employee benefit lines, which grew by almost 75 percent last year on the back of stronger corporate client and bank partner relationships. STMB found success in South Asia’s Islamic business community last year by streamlining its systems and working to improve operational efficiency to serve their growing client base better. Datuk Mohamed Hassan Kamil, STMB group managing director, explained further in the annual report that the company’s return on equity (ROE) had grown from just over 10 percent in 2010 to 19 percent by year end 2011, and that total asset size had also risen by about 20 percent from MYR4.9 billion (US$1.62 billion) to MYR5.9 billion (US$1.96 billion) during this period. As a result of this the company board declared an interim dividend of 7 percent.
STMB’s takaful operations in Indonesia have also begun to rebound following a corporate restructuring effort in 2011. This has been a particularly welcome development because, in the long term, STMB will look to Indonesia to match or even improve upon performance of its home market. Mohamed Hassan further added that “we believe the potential for growth in Indonesia is significant and we are well positioned to capture this majority Muslim market.”
Looking ahead into 2012, Takaful Malaysia plan on stepping up their research and development efforts to create innovative new Islamic insurance products, which will enable them to remain competitive on the fore of a growing but still relatively untapped business sector. “We aim to continue outpacing the market to grow our market share. The task ahead of us is to capture a sizable portion of the expanding market as the takaful industry is expected to grow between 20 percent and 30 percent,” Mohamed Hassan said. If Malaysia’s takaful insurance market does indeed continue to post annual double-digit growth rates it will surely attract the attention of conventional insurance companies and prominent multinationals, which is why establishing a significant presence in the market now is key for a local group like Takaful Malaysia.
Malaysia’s takaful insurance market was established almost 30 years ago following the ratification of the Takaful Act 1984. The Malaysian central government has played quite an active role in driving the development of takaful through public awareness campaigns and by encouraging domestic insurers to accelerate their expansion plans across the South Asian country in order to meet the sizeable coverage needs of both the growing urban and rural Muslim populations. These efforts began to reap more pronounced returns in recent years following the central bank’s decision to issue takaful licenses to four established financial consortiums in 2006, with HSBC, Malaysia’s Hong Leong Bank and Prudential included amongst them. The government allowed these more establish foreign and local firms into the market due to the Islamic insurance sector’s previous inability to develop cost-effective takaful products on its own which would meet the Malaysian market’s specific demands.
The Malaysian Islamic insurance sector has reported a compound average growth rate of 27 percent per anum in terms of net contributions over the past 5 years, with sales of family takaful policies leading the way. Family takaful lines grew by 28 percent between 2005 and 2010 and now represents more than 80 percent of Malaysia’s total takaful market.According to a recent central bank report, Malaysia is now the world’s largest Islamic insurance market, with over one quarter of total international takaful assets being held in the country. There is still much work to be done however. While the overall insurance penetration rate is roughly 40 percent in Malaysia, coverage is insufficient and takaful penetration remains only 10 percent despite the large Muslim population (61 percent).
This correspondence between greater foreign professional involvement and pronounced industry success has not gone unnoticed. More international takaful partnerships are now expected to enter the Malaysian insurance market in the coming years. The Malaysian government is committed to the gradual financial liberalization of its Islamic finance sector. Four new takaful licenses were granted to the international insurers AIA, Friends Provident, ING, and Great Eastern by the Malaysian central bank in 2010. These new entrants brought the total number of takaful providers in Malaysia up to 12.
The Malaysian Takaful Association (MTA) expects the country’s Islamic insurance sector to build upon its strong growth momentum and improve on its 10 percent market penetration in 2012 due to rising affluence, untapped rural customer bases and Malaysia’s strong economic fundamentals. The MTA is currently drafting a new risk-based financial framework to further aid the development of the industry by raising capital adequacy standards in line with other conventional insurance lines and fixing previously inadequate investment instruments. These new guidelines, expected sometime in the next 2 years, together with the government’s Financial Sector Blueprint (2011-2020), is expected to drive the takaful industry onwards by promoting access to other financial services sectors and introducing best international practices to the market that will no doubt further facilitate and drive its growth.
The international takaful insurance market has fast become an important business line for multinational insurers who are looking for new emerging sectors and opportunities for growth. Key takaful markets are often characterized by low insurance penetration rates, rising income and savings levels and comparatively high rates of economic growth. Major foreign insurers are taking note of the huge growth potential in Islamic insurance products. While the outlook in mature Western insurance markets remains quite static, demand for takaful insurance products amongst Muslim populations in the Middle East, North Africa, Gulf and South Asia, has remained quite strong, with the likes of Malaysia, Indonesia and the UAE leading the way.
Insurance Company Mentioned
Syarikat Takaful Malaysia Berhad
Syarikat Takaful Malaysia is a Malaysia-based family and general takaful insurance company. The Company operates out of Malaysia and Indonesia. Takaful Malaysia’s subsidiaries include Asean Retakaful International, Syarikat Takaful Indonesia, and P.T. Asuransi Takaful Keluarga.
Prudential PLC, Britain’s largest insurer by market value, has hinted that they may move headquarters from London to Hong Kong in order to escape Europe’s upcoming Solvency II capital requirements and focus more on Asian business development.
The UK media was abuzz over the weekend on news that Tidjane Thiam, Prudential Chief Executive, had ordered a review of the company’s domicile situation, with the possibility of moving to Hong Kong or another Asian location very much on the table. The Times on Sunday first reported that Thiam asked Prudential executives to pursue relocation options in response to the tougher solvency rules being introduced in Europe next January. These new regulations will force European insurers to increase their capital levels and could leave Prudential holding billions of extra pounds in reserve.
Prudential, founded in London in 1848, is expected to admit to the domicile review when its annual report is released next week. In a separate company statement posted on Sunday, Prudential confirmed that management regularly reviews a wide range of options designed to better optimize the company’s strategic flexibility going forward. “This includes consideration of optimizing the Group’s domicile, including as a possible response to an adverse outcome on Solvency II. There continues to be uncertainty in relation to the implementation of Solvency II and implications for the Group’s businesses. Clarity on this issue is not expected in the near term,” Prudential claimed. The company had previously disavowed any talk of a break-up of its operations as an unnecessary business move that would hurt it’s credit rating.
The European Union’s new collective insurance industry regime, known as the Solvency II Directive, requires that insurance companies hold capital reserves with stricter proportion to their underwritten risks in order to reduce the threat of insolvency and further limit market-wide bankruptcy contagion. This new directive is expected to lead to an increase in capital requirements for many of Europe’s largest insurers as it will force these firms to increase their cash holdings against their divisions operating in markets that do not currently have the same rigorous capital standards. Short-term concerns persist amongst industry analysts that the new EU regime might cause insurers to increase their capital position at the expense of tackling new business ventures, which would damage their competitiveness, and indeed Europe’s, in the overall international insurance marketplace. The slow-moving implementation of Solvency II, which could be further delayed to 2014, has already proven costly and could also further strain insurers with potentially stricter risk-based capital requirements going forward. The overall cost of introducing Solvency II across Europe is already thought to have exceeded the European Union’s initial €3 billion (US$4.75 billion) forecast.
Thiam has long been critical of Solvency II and the negative impact it could have on Europe’s most prominent insurance companies. At the World Economic Forum in Davos last month, Thiam reportedly asserted that the EU’s new capital requirements would force Prudential to dispose of £11 billion (US$17 billion) worth of investments in UK infrastructure projects and would significantly reduce the amount the insurer could lend to banks as well. The rules have also been criticized for the extra costs they will likely impose on European pension annuities.
Solvency II poses a significant interruption to Prudential’s operations in particular. No decision has been made by EU regulators yet as to whether the United States’ capital rules are compatible with Solvency II. A failure to resolve this conflict between US and Euro regulators would force Prudential to significantly increase their reserves, much more so than their UK rivals, and hold billions in excess capital to protect its American life insurance unit Jackson National Life. If however, Prudential decided to instead move its chief headquarters to Hong Kong or elsewhere outside of Europe, only the company’s British business arm would be subject to the new Solvency II regulations.
The loss of Prudential, a well-regarded 163 year old company with £349.5 billion (US$552.25 billion) of assets under management, would be a symbolic blow to the City of London and its heralded status as the financial center of the international insurance industry. Prudential’s shareholders may not share the same sentiment about moving away from home however. Asia has fast become the company’s most important geographic market and relocating to Hong Kong would certainly be recognition of the region’s large and growing contribution to Prudential’s ongoing success.
Prudential has been using the cash generated from its legacy UK business to fund expansion efforts in booming Southeast Asian economies over the past decade. The region now accounts for nearly half of Prudential’s overall sales, and the company now has secondary stock market listings in both Singapore and Hong Kong. According to Prudential’s 2011 1H interim statement, between 60 to 65 percent of profits in the Asia region are coming from the sale of protection products. The bancassurance channel meanwhile accounts for 30 percent of Prudential’s combined annual premium across the Asia-Pacific, excluding India. With profits up 17 percent year-on-year to £465 million (US$72.2 million) across the region, Prudential now look forward to doubling their earnings in Asia over the next few years in an attempt to capitalize on the growing demand for insurance and financial service products among the expanding middle class populations in fast-moving Asian economies such as China, Indonesia and Malaysia. Prudential are now confident that the strength of their Asian insurance operations could protect them against the threat of another potential financial crisis in the West.
Prudential’s decision to review the location of their company headquarters follows similar warnings made by AXA, HSBC and Standard Chartered in the past year. These companies all look to Asia for a significant share of their overall business. The decision to leave the once warm confines of London for the promising Far East now warrants serious consideration.
Insurance Company Mentioned
Prudential has been in the insurance and financial services business since 1848. Today they operate throughout the UK, US and Asia offering international health insurance and retirement planning services, supported by 27,000 employees worldwide.
AIA Group Ltd, Asia’s third largest insurer by market value, has posted a stronger than expected rise in new business value for 2011, driven by sustained premium income growth in Malaysia, Singapore and China over the past year.
The Hong Kong-based insurance giant has been able to build on the strong sales momentum throughout the year to provide life insurance protection and savings solutions to an increasing number of clients worldwide.
In a company statement filed to the Hong Kong Stock Exchange on Friday, AIA reported that the value of new business (VONB) had risen by a record 40 percent for the year ending November 30th 2011. VONB, a measure AIA uses to project future profitability for its new business, improved to US$932 million in the last fiscal year from US$667 million in 2010. This considerable growth was made further evident in the underlying VONB margins, which rose by 4.6 percentage points from a year ago to 37.2 percent, AIA said. Annualized-new-premium (ANP), a periodic gauge for new sales, meanwhile managed to grow by 22 percent up to US$2.47 billion for the year. These figures beat out a consensus of industry analyst’s estimates that originally forecast a 30 percent increase in VONB, with around US$870 million in new business value projected for AIA for the year.
AIA has attributed the substantial increase in new business value to improved recruitment efforts, productivity boosts, product pricing improvements and margin growth across Asia. In the breakdown, AIA’s Hong Kong operations, the insurer’s home and most lucrative market, reported a 45 percent rise in VONB year-on-year to US$305 million due to improved agency sales and higher margins combined with a better product mix, the company said. The Chinese city-state accounted for almost 30 percent of the company’s new business value in 2011, with an operating profit after tax of US$736 million. AIA’s Business on the Mainland meanwhile achieved an excellent 50 percent increase in VONB during the year to US$102 million by November. China has become AIA’s third largest growth driver in the past year. According to the company statement, AIA’s operating profit after tax in China jumped by 70 percent last year to US$119 million, helped by a one-off US$14 million tax provision the insurer received in 2010. New-business value also surged by 58 percent in Singapore, while in Malaysia it jumped by 49 percent. Thailand was another country which delivered better-than-expected results. The emerging Southeast Asian power accounted for US$227 million in VONB for 2011, 22 percent of AIA’s year-end total. The value of new insurance business in Thailand was able to grow by 30 percent for the year despite severe losses in the fourth quarter caused by heavy flooding around the Bangkok region.
AIA has worked to boost the profitability of new business and agent productivity over the past few years by launching higher-margin life, health and accident insurance products in Asia’s emerging powerhouse economies, re-pricing existing protection products, and encouraging agents to offer supplemental riders to these sizeable populations with newfound disposable income. The insurer has also worked to increase its number of regional bank partners and improve its bancassurance, promotion and distribution platforms. AIA’s bank partners in the region now include Australia’s ANZ Bank and Citibank, who have a presence in 14 major Asia Pacific markets. Going forward, the insurer’s ability to develop new business partners, adjust, and move away from lower margin products in Asia will continue to boost earnings.
Despite the considerable business growth however, AIA’s net profit attributable to shareholders fell by 41 percent to US$1.6 billion from US$2.7 billion a year earlier. The insurer attributed this sharp drop to investment losses and ongoing international equity market turbulence, which affected the value of its assets in the second half of the year. AIA’s operating profit after tax (OPAT) meanwhile, before these investment losses, was 13 percent higher than 2010’s figures, at US$1.9 billion.
Going forward, AIA will remain focused on developing their business in Asia Pacific insurance markets due in no small part to the relatively stagnant economic forecasts in Europe and the United States as well as ongoing concerns surrounding the Euro-zone sovereign debt crisis. Asian markets, with predominantly younger workforces and higher savings rates, are better poised for sustained premium growth at this moment. The rise in per capita wealth and affluence in Asia has come alongside rising global healthcare costs and increased demands for secure and stable long-term savings and investment solutions. Asian markets “put us in a very strong position to optimize opportunities for further growth and generate strong and sustainable returns for our shareholders,” AIA Chief Executive Mark Tucker said in the statement.
While Tucker further admitted that “the potential exists for continuing global economic uncertainties to have a negative impact upon Asian economic growth rates and consequently upon AIA’s business,” in the absence of such an event under-penetrated insurance markets should present ample opportunity for further business development. Asia’s present wealth, favourable demographics, low-penetration rate and promising long-term economic forecast will continue to drive a substantive demand for AIA’s savings, investment-linked and life insurance products.
Insurance Company Mentioned
AIA is a Hong Kong-based life insurance company doing business across Asia that has been in business since 1919. They service over 20 million policies through 23,000 employees and 300,000 agents throughout markets in Asia, including: Vietnam, Thailand, Taiwan, South Korea, Singapore, Philippines, New Zealand, Malaysia, Macau, Indonesia, India, Hong Kong, Mainland China, Brunei and Australia.
The Vietnamese government passed through the insurance market development strategy for 2012-2020 this past week. The initiative aims to gradually spur the domestic insurance market from a base of 1.6 percent of Vietnam’s GDP in 2010 to 2-3 percent of GDP by 2015 and then hopefully up to 3 or 4 percent of national GDP by 2020.
The Vietnamese insurance industry has grown at a brisk pace in recent years, with total written premiums increasing by around 20 percent annually since moves were made to liberalize the country’s financial markets following Vietnam’s ascension to the World Trade Organization in 2007. Despite this considerable progress however, Vietnam’s insurance sector remains small and underdeveloped in comparison to many of its Southeast Asia neighbors. The industry is cautious about their 2012 forecast, with many insurers indicating expecting a modest increase in growth of around 5-10 percent, with inflation control and macroeconomic stability seen as the key concerns in the coming year.
The government strategy outlines several specific industry targets for Vietnamese insurers to strive for in the coming years in order to achieve the market’s overall growth objectives. According to an article in Vietnam Business News, local insurance companies will be required to gradually improve their capital positions over the next few years to meet compensation and insurance payment obligations to local policyholders. In 2010, the Vietnamese insurance industry paid out an estimated VND11.58 trillion (US$556 million) in compensation and additional insurance payments, which was already up by 19 percent on the previous year’s total amount. Insurers must keep pace with their risk portfolio and customer obligations as the Vietnamese insurance market continues to grow. Because of this, the government plan dictates that the scale of standby funds required by domestic insurers will double by 2015 and increase 4 and a half times by 2020.
From 2012 to 2015, the priority goal is to make the Vietnamese insurance market safer, more sustainable and efficient, in order to meet the Southeast Asian country’s increasingly diverse coverage demands – most notably rising catastrophe, property and global supply chain risk. According to the strategy, the Vietnamese government plans to gradually restructure the country’s insurance sector over the next three years, by consolidating the operations of inefficient, often state-backed, insurers and improving the management and services standards of the domestic sector in line with best international practices. In addition to this restructuring effort, new products and services will be introduced to the market, including export credit insurance and agricultural micro insurance schemes, which will be piloted over the next two years.
For the later 2016-2020 period, the Vietnamese central government want the country’s insurance authorities and key private-sector players to work together to develop specific industry mechanisms and policies which will strengthen the management and operations capacity of insurers. The government outlined three key areas in its development strategy proposal that it wants to see improvement in: improved capital adequacy, risk management practices and greater fairness and information transparency amongst Vietnam insurers. In addition to improving their capital levels and business practices, Vietnam’s insurance industry is also expected to double its contribution to the state budget by 2015 and increase their tax contribution by four times by 2020.
Vietnam’s central government has come to accept the need to restructure some of its largest state-owned enterprises, securities and insurance firms, which have often been blamed by economists for the country’s recent economic stagnation. According to their development strategy, addressing the country’s fragmented insurance market, which is largely composed of inefficient public monopolies and ineffectual tiny companies, will be one of the first items on the government’s agenda in 2012 and 2013. Vietnam’s Ministry of Finance is already taking the first steps to address this problem, by developing a set of market criteria to assess and catalog Vietnamese insurers in a bid to stabilize the market. Starting this year, the ministry will categorize insurers into four different groups and apply specific management and regulatory measures for each category, from good businesses that need support to loss-making insurers that need to consolidate or fold entirely.
There are currently 43 insurance companies active in Vietnam, including 29 non-life insurance companies and 14 life insurance companies, with more expected to enter to market soon due to the sector’s potential for sustainable premium growth. The Vietnamese non-life sector is dogged by intense competition and a claims-heavy market (particularly in motor insurance), with high operating costs that have made profitable underwriting difficult for local insures to achieve at present. The country’s four largest non-life insurers are gradually losing their market share to smaller, largely foreign-backed competitors, who have been expanding aggressively perhaps at the expense of disciplined underwriting. Vietnam’s substantial catastrophe risks, which include threats of heavy typhoons, fires and flood damage, are also driving a demand to purchase non-life reinsurance.
While Vietnam’s life insurance industry is less crowded than the non-life market, the country’s demographics which skew towards the young as well as low income per-capita have reduced demand for life and other conventional insurance and savings products thus far. In the past 10 years however, foreign insurers have been allowed to enter the market and bring with them substantial capital and expertise in order to sell these insurance products which are still largely unknown to the local population. With less than 10 percent of the population having some form of insurance coverage, the potential for growth is clearly one of the best in the Asia Pacific region going forward. Insurance companies looking to succeed in Vietnam will now need to comply with new industry guidelines, growing competition and the considerable operating challenges common in emerging economies.
China’s two-decade long rapid economic ascent has lifted over a hundred million people out of poverty and has now placed considerable pressure on the state to update it’s infrastructure and social care network in order to keep pace with the population’s remarkable growth in prosperity. The Chinese government has taken some notable steps on this front, introducing a far-reaching social insurance law last year, and now news has emerged that several of the country’s most populous cities have begun to update their own municipal maternity insurance programs, requiring local firms to take greater care of their female employees.
The need to upgrade, expand capacity and streamline Mainland China’s social safety net is a pressing economic and political issue for the national government. China’s enormous population is aging and growing increasingly anxious about future access to quality health care, maternity services and adequate pensions. Alleviating these concerns should also work to encourage Chinese consumers to spend more of their considerable savings, rather than holding on to it for emergencies, and drive the world’s second largest economy further forward. One of the issues China’s government looked to address in their broad social security reforms last July was the costs of maternity care in the country. The government wants domestic employers to take greater responsibility and contribute more towards their female employee’s maternity leave and childbirth expenses. While new guidelines were indeed set, implementation has been delayed, with many cities still needing time to revise regulations and work out details for the new maternity insurance plan.
Beijing has been one of the first cities in China to respond to the central government’s updated social insurance laws. According to a recent article in China Briefing, an Asian business magazine and daily news service, the capital city has expanded their maternity insurance cover network and revised their maternity allowance calculation method in the past month to comply with the new regulations and fill in certain coverage gaps. The Beijing Human Resources and Social Security Bureau (BHRSSB) outlined these plans in circular number 334 “On Adjusting the Municipal Maternity Insurance Policy for Employees,” which was released in December last year.
The most notable change in Beijing’s maternity insurance scheme is the improvement to maternity allowance, which is the amount of salary contribution given to a female employee for her maternity leave. Under the new insurance system, starting January 1 2012, maternity allowance for female employees in Beijing will be calculated according to the combined average monthly salary of all employees in a given company reported during the previous calendar year. This allowance will then be multiplied by the duration of maternity leave taken by said female employee.
The government circular further clarified that Beijing-based female employees will receive the same amount of maternity allowance from the new calculation method even if their actual monthly salary level is considerably lower than that the average company wage. Meanwhile, if a female employee’s monthly salary level is higher than the company standard, the employer will be required to make up the difference in the two amounts. According to the BHRSSB, this was done to alleviate concerns that senior-level employees could have ended up receiving fewer benefits for their maternity leave. In addition, if a female employee gives birth nine months after the new insurance law comes into effect, but has not made any maternity premium payments for at least nine months, the maternity compensation will be paid by her employer.
The city of Beijing’s maternity insurance system was in need of an overhaul. Prior to this updated ruling, maternity allowance was tied solely to the female employee’s individual average monthly salary and could only be applied within a one-month period surrounding the child birth in Beijing. This previous system simply could not guarantee enough resources for expecting Chinese mothers and often allowed employers to provide miserly allotments which could not keep up with the rising costs of maternity care. From January 2012 onwards, all Beijing-based employees tied to a local enterprise, government agency, institution, community group, foundation, firm or individual business will be required to participate in the city’s new maternity insurance scheme. Any employer that fails to register their staff and contribute to the social insurance fund accordingly will be subject to fines and further regulatory oversight.
Beijing is not the only city interested in revising its social care network. Hangzhou, the capital city of Zhejian Province, has also decided to raise the maternity insurance contribution rates to assist female employees within its borders. The Hangzhou local government has introduced new measures which will lift the employer contribution rate for maternity insurance within Hangzhou City to 1.2 percent of a company’s total wage bill, a 30 percent rise on the 0.8 percent required previously. Meanwhile, companies based outside the city limits, in rural and suburban areas, will have their maternity allowance contribution limits set either by local district government or county-level municipalities. While the wage base for the maternity insurance scheme across Zhejian Province will remain unchanged, local Hangzhou companies will be required to tabulate the monthly salary of all of its employees and use that as the base for future maternity insurance payments. The Hangzhou government authorities further stipulated that if the monthly wage of a female employee is below 60 percent or above 300 percent of a company’s average monthly salary structure, her wage base for maternity insurance shall be capped at either 60 percent (for low salary staff) or 300 percent (for the high salary staff) of Zhejiang province’s average monthly wage for the previous calendar year. Additional contributions involving specific childbirth outcomes has also being discussed, and will likely vary depending on the pregnancy term, surgeries required (such as a caesarean section), as well as whether multiple births are involved. While these measures officially took effect last year, local Hangzhou authorities are still waiting for details on how to implement the new allowance contribution system.
Revising China’s maternity insurance system certainly is timely. According to the Chinese zodiac, 2012 is a year of the dragon and is widely expected to lead to a baby boom on the Mainland due to the belief that children born now will be endowed with good luck and have a prosperous life. Failure to adequately address the country’s maternity care system will not only impact the lives and outcomes for Mainland mothers, but likely those in neighboring Hong Kong as well. Hong Kong has proven to be a popular destination for expecting Mainland mothers as the city is exempt from China’s one-child population control rule, and Chinese children born within their borders are entitled to local residency and access to superior social services. According to the Hong Kong government, the city-state’s maternity facilities were put under serious pressure last year after 40,648 Mainland mothers gave birth in local hospitals, which was equal to roughly 45 percent of the city-state’s 88,000 total births in 2010. With no end to Mainland China’s population controls expected, this surge in cross-border maternity tourism activity will continue to be a hot button issue going forward. Addressing the gaps in Mainland China’s maternal safety net will likely prove to be one of the most effective measures in persuading Mainland moms to have their baby on the Mainland.
Fresh media reports out of the UAE this week indicate that the region’s burgeoning medical tourism market may be curtailed by ongoing healthcare capacity problems, regulatory issues and other market forces.
The United Arab Emirates is the largest medical tourism market in the Middle East, drawing an estimated 4.3 million people to the country each year for healthcare and wellness services. An article in Dubai-based English language journal, the National, this week asserts that while the private healthcare sector has done a good job in promoting the UAE as an attractive international medical tourism hub so far, the market’s existing medical infrastructure may not be ready to handle a further influx of tourists.Read the rest of the Health Tourism in UAE Keeps Up article.
Prominent international expatriate medical insurance company, William Russell, announced this past week that they are finally bringing their award-winning global health, life and income protection plans to businesses in Abu Dhabi through a new partnership with a local firm.
William Russell’s global health insurance plans are designed to provide expatriate staff with access to the high-quality private healthcare services they need whilst living and working overseas. Global medical insurance plans often appeal to large multinational corporations who need to provide quality benefits, usually with minimal restrictions and worldwide cover, for their discerning senior executive employees. While these high-value international health insurance products have been available in the United Arab Emirates (UAE) for some time, strict health insurance regulations barring non-locally domiciled providers had prevented the sale of William Russell policies in the Emirate of Abu Dhabi.
Read the rest of the Abu Dhabi Health Insurance article
MetLife Inc, America’s largest life insurance group, reported a surge in fourth-quarter profit on Tuesday, mainly attributable to the continued development of its international insurance operations and pronounced derivative gains.
In a company filing, Metlife reported fourth quarter 2011 net income of US$1.1 billion, or US$1.06 per share, and operating earnings of US$1.4 billion, or US$1.31 per share, which equated to a 17 percent rise on 2010’s figures and topped previous market estimates. The New York-based insurer credited much of this success to their recent acquisition of ALICO, a major life insurance unit whom they bought from American International Group Inc (AIG) for US$16.4 billion in 2010. Metlife had long been looking to establish a more global brand and distribution platform. The acquisition of Alico, who had offices in over 50 countries, has provided the company with meaningful new sources of diversified earnings through their access to new Asian, European, Middle Eastern and Latin American insurance markets. Total international sales grew by 12 percent compared with the combined MetLife and Alico results in fourth quarter 2010.
This trend was made further evident in the MetLife full year report, which was released simultaneously on Tuesday. Buoyed by the Alico purchase, Metlife’s international business (including premiums, fees and other revenues) was worth US$3.8 billion in 2011, with operating earnings growing by a remarkable 89 percent to US$570 million for the year. According to Metlife, these increases were partly offset by the negative impact of foreign currency exchange rates. In addition, in Latin America, Metlife’s revenues grew due to increased premium levels in Mexico, Chile and Argentina. Premiums, fees and other revenues furthermore benefited from robust development in the Middle East and Eastern Europe, according to MetLife. The insurer also singled out its performance in Japan, where sales and operating earnings grew by 3 percent to US$326 million for the quarter. Higher net investment income and improved underwriting results in accident and health insurance enabled Metlife to improve their margins in mature, claims-heavy environment. Premiums, fees and other revenues in Japan were US$1.8 billion, higher than in the fourth quarter of 2010 and relatively unchanged from the third quarter of 2011.
Metlife’s investment activity has also played a big role in their substantial quarterly gains. Like other large insurance companies, MetLife use derivatives as part of their broader portfolio management strategy to hedge against a number of long-term risks, and this includes potential changes in interest rates and foreign currency exchange rates. Metlife reported total derivative net gains of US$351 million after tax during the fourth quarter 2011, a far cry from the US$1.1 billion derivative net loss noted in 2010. Net investment income in 2011 came in at US$4.94 billion in total. Total assets are now worth nearly US$800 billion, up by 9 percent from year-end 2010.
Metlife was able to report growth in its home US market last year as well, despite facing a more difficult regulatory environment, low interest rates, and waning demand for certain insurance products. According to the company filing, Metlife’s US-based premiums and other revenues rose by 7 percent to US$7.6 billion in 2011, principally on sales of retirement products and increased corporate benefit funding. US business operating earnings meanwhile increased by 4 percent to US$932 million on the year, due to improved underwriting results in group life and health insurance business lines.
While MetLife’s international business has expanded, its performance in the US has remained relatively flat and this has necessitated the firm’s recent global restructuring effort. In November, MetLife reorganized its business structure into three different geographic regions – the Americas, Europe-Middle East-Africa, and Asia. This move will better reflect the company’s improved global reach.and will target all the markets where sustainable premium growth is feasible more equally. Metlife are expected to report financial results under this new structure by the first quarter of 2012. According to some industry observers, MetLife’s business in the US could improve through this reorganization. By bundling US insurance business together with their Latin American business, an under-penetrated and populous region forecast for growth, MetLife may be able to equalize mature market weaknesses in the short-to-medium term and manage its margins more effectively until, and if, US consumer spending behaviour improves.
Despite ongoing global economic volatility, MetLife’s executives expect that company profits could rise again in 2012, driven by both improved US retirement product sales and the continued development of international insurance markets. Steven A. Kandarian, Chairman and CEO of MetLife, explained in the company filing that the company had made admirable progress in 2011 and were by no means done yet. “MetLife had a solid year and a strong fourth quarter, even in the face of some significant market pressures. We delivered higher earnings per share over 2010. Our capital position is strong and getting stronger. And our ability to grow operating earnings in the face of low interest rates remains intact. In short, we think we’re the best-positioned company in the life insurance sector to deliver shareholder value.” In the aftermath of the global financial crisis, large multinational insurers like AIG, AXA and MetLife will need to find value by re-positioning their global operations to ensure they have access to insurance markets in the emerging economies that now offer the most profound earnings opportunities going forward.
Insurance Company Mentioned
MetLife is the largest life insurance company in the United States, with total assets of US$785 billion and over US$4.2 trillion of life insurance in force. 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.
There may be boom times ahead for the UAE travel insurance market, as both inbound and outbound tourism numbers begin to rebound after a difficult couple of years. One of the Gulf state’s largest insurance companies has predicted travel insurance sales could now grow by 40 percent in 2012 alone.
Speaking at the Dubai Economic Outlook 2012 presentation on Wednesday, Sheikh Ahmad Bin Saeed Al Maktoum stated that the UAE economy would expect to grow by around 4.5-5 percent this year, and that the Gulf’s tourism and travel sectors would be major contributors to the country’s commercial development going forward. Buoyed by vast oil and gas wealth, the UAE economy had moved at a brisk pace up until the 2008 global financial crisis, when Dubai’s once powerful property and construction sector required a massive US$26 billion government bailout to restructure their considerable debts. This event of course impacted other sectors of the economy as well, with foreign investment and tourism declining in tow.
Read the rest of the Dubai Travel Insurance Sector Expects Growth article
The Philippines is fast becoming one of Asia’s most promising young insurance markets, with newly released industry statistics projecting yet another year of double digit premium growth in the country’s life sector.
Gregorio Mercado, President of the Philippine Life Insurance Association (PLIA), announced in a press briefing on Tuesday that unaudited premium income for the country’s life insurance sector amounted to P85.5 billion (US$2 billion) by year-end 2011, about 21 percent higher than the P70.7 billion (US$1.67 billion) recorded in 2010. This considerable P15 billion (US$350 million) improvement follows similar gains made during the 2009-2010 reporting period, when premium levels went from P57.241 billion (US$1.34 billion) to P70.7 billion (US$1.67 billion), a 23.5 percent annual increase. At this pace and barring any further global financial shocks, the PLIA President expects the country’s life insurance industry to grow by at least 16 percent in 2012, breaking the P100 billion (US$2.36 billion) threshold in new premium income by year’s end. “We want to hit P100 billion by the end of this year,” Mercado declared. While local non-life insurers have suffered from heavy claims losses and dubious investment practices, the Philippines life insurance market remains financially stable and well capitalized, with reserves capable of meeting all present obligations.
The continued development of the Philippines economy has enabled the country’s insurance sector to sustain its positive outlook for stable premium growth. A healthy economy together with improved consumption patterns, remittances from the sizeable overseas Filipino Diaspora, and the high liquidity present in the country’s financial system, are all strong internal factors that will continue to drive investor confidence in the emerging Southeast Asian market. These favorable economic development conditions have provided Filipinos with more personal disposable income with which to now purchase insurance. It is also worth noting that, most of the Philippine workforce is technically covered by a the health insurance scheme provided under Philippine Health Insurance Corporation (PhiHealth), and this perhaps enables them to pursue other avenues of insurance coverage as well.
Despite these strong internal indicators, the future growth and development of the Philippines insurance sector remains tied to the overall performance of the global economy, similar to that of other emerging Asian nations. The PLIA President acknowledged these external forces in his briefing, stating that their annual forecast was made “assuming that the economic issues affecting Europe and the US would not further worsen, since that may have a subsequent effect on the Philippine economy.” For the local insurance industry, further downgrades in Europe or the US would likely affect interest rates and foreign investment activity. Mercado assured reporters however that the Phillipines insurance industry already has a strong framework in place which will limit contagion with ongoing global financial market volatility, adding that “our fundamentals remain strong amidst the prudent financial regulations and vigilant performance monitoring mechanism of the Insurance Commission, along with the good record of compliance by the industry.”
The PLIA have based their projections on rising microinsurance sales, greater financial literacy amongst the general population, and the continued evolution and maturation of the domestic insurance industry towards best international standards. Microinsurance was cited by the PLIA President in particular as an integral development tool which should raise the insurance penetration rates amongst the Filipino population considerably in the coming years. Microinsurance policies in the Philippines are currently defined as retail products that offer coverage values between P500 (US$12) and P200,000 (US$4,700). Premium payments can be as small as one peso or up to P19 (US$0.45) a day and giving out benefits as large as P190,000 (US$500) per policy. According to the Insurance Commission (IC), the number of Filipinos buying microinsurance has already risen considerably, with approximately 3.5 million policies sold in the past year. This number is expected to increase to over 5 million new policy sales in 2012, driven in no small part by recent weather calamites which have increased the demand for insurance policies amongst the country’s rural populace.
Insurance companies themselves recognize the potential microinsurance offers in the Philippines, and an increased number are now entering the market. In his briefing, the PLIA President disclosed that nine member-companies have obtained the license to sell Filipino microinsurance products so far. These companies are Asian Life & General, Banclife, CISP, CLIMBS, Cocolife, Country Bankers, Manila Bankers, Philippine Prudential, and Pioneer Life. Five more companies are currently awaiting IC approval to sell microinsurance. These are BPI-Philam, Manulife, PELAC, Philamlife, and Sun Life.
In addition to greater microinsurance sales, the PLIA briefing noted that the recent decision by the Bureau of the Treasury to issue longer-termed 10-year and 20-year government securities will enable Filipino life insurance companies to more effectively match assets with future liabilities and better manage their balance sheets going forward. According to the PLIA President, these Treasury bonds are “safe, long-term, and good-yielding investments which we prefer to be part of the assets of life insurers that allow good matching with our liabilities to better service the claims of our clients.”
Overall, Filipinos are becoming more risk aware every year and are now increasingly seeking out the insurance coverage solutions that PLIA members offer. The PLIA has attributed this development in part to their on-going fiscal literacy campaign, which aims to educate more remote populations about the importance of insurance and adequate financial planning.Improving insurance awareness is the next great challenge for the Philippines insurance sector. According to government data, life insurance premiums accounted for only around 1.04 percent of the country’s GDP in 2011, the lowest in the Asean-5 region and far below the worldwide average of 4 percent. The PLIA expect this figure to increase considerably over the next few years as market conditions improve together with the introduction and development of innovative new products, such as micro-insurance.
Singapore’s life insurance industry has been able to weather volatile global capital markets to great affect this past year, with new business premiums crossing the S$2 billion threshold for the first time in 2011 according to a new report.
In their year-end dataset released this week, the Life Insurance Association of Singapore (LIA) revealed that the country’s life insurance industry grew by 22 percent in 2011. The LIA is a non-profit trade body licensed by the Monetary Authority of Singapore (MAS) that works to represent the interests of 16 major life insurers and 3 life reinsurers in the Southeast Asian country. This year represents the association’s 50th anniversary.
According to the LIA, sustained growth over four consecutive quarters enabled the Singaporean life insurance sector to realize S$2,007.4 million (US$1.6 billion) in ‘weighted’ new business premiums during the 2011 reporting period, up from the S$1,651.3 million (US$1.3 billion) recorded in 2010. The LIA calculates the weighted new business premium figure by adding 10 percent of the Single Premium Index (SPI) to 100 percent of the Annual Premium Index (API), with an additional modifier for premium payment terms of less than 10 years.
Despite this considerable year-on-year progress however, the LIA noted that new business growth did in fact decline slightly for Singapore life insurers during the fourth quarter. This period was marked by a strong divergence in demand between annual-premium and single-premium life insurance products in Singapore. From October to December 2011, sales of annual-premium products, which are insurance plans with long-term savings components, reached S$386.4 million (US$30.9 million), a 19 percent annual increase. Single premium businesses, or short tenure plans, meanwhile experienced a sharp 23 percent annual decline to S$156.5 million (US$124.7 million), according to the LIA, quite a turnaround from the 16 percent growth rate experienced last quarter. Combined, sales of both types of products which reached S$542.9 million (US$432.7 million), yielded only a 3 percent growth rate for Singaporean life insurers over the same fourth quarter period last year.
Singapore’s life insurance sector is divided into companies with normal licenses and those classified as ‘defined market segment’ (DMS) insurance companies. DMS insurers are specifically registered with the MAS to conduct only non CPF-related business (the country’s mandatory savings and retirement fund) and are required to stay within certain minimum policy sizes. The following multinational insurers are currently DMS classified companies in Singapore: Friends Provident International, Generali, Royal Skandia, Transamerica and Zurich International. According to the LIA statement, these DMS insurers have contributed 5 percent of new sales for the year, while insurers holding normal licenses represented the other 95 percent.
Up to the end of December 2011, Singapore’s life insurance industry paid out a total of S$3.69 billion (US$2.94 billion) to associated policyholders and beneficiaries. Of these payouts, the LIA detailed that only S$467 million (US$372 million) came as a result of death, critical illness or other disability claims, while the remaining S$4.74 billion (US$3.78 billion) were for policies that matured. The association also noted that, as of September 2011, Singapore life insurers were managing assets worth approximately S$118.3 billion (US$94.3 billion), up 1 percent annually. Assets of non-linked business accounted for S$96.4 billion and investment-linked policies made up the remaining $21.9 billion (US$17.45 billion) in assets. In terms of overall manpower, LIA member companies in the Singaporean life insurance sector now employ 5,147 office staff and 13,221 sales representatives in total.
In explaining the updated insurance market statistics, Mr. Tan Hak Leh, President of the Life Insurance Association (LIA), acknowledged that while the performance of Singapore’s insurance sector would continue to be impacted by global economic volatility, the rising protection and investment needs of Singapore’s middle-class population should be able to provide local insurers with enough momentum to achieve sustainable premium growth in their home market going forward. The fact that Singapore’s life insurance industry has delivered four consecutive quarters of growth is evidence of this. “The overall results point to the fact that the industry remains in a strong position. The economy as well as consumer sentiment went through uncertain times during 2011, and it’s good to note that the industry has remained resilient. We owe this to a combination of the resourcefulness of our industry in delivering pertinent products and quality servicing and consumer confidence in life insurance solutions for their financial plans.” Mr Tan Hak Leh commented.
In addition to life insurance data, the LIA year-end report managed to highlight several other trends occurring in the Singaporean insurance market during 2011. According to the report, new health insurance sales grew by 6 percent last year, bringing in S$165 million (US$131.5 million) in premiums. Of these new health insurance sales, the majority, 88 percent, went into Integrated Shield Plans and associated riders, Singapore’s equivalent of Medicare insurance. This growth in new health insurance sales has been attributed to rising medical costs in Singapore and increased awareness amongst the populace of greater medical protection policies. The LIA was pleased to note that, as of December 31 2011, over 2.48 million people are now covered by health insurance in Singapore, well over half the island’s population, with paid up premiums totalling S$877 million (US$698.9 million). “It is assuring to note the steadily increasing take-up rate for health insurance over the past three years. Consumers are taking steps in the right direction to get health insurance coverage to meet rising medical costs,” Tan added.
The report also detailed several distribution channel trends occurring in the Singapore insurance market. The LIA noted that the country’s 13,000-strong tied agency force remains the main avenue of distribution in Singapore. Agents have contributed to nearly half of all the new business written by life insurers, bringing in approximately 49 percent of all weighted new business sales in 2011, according to the LIA. This performance was followed by an uptick in the number of insurance products and services sold through banks, commonly referred to as bancassurance. Indeed, according to the LIA, bancassurance now accounts for around 34 percent of insurance sales in Singapore, up 7 percent on last year’s report. Financial advisers in the country meanwhile have contributed 14 percent towards new insurance sales this year, while other channels, including direct sales channels, have made up the remaining 3 percent of business.
The LIA furthermore observed that Singapore consumer preferences over different types of life insurance products have remained fairly consistent over the past few years. Participating (par) whole-life insurance products are the most popular policies, making up 52 percent of new sales, with non-participating annuities and investment-linked products splitting the remaining business between them, at 25 and 23 percent of recent sales respectively. Singaporean consumers have consistently demonstrated a clear preference for the dividend options that mutual life insurance companies can provide.
In the concluding remarks, LIA President Tan Hak Leh recapped that during these volatile global economic times, the demand for robust long term planning and savings solutions increases, and it will incumbent on Singapore’s insurers to adequately meet and capitalize on these needs. “Amidst continuing global economic uncertainties, it is critical for life insurance companies to remain vigilant and proactively manage their business to safeguard the long-term financial soundness of the industry,” said Mr Tan.
Founded in 1962, the LIA works to further develop Singapore’s life insurance industry. Since its establishment, the organization has launched public education initiatives, improved industry guidelines, conducted valuable market research, and held numerous conferences and seminars for the professional development of the industry.
The push to turn South Korea into Asia’s premier medical tourism hub is beginning to deliver sizeable returns, as more foreign travelers visit the country to get high-quality medical treatment and plastic surgery. New statistics released by the Bank of Korea reveal that inbound medical tourism revenue exceeded outbound healthcare expenditure for the first time ever last year.
According to a Bank of Korea report, South Korea’s medical tourism sector posted a record US$115.6 million in income for 2011. This represented the country’s first ever annual medical travel surplus, as the inbound income surpassed local resident’s overseas spending on medical treatment, which amounted to US$109.1 million last year.
The South Korean government has earmarked international medical tourism as a key part of the country’s overall economic plan going forward. In 2009 the government embarked on an aggressive marketing campaign, called ‘Medical Korea,’ which has worked to promote the country’s medical facilities overseas as a new reason for international travelers to visit the country. During this time, the government has also been working with private healthcare groups in the country to implement a national registry system, specialized medical treatment visas, and a 24/7 medical call center for foreign patients to contact in case of emergency or misunderstanding.
The government’s decision to prioritize medical tourism development has begun to reap dividends. According to Korea Health Industry Development Institute (KHIDI), 81,789 foreign patients visited Korea for some kind of medical treatment in 2010, a 36 percent increase on 2009, with total revenue from treatment nearly doubling as well. The Ministry recorded 7,901 inbound foreign patients in 2007, 27,480 in 2008 and then up to 60,200 in 2009. Foreign patients are now visiting South Korea for a wider range of treatments as well. While in the past Korea was primarily seen as a destination for elective cosmetic surgery procedures, an increasing number of foreign patients are now seeking more serious surgery and medical treatment in the country’s advanced healthcare facilities. According to the KHIDI, 9,993 foreign patients with such demands sought treatment in Korea last year, equating to 12 percent of all inbound medical tourists, and spent US$49 million between them, or more than half of foreign tourists’ net outlay. The KHIDI noted that oriental medicine, gynaecology and orthopaedics have also grown in popularity among foreign patients in Korea. Most medical tourists are now coming from China or Japan. The Korean Embassy in China issued 1073 medical tourist visas in 2011, up by over 300 percent from a year earlier.
Overall income from medical tourism has nearly doubled in the past five years as well. In 2006, when the Bank of Korea first began collecting the related industry data, medical tourism income stood at just US$59 million. The figure then rose at a steady pace, moving from US$68 million in 2007 to US$70 million in 2008, US$83 million in 2009 and then up to US$89.5 million in 2010. Meanwhile, the money spent overseas by Koreans for treatment during this period fell from around US$119 million in 2006 to US$109 million last year. The government data is based on details provided by incoming travelers and credit card purchase information.
Both the number of foreign medical tourists visiting Korea and their expenses has seen a sharp rise in the past few years. At this pace, the Bank of Korea estimated that as many as 400,000 foreign patients could visit Korea annually by 2018, brining with them an added income of US$1.34 billion.
Despite this considerable progress, it should be noted that South Korea still lags behind many of its Asian neighbors in medical tourism development. India, Singapore and Thailand, for example, managed to attract 730,000, 720,000 and 1.5 million overseas patients in 2010 respectively. Although the quality and pricing of Korea’s medical services are comparable to its continental rivals, the global awareness of their services remains quite low. Critics cite the previous lack of national focus and regulatory support as key impediments, which lead to a lack of control over health outcomes and service quality for foreigners. The South Korean government wants the total number of foreign patients in the country to surpass 300,000 annually by 2015. To do this they have initiated several medical tourism reforms that are designed to cut red tape and become more foreigner friendly, all while guaranteeing patients’ rights to best international standards.
Last year legislation was passed which gives foreign patients the right to seek compensation if they become a victim of medical malpractice in South Korea. Previously there was no compensation standard for non-resident malpractice victims, which was a strong disincentive for potential foreign medical tourists. The South Korean government established a mutual aid association, comprised of Korean hospitals and clinics, to implement this initiative. The association collects medical tourism surcharges and uses the pooled funds to compensate foreign patients when claims arise. Through this new national body, the government will work to further encourage the private sector to invest more in attracting overseas healthcare clients. While many Korean healthcare groups recognize medical tourism as a vital growth industry, many of the country’s hospitals have not yet set up the appropriate medical care infrastructure expected by many foreigners. Compared to other international medical tourism markets, the lack of foreign language capability amongst many Korean healthcare providers remains a concern. The government announced plans to address this issue by increasing training for medical translators and by expanding the services of the national healthcare call center.
Asia’s medical tourism industry is set to grow, with a forecast value of US$100 billion annually by the end of 2012. The extensive development of the global macro economy combined with falling costs for travel and communication has enabled world-class healthcare facilities to establish themselves all around the world and auction their services appropriately. International clients who are now seeking alternative healthcare solutions to what is available in their home countries at competitive prices are now presented with so many opportunities. If South Korea wants to become a major player in this market, and surpass Singapore, Thailand and India, these reforms represent a decent start.
A new study released this month by Canadian insurance giant Manulife reveals that too many of Hong Kong citizens are not doing enough to adequately prepare for their retirement. Although the city-state’s compulsory pension system, the Mandatory Provident Fund (MPF) Scheme, has now been in place for over a decade, eight out of ten Hong Kong workers remain unsure as to whether they have in fact saved enough for their future.
The MPF Scheme was launched in December 2000 and is administered by the Mandatory Provident Fund Schemes Authority. Under the scheme, Hong Kong workers contribute 5 percent of their salary, capped at HK$1,250 per month of HK$15,000 a year, into their MPF account. This contribution is matched by their employers, who choose which MPF service provider they all do business with. This changes however in November 2012, when the Employee Choice Accounts comes into effect, which gives employees the ability to choose their own MPF provider and puts pressure back on companies to improve their costs and service quality in order to attract these new clients.
Manulife, who have been active in Hong Kong’s pensions market for over 75 years, have ramped up their recruitment efforts for MPF agents partially in response to this long-expected development. The Canadian firm has planned to increase their agency force from their 5,000 agents at present to a staff of 7,000 by 2015. Manulife is currently the number two insurer in the MPF market, with an estimated 17.6 percent market share. With an increased sales force, the company expect to raise their share to over 20 percent by 2016, which will put them in a better position to compete with market leader HSBC.
Manulife commissioned a survey from the Nielsen Company last year to analyze Hong Kong consumer attitudes towards retirement planning and investment. Over a thousand phone interviews were conducted with local employees, all aged between 20 and 54, with questions ranging from consumer aspirations to specific brand satisfaction levels. Of the survey participants, 15 percent were Manulife MPF members while the remaining 85 percent were enrolled with other MPF service providers.
The survey revealed some interesting contradictions about Hong Kong consumer behavior. Although 81 percent of respondents claimed that their pensions would not be able to cover the costs of inflation and rising living expenses once they stopped working, only 22 percent had even considered additional retirement planning, and of this segment most admitted to doing nothing to prepare as of yet. In fact, Manulife found that fewer than 40 percent of their Hong Kong respondents had actually made any inroads into their retirement savings plans. On average, respondents began such planning at the age of 43 for a retirement they expected only 13 years later, by age 60. These findings indicate a considerable gap in average consumer aspirations and their savings capacity in Hong Kong, something MPF providers should look to address.
“Hong Kong’s working population looks for financial security in their retirement years and making better use of the MPF system will help them achieve this,” commented Luzia Hung, Manulife VP of Employee Benefits, adding that these contributions “can play a crucial part in facilitating a comfortable retirement if they manage them more pro-actively or seek professional support.” It is important to note that before the implementation of the MPF Scheme, only about one-third of the Hong Kong workforce had any form of retirement protection.
Despite the importance of proper MPF planning, most Hong Kongers appear reluctant to manage and scrutinize their portfolio properly. Manulife’s survey exposed that more than half of Hong Kong’s workers have never properly reviewed or made adjustments to their MPF portfolio, with 45 percent of respondents further claiming that they were too busy and didn’t have the time, or simply never made the habit of checking up on their investments. A general lack of knowledge about proper MPF portfolio management was also cited as a key reason for the low level of engagement in savings preparation.
What can be done to encourage more Hong Kong workers to be proactive with their retirement planning and investments? Manulife’s survey found that a lot of consumers are looking for more simple and hassle-free MPF investment solutions, with nearly 40 percent of the respondents showing some preference towards target date funds. Target date funds are a type of mutual fund that provide simple investment options through a portfolio with an asset mix handled by professionals that automatically works to become more conservative and stable as the target date, in this case retirement, approaches. These types of funds are well suited to clients who are either too busy or otherwise unwilling to constantly monitor and re-balance their MPF portfolio, and are thus perhaps ideal for Hong Kong’s busy workforce. Amongst those who routinely engaged with their MPF portfolio 72 percent agreed that target date funds are useful. This sentiment shared by the 34 percent of respondents who claimed they did not have time to review their investments. “The results indicate that Manulife is on the right track with introducing the target date fund type on its MPF platform,” noted Ms Hung.
Manulife took home several other lessons from this study, and they were largely positive. The Canadian firm ranked top in terms of overall brand satisfaction versus the other major MPF service providers in Hong Kong, with its convenient online service platform, easy to understand MPF benefit statements, extensive communication channels, and comprehensive fund choices all proving particularly popular with respondents. In addition to this, 38 percent of those polled expressed satisfaction with the performance of Manulife’s many MPF intermediaries, highlighting the company’s agency model as one of its major competitive edges helping to distinguish itself from other market players, a positive reflection on the company’s agency expansion strategy. “As a trusted retirement partner of the people of Hong Kong, Manulife will continue to enhance its MPF platform and services to help members better manage their retirement investments,” Ms Hung concluded.
Solving Hong Kong’s pensions issue will be a crucial issue going forward. The city-sate has a rapidly ageing population. In 2010, the proportion of Hong Kongers over the age of 65 was around 13 percent. By 2040 the number of seniors is projected to rise to over 28 percent due to low birth rates and increased life expectancy. Life expectancy in Hong Kong is already much greater than the global average, at 86 for women and nearly 80 years for men. According to the HK government, the number of working age adults for each person over 65 will fall from six to one now to close to two to one by 2040. This ageing population means the country’s workforce will have a much larger number of retirees to support in the future, and unless smarter retirement planning and pension schemes are implemented this burden could prove too great to bear.
Insurance Company Mentioned
Manulife (International) Limited is a member of the Manulife Financial group of companies. Manulife Financial is a leading Canadian-based financial services group serving millions of customers in 22 countries and territories worldwide. Operating as Manulife Financial in Canada and Asia, and primarily through John Hancock in the United States, the Company offers clients a diverse range of financial protection products and wealth management services through its extensive network of employees, agents and distribution partners.
China’s fast-growing insurance sector could be subject to further regulatory reforms this quarter, after the nation’s industry regulator unveiled a raft of new initiatives on their website.
The China Insurance Regulatory Commission (CIRC) released a statement this week outlining several new restrictions on property investments for domestic insurance groups. Under the proposed regulatory requirements, the combined book value of a given insurance company’s fixed-assets and property investments would be capped at 50 percent of their net asset value. In addition, domestic insurers could be forced to place their self-use property assets and those used for construction and investment into separate asset management accounts. The CIRC has been looking to strengthen its oversight over insurer’s financial positions in China to diminish the threat of risk spreading from the insurance industry to the banking sector and vice versa during this period of ongoing global financial market volatility. The South China Morning Post noted that such moves would be necessary to ensure that insurer’s core business interests and, most importantly, their policyholders are protected from additional property market risks.
The CIRC also announced new limits on insurance company banking activity. According to the regulator’s statement, Chinese life insurance groups with total assets of at least CNY10 billion (US$1.59 billion) or more will no longer be allowed to deposit more than 20 percent of their holding capital into any individual non-national bank. For the country non-life and reinsurance sectors, the asset value cap on companies is set at CNY2 billion (US$320 million). These measures are aimed at diversifying the risks of insurers capital and to strengthen supervision of operations. The CIRC are confident that these moves will also work to lower the default risk present in the domestic insurance industry, and prevent contagion between the banking and financial services sector. Encouraging larger insurance companies to diversify their capital holdings across multiple institutions is intended to reduce risk and will strengthen operational oversight as well, the CIRC advised. Higher reserves could also help companies survive unexpected catastrophe losses, a pressing issue given 2011 record disaster losses, and give them more leeway in their margins to better protect and serve their existing policyholders
In addition to increased financial regulatory oversight, the CIRC plan to revise insurance agent accreditations in China to better conform with best international business practices. The regulator is currently in the process of drafting new rules to better regulate insurance sales personnel behaviour in China. These new reforms will likely include lifting entry requirements for insurance agent licenses and tightening the regulations governing insurance companies responsibilities in monitoring and curbing the miss-selling of their policies by sales personnel. The CIRC remains concerned about certain domestic insurance companies and their struggle to make payments to policyholders on time and are exploring ways to help them replenish their capital base, including reforms geared at engaging the offshore yuan market in Hong Kong for supplementary funds.
Increasing supervision over China’s contentious insurance intermediary market has become a key goal for the CIRC in 2012. Addressing the sector’s poor service standards and ethics has been at the forefront of the regulator’s planning, with claims settlement difficulty and mis-sold insurance policies accounting for over 90 percent of overall consumer complaints that the CIRC has received over the past five years. There have also been problems with sales management mechanisms as most of the sales persons in the industry remain under qualified for their positions. Newly appointed CIRC chairman Xiang Junbo made special mention of this in his annual address, saying that unprofessional business practices had become the key concern for the industry and that the regulator needed to shift its focus from gross premium growth in 2011 to improving overall service quality and promoting agriculture and catastrophe insurance this year. According to Xiang, the Chinese insurance industry’s pre-eminent focus on expansion has come at the expense of improved management structures and service innovation, and this has failed to satisfy customer demand. Xiang further explained that increased professionalism and product innovation within the industry would be the best way to address these challenges, otherwise Chinese insurers will be unable to keep pace with the profound changes in the market going forward.
Reforming China’s insurance sales models will also enable the regulator to gradually reduce the entrenched multi-tier insurance sales system, which segregates markets and product lines almost arbitrarily in some parts of the country. CIRC furthermore plans to give insurers more scope to establish exclusive sales networks and will encourage domestic companies to explore new distribution channels such as internet sales, tele-marketing sales and cross-marketing bancassurance schemes, according to their 2012 prospectus. Overall, the regulator may acknowledge that relaxing certain insurance restrictions may work to promote new channels of business growth in China. Amongst these upcoming regulatory changes will likely be the introduction of foreign insurers into the country’s motor insurance market, lending their international expertise to a large but claims-heavy market for the first time.
According to the latest CIRC data, Chinese insurance companies reported CNY1.4 trillion (US$226 billion) in premiums last year, up by 10.4 percent on 2010’s results. Broken down by sector, the country’s general insurance sector recorded an 18.5 percent annual increase in premium income to CNY461.8 billion (US$73 billion), and the country’s life insurance market posted a 6.8 percent rise in premium income to CNY969 billion (US$153 billion). According to the CIRC, claims payments amounted to CNY391 billion (US$62 billion) in 2011. Total assets held by Chinese insurers meanwhile jumped to a record CNY5.9 trillion (US$930 billion), compared with the CNY5 trillion (US$790 billion) noted in 2010, while the number of insurers failing to meet solvency ratio requirements declined from seven to five.
Despite these strong growth figures, and considerable potential going forward, the Chinese insurance market still faces considerable obstacles, including inflationary pressure, intense internal competition and weak global capital markets. Insurance companies will need to adapt to changes in the Chinese, and indeed world, economy, and adjust their business models accordingly. The regulator meanwhile should remain principally concerned with keeping the domestic insurance industry healthy and closely monitoring the potential risks facing the sector’s sizeable assets on the horizon.
Vietnam’s Ministry of Finance has announced that they will begin to restructure the country’s insurance sector this year. The move comes as part of the Vietnamese government’s 2012-2015 economic plan, which intends to revamp the Southeast Asian country’s credit institutions and securities sector in order to further develop the domestic capital market and open up to greater foreign investment.
The Saigon Times reported on Sunday that the overall goal of these insurance market reforms would be to promote financial market stability in Vietnam by supporting healthy insurers and encouraging weaker firms to either consolidate or leave the market all together. The Vietnamese government has come to accept the need to restructure some of their large state-owned enterprises, many of which have been blamed by economists for recent economic stagnantion. In addition to insurance market reform, the country’s securities sector and stock market are expected to undergo substantial restructuring over the next three years. The Ministry of Finance is currently developing a set of market criteria to assess and catalogue insurers operating in Vietnam into four separate categories, with plans to later design specific management and regulatory measures for each category.
According to the ministry’s initial proposal, the first group will comprise of insurance companies that are deemed profitable businesses and meet the guaranteed solvency rules. Insurance companies in this first category will be supported and given greater leeway to expand their operations across Vietnam if they can maintain their efficient business schemes. Group two meanwhile will focus on insurance companies that have met the prescribed solvency ratios but are otherwise struggling to run their businesses and improve their margins. Vietnamese insurance companies that cannot show a profit for two consecutive years due to high operational costs, heavy compensation rates or other factors will be dropped into the second group. Management agencies could then be brought in to evaluate the efficiency of these companies and work to reduce prohibitive operational expenses.
Insurance companies with solvency margins approaching or below the minimum threshold will be classified into group three. According to the ministry, these under-fire firms will be subject to a comprehensive financial assessment, complete with investment restructuring and debt settlement procedures. The regulator warned as well that parts of these insurance companies, be it policies or agents, could be transferred to other more stable firms in Vietnam. The last group in the ministry’s proposal is reserved for insolvent insurance companies, which will then be placed under special control and subject to further judicial review. If the group four insurer fails to overcome its difficulties during the special control period it could be forced to consolidate with another Vietnamese insurer or declare bankruptcy and go into receivership.
This industry-wide categorization project is expected to be carried out later this year. The Vietnamese Finance Ministry is currently in the process of drafting the restructuring scheme for submission to the Prime Minister. The government is also looking at setting higher start-up requirements for insurance companies in Vietnam. Current rules stipulate that local insurers are not permitted to retain risks exceeding 10 percent of their paid-in capital. Insurers who start with equity lower that the statutory capital requirements will now be asked to supplement this capital through outside loans in order to meet regulatory requirements. If the details are ironed out and the insurance restructuring scheme is approved by the Vietnamese authorities, work could begin on implementing the reforms this quarter. The Insurance Authority meanwhile is looking to introduce additional changes to better police fraud and to improve their training and recruitment efforts to ensure that the domestic insurance industry grows both larger and smarter.
Vietnam’s insurance sector has been experiencing rapid growth and development in recent years. Total written premiums have increased by around 20 percent per annum since moves were made to break-up monopolies and liberalize the Vietnamese insurance market after the country’s entrance into the World Trade Organization (WTO) in 2007. Despite this considerable progress however, the insurance market in Vietnam remains underdeveloped and small in comparison to many of its Southeast Asian neighbors, with penetration rates under 0.4 percent of GDP.
According to Finance Ministry, there are currently 39 insurance companies active in Vietnam, including 28 non-life insurance companies, 11 life insurance companies and 12 insurance brokers, with more expected to enter due to the market’s potential for growth. In the country’s non-life sector, intense competition, high operating costs and a claims-heavy environment (particularly in motor lines) have all made profitable underwriting difficult to achieve at the moment. The four big state-owned general insurers have gradually been losing market share as the market opened up to smaller largely-foreign competitors, who have been pursuing aggressive business development strategies at the expense of disciplined underwriting. The substantial catastrophe risks in Vietnam including threats of heavy typhoons and floods are also driving a demand to purchase reinsurance.
The Vietnamese life insurance sector meanwhile is less crowded than it’s non-life counterpart, with only 14 registered insurers currently operating in the country. Multinational insurers have come to dominate this market, bringing with them substantial capital and expertise to sell a product still largely unknown to the Vietnamese populace. Due to the country’s youth-leaning demographics and low per-capita income however , demand for life and other conventional insurance products remains subdued. Microinsurance is a way of accessing this large market segment, with Manulife Vietnam, for instance, providing products in an alliance with the Vietnam Women’s Union.
Overall, Vietnam’s continued demographic and economic development is expected to generate further awareness and a demand for insurance. Insurance companies looking to prosper in the Southeast Asian country will need to comply with new industry regulations, strong competition and the considerable operating challenges.
The International Finance Corporation (IFC), an integral member of the World Bank Group, is investing in a Lebanese-owned regional insurance company over the next few years in a bid to increase access to sufficient health and commercial risk insurance services across the Middle East and North Africa (MENA) region. Addressing the region’s low coverage rates could spur economic development.
On Sunday, the IFC announced that they would be investing up to US$124 million in the Mediterranean and Gulf Insurance and Reinsurance Company B.S.C (Medgulf), a prominent regional insurance firm based out of Beirut, Lebanon. The IFC’s acquisition, which could eventually make up a 15 percent equity stake in Medgulf, is aimed at supporting the company’s regional expansion plans. Medgulf is looking to set up operations in Egypt, Iraq and Turkey over the next few years. These are developing insurance markets with poor coverage rates, and international finance and expertise is in demand to address these problems.
Lutfi El Zein, Chairman of MedGulf, explained in a press statement that the IFC’s contribution would enable his company to more readily realize it’s opportunities for growth, attract more private sector investor participation, and promote transparency and better business practices across the regional insurance sector. “The partnership with IFC will help Medgulf grow its operational capabilities to extend security to people who would otherwise have limited means of coping with calamities,” said Lutfi al-Zein, adding that while the lack of insurance coverage across the MENA region remains quite troubling, “Medgulf has a strong strategic vision and the capacity to meet rising demand.”
The region’s low insurance coverage rates were cited by the IFC as one of the main reasons behind their decision to make such a sizeable investment in Medgulf, Lebanon’s largest insurance company. According to their press filing, the MENA region currently boasts the lowest market penetrations rates for insurance coverage in the world. “In addition to creating uncertainties within households and businesses, such low rates hinder investments and job creation across the region’s vital sectors,” the IFC noted. The Middle East’s total gross premiums are around 1 percent of the region’s combined gross domestic product (GDP). Compare this to the United States, where gross premiums equate to around 9.3 percent GDP and the EU where rates average roughly 8.3 percent and you see there are considerable grounds for Middle Eastern insurers to catch up, and business opportunities therein. Nominal GDP growth has traditionally correlated well with insurance premium growth. This demonstrates that insurance is not yet being used as a vehicle for savings and financing investments in these countries.
The MENA region’s unique demographic makeup also presents considerable challenges and opportunities for local insurers and investors. Only around five percent of the region’s populace is over 65, and 30 percent are under the age of 14. According to the IFC, the share of the population aged 65 years and above across the MENA region is expected to more than triple by 2050. These indicators demonstrate the substantial human capital that the region possesses and the potential for high economic growth rates if the right policy mix is implemented. Changing demographics will spur demand for an increase in health, life, and pension insurance services, highlighting the overall growth potential for the MENA insurance sector. This could be an opportunity in particular for the life insurance business as Sharia-compliant Takaful grows in the region while the populations in Western countries are set to decline.
IFC Vice president, Dimitiris Tsitsirgaros, was on hand to return the sentiment, explaining that the investment in Medgulf met the IFC’s mission statement on promoting access to finance for lower-income segments of society through private enterprise investment, and could prove integral to economic development in the MENA Region. “IFC’s investment in Medgulf supports our strategy to help extend essential services to underserved parts of the population by encouraging cross-border investments in the region. Addressing insurance needs in the region will make it easier for people to access health care, while an increased sense of security will help businesses grow,” Tsitsirgaros said. According to the IFC, Medgulf is a model of sound corporate governance and transparency. Their decision to partner with the Lebanese firm will help institutionalize best business practices across the regional insurance sector.
The IFC is the world’s largest development institution that focuses solely on private sector performance and economic development in emerging economies. The organization has found itself increasingly involved in the MENA region in the aftermath of the Arab Spring protests. In 2011, the IFC invested over US$2billion in regional private equities, targeted specifically at small and medium enterprise (SME) development in the Middle East. This included an investment in another Lebanese company, software firm MobiNets, which received US$2 million in funding to help kick start the country’s IT sector last December.
As the MENA region economies continue to grow, urbanize and open their markets, demand for life and health insurance services is set to increase. Many countries have been updating their laws and regulation towards the insurance industry: increasing capital requirements, professionalizing risk management systems, and even opening up the field to greater foreign involvement. Insurers who can successfully target this large pool of potential customers will reap rewards and will also contribute to the economic development in the Middle East and North Africa.
Organizations and Companies Mentioned
The International Finance Corporation (IFC) is a member of the World Bank Group and is headquartered in Washington, DC. The IFC is the largest global development institution focused on promoting private sector investment in developing countries. Established in 1956, The IFC now has 182 member countries which collectively determine the organization’s policies and approve investments. The IFC currently holds a US$48.8 billion portfolio across 100 different countries worldwide.
Founded in Lebanon in1980, Medgulf now provides insurance and reinsurance services in Lebanon, Saudi Arabia, Bahrain, the UAE, Turkey and the United Kingdom. Lebanese firm LFZ Holding purchased Medgulf in a $400 million deal in April 2011.
The European insurance industry faces a myriad of problems as we head into 2012. The continent’s ongoing macroeconomic and political issues have adversely impacted company balance sheets, altered consumer demand and sapped investor interest across most business lines. A new report released this week from international consulting firm Ernst & Young notes that these challenges will force insurance companies operating in Europe to make smart strategic decisions this year in order to prosper going forward.
In their European Insurance Outlook 2012, Ernst & Young (E&Y) describes how ongoing recession conditions, volatile financial markets and accompanying European sovereign debt downgrades have all affected the performance of Europe’s insurance sector. E&Y notes that due to the inter-connectivity of the eurozone market, the fiscal imbalances that warranted recent downgrades of sovereign debt in weaker European countries (Greece, Italy, Spain etc.) have gone on to negatively impact the balance sheets of numerous insurers and reinsurers across the continent . While many of the continent’s principal insurers remain well capitalized, with their long-term outlook affirmed by raters, possible sovereign defaults could reduce asset portfolios substantially. “With no final resolution of the Eurozone crisis on the horizon, the combination of insurers’ innate exposure to sovereign debt and the long term effect of recession and low interest rates on the insurance market may force rating agencies to reconsider the ratings of insurers,” E&Y explained.
In addition to persistent economic and political uncertainty, European insurance companies have also found themselves stretched to meet upcoming capital requirements and industry-wide accounting rules, which will be coming into force relatively soon across the continent. E&Y noted that the uncertainly surrounding the introduction and execution of Solvency II’s updated risk-based financial frameworks and enlarged capital requirements has proven to be a particular obstacle for many insurance companies in Europe. Short term concerns persist that Solvency II could drive insurers to raise their capital positions at the expense of tackling new business lines, and thus damaging their competitiveness across the overall international insurance marketplace. The slow-moving implementation of Solvency II, which is now delayed to 2015, has already proven quite costly in terms of time and expense.
Despite these persistent macroeconomic and regulatory concerns, there are still many things European insurance companies can do for themselves to rebuild their balance sheets, generate profitable growth and increase market share over their peers, according to Ernst & Young. The consulting firm identified five key areas where industry innovation could reap sizeable returns: retooling the organization to quickly respond to challenges; transforming financial operations and systems; integrating risk management to identify emerging and diffused risks; rationalizing product portfolios to reflect a changing consumer market; and adapting consumer channels to remain competitive. Overall, insurance companies operating in Europe must continue evolving their operations to improve margins and generate bottom line growth. They can do this by adopting new technologies and risk management strategies to squeeze out unnecessary costs and use their people and capital more productively.
Given Europe’s fast-moving market environment, combined with sluggish growth prospects and the increased regulatory pressures described before, insurance companies should look to adapt quickly, refine their corporate structures and business mix and reduce expenses where necessary. “Insurers that effectively identify and act on their strategic choices are better positioned to minimize the downside impact of unforgiving market conditions and capitalize on available opportunities on the upside,” E&Y noted. One particular structural change that insurers operating in Europe may consider in 2012 to boost their bottom line is intra-region mergers and acquisition (M&A) activity. Other tactics E&Y suggest include the consolidation of back-office operations or outsourcing insurance service and support functions. Insurers may also position themselves to further develop their operations in higher-growth territories, such as Asia or other emerging markets, where economic growth opportunities will likely surpass the 1 percent growth forecast for Europe in 2012. Many European insurance companies also need to update their internal processes to best international standards in order to both achieve their operational objectives and better prepare for upcoming Solvency II and IFRS regulations. “Insurers’ legacy systems, current processes, and concerns over data quality, are barriers to this goal and not all European insurers are starting from the same place in terms of financial and systems technology enhancements,” E&Y observed.
In addition to changes in regulation and governance, European insurers also have to contend with evolving consumer preferences. Over the past few years, customers in Europe have increasingly gone back to using banks to purchase pure investment and savings products that have fewer constraints. These same customers have given up on once-popular unit-linked insurance products, which had no guarantees and were very capital intensive due to inherent market risk. European Insurers are in turn altering their portfolio, reducing their pure savings products outlay and in stead focus on products that offer a protection component, offer better margins and are less capital intensive, emphasizing greater convenience, simplicity and value. Insurance markets across Europe are by no means uniform. While highly concentrated and mature market conditions characterize much of northern Europe, the low insurance penetration rates across many eastern and southern states present substantial opportunities for organic premium growth going forward. This diversity in health and insurance markets penetration across these regions underscores the importance of a micro-strategy. E&Y observed that consumers in Southern and Eastern states are moving away from investment-linked products toward those that are easier to understand and offer more guarantees with lower costs.
To reach these customers, insurance companies must adapt their distribution channels to remain competitive. Going forward, E&Y expect the internet to become an ever more important distribution channel, one which will continue to challenging existing life and non-life sales and marketing plans. Direct sales of insurance policies via the internet has been growing rapidly across Europe, which have posed data security and identity theft issues for many firms. At the same time, E&Y notes that regulatory changes will affect bancassurance models in some countries and this will in turn alter the competitive landscape and develop new opportunities for insurers to forge new distributor relationships. As a result, insurance companies and their updated distributor networks will need to share client information and provide necessary training to make this cross-selling strategy a reality. Overall, the report believes that smart insurance companies should be able to persevere under current market conditions and potentially even thrive through sound, strategic plantings that works to secure growth, reduce expenses and encourage innovation.
China Pacific Life Insurance, the nation’s fourth-largest life insurance company, received approval from the China Insurance Regulatory Commission (CIRC) this week to expand their rural individual life microinsurance pilot program to seven more Chinese provinces. China’s insurance regulator is striving to develop the country’s micro insurance market, particularly in rural areas, in a bid to help Mainland farmers and low-income families better manage risks, protect their savings, and expand national insurance coverage in 2012.
A special report commissioned by the Asian Development Bank (ADB) in 2006 found that household vulnerability was the leading cause of new poverty in Asia. Amongst Chinese working poor, the two leading risk factors were serious illness/accident to family members, and investment failures due to price volatility or natural disasters. Insurance could of course play a key role in mitigating these risks, but standard coverage and savings tools remain out of reach for millions of poor and disadvantaged households in China, and indeed around the world. Mircroinsurance has been developed to rectify this problem.
Microinsurance refers to insurance products that are specifically tailored to provide basic, inexpensive cover for specific low-income populations that require protection for risks including healthcare, crop, catastrophe, life and non-life products. Premiums on microinsurance policies are kept at a low level, and often pooled across entire families or even villages, with the purpose of making the products more affordable and attractive to these first time policyholders. Microinsurance thus provides security options for populations that need some insurance protection against financial ruin but until now have been unable, or even aware of, the ability to afford a policy. For insurance companies meanwhile, microinsurance presents a key commercial opportunity due to the high volume of available policyholders combined with low cost margins. According to a recent Swiss Re sigma study, the global microinsurance market is now estimated to be worth over US$40 billion. In China alone, there are at least 200 million to 400 million potential clients. The Asia Pacific region overall is one of the fastest growing regions for microinsurance development, with Africa and Latin America also having emerging markets.
According to a CIRC filing, China Pacific Life will now be allowed to expand their rural individual life microinsurance programs into the provinces of Hunan, Inner Mongolia, Jiangsu, Ningxia, Qinghai, Xinjiang and Zhejiang. Prior to this accord, China Pacific Life was only cleared to provide rural individual life microinsurance, including accident injury protection and fixed-term group life insurance, in certain areas within the provinces of Guangxi, Hubei, Hunan, and Sichuan. Starting next quarter, the Shanghai-based insurer will also be given greater control over their own business model in certain districts, which will likely lead to them adjusting their rates downward to match domestic lower-income conditions. China Pacific Life will be required to work with local insurance regulators and to report back to the CIRC regularly on the progress of the life mircoinsurance scheme.
This is not China Pacific’s first venture into the Chinese microinsurance trade. The insurer’s non-life affiliate, China Pacific Property Insurance, received the necessary CIRC approval last October to participate in its own trial program for rural microinsurance. The China Pacific Insurance Group is cumulatively coming off a good year, reporting total premium income of CNY 143.8 billion (US$ 22.67 billion) for 2011, a 12 percent annual increase. China Pacific Life reported premium income CNY 87.9 billion (US$ 13.94 billion) in November 2011, up 7.8 percent from CNY 81.52 billion (US$12.9 billion) in October, while the insurer’s property and casualty business reported CNY 55.9 billion (US$ 8.81 billion) for 2011, noted the regulator.
China has over 700 million people in rural areas, making it a huge market for the micro insurance business. In a statement outlining its work for 2012, the CIRC intend to further develop the domestic rural insurance and catastrophe insurance markets in 2012. Going forward, further growth of the microinsurance sector hinges on better regulations and more innovation in distribution and communications with potential customers.
The Chinese government began testing life microinsurance schemes in rural areas in August 2008. China Life Insurance Co, the mainland’s largest insurance firm, was the first participant in the trial scheme, providing basic cover and savings products to rural farmers and low-income urban dwellers across nine Chinese provinces. According to the CIRC, the simple life insurance products that China Life developed for the pilot scheme provided an eight-time refund on annual premiums of CNY100 for farmers to cover against terminal accidents. In the pilot scheme’s first year of operation, China Life covered 1.2 million farmers with insurance income amounting to around CNY1.12 billion (US$180 million) in total. By the end of 2009, and now with more insurance companies in tow, the trial rural life microinsurance program generated premiums of more than CNY230 million, underwriting more than CNY136.4 billion (US$21.6 billion) in risks 8.71 million people. In 2010, the rural micro insurance program was expanded by the CIRC to cover 20 million people across 24 provincial regions. This is of course still a small number relative to the country’s overall population (and roughly equates 4 percent of the rural population), and the Chinese government recognizes the need to increase its penetration further. Microinsurance, with it’s lower premiums, easier-to-understand policies, and simplified claims procedures, is regarded as a particularly important tool in growing the rural insurance market. Besides local governments and insurance companies, multinational insurers are also showing growing interest in this potentially lucrative market.
Insurance Companies Mentioned
China Life Insurance
China Life Insurance Company Limited (China Life) is a People’s Republic of China-based life insurance company. The products and services include individual life insurance, group life insurance, accident and health insurance. The Company operates in four business segments: individual life insurance business, group life insurance business, short-term insurance business, and corporate and other business.
China Pacific Insurance
China Pacific Insurance (Group) Co., Ltd. (CPIC) is a insurance company providing, through its subsidiaries, a range of life and property and insurance services and pension products to individual and corporate customers throughout the country. CPIC was founded on May 13, 1991, and is headquartered in Shanghai. The company was listed in Shanghai Stock Exchange on Dec. 25, 2007, with the stock code of 601601 and the stock name of “China Pacific”. The Company was listed in the Stock Exchange of Hong Kong Limited on Dec. 23, 2009, with the stock code “02601” and the stock name of “CPIC”.
Big changes could soon be underway in Asia’s premier insurance centre. The Hong Kong government announced this week that they are planning to implement a new national insurance fund that would protect policyholders from insolvent insurers after reviewing the results of a three-month long public consultation.
Hong Kong insurance authorities surveyed public and stakeholder opinions on the proposed establishment of an insurance policyholders’ protection fund (PPF) from March to June 2011. Respondents were quizzed on four key areas of the proposed scheme – coverage, level of compensation, funding models and governance arrangements. Taking into account the comments received, the final proposals were collated and published on the government website, and plans are now underway to introduce the PPF bill into the Legislative Council during the 2012-13 legislative session. If approved, the fund would not likely be established until fiscal 2013-14 at the earliest.
Hong Kong’s Secretary for Financial Services and the Treasury, Professor KC Chan, said in a statement that the proposed insurance fund would enhance “the stability and competitiveness” of the Hong Kong insurance industry, while minimizing the risks of moral hazard. Chan added that “we are pleased to note that there is support from the general public and industry for the establishment of a PPF and most of the key elements of the consultation proposals.”
Under these new proposals, all authorized Hong Kong insurance companies would be required to participate in the PPF, which will in turn be comprised of separate life and non-life schemes. The PPF will be run by an independent board, with an initial target size of around HK$1.3 billion (US$168 million), that will focus on covering individual policyholders and building owner’s corporations in Hong Kong. If an insurer becomes insolvent, the PPF will work to transfer all existing life, accident and health insurance policies with guaranteed renewability to a replacement Hong Kong insurer. For non-life policies, the fund will provide full compensation for the entire coverage period until expiry. Ceding to industry feedback however, the PPF Board will have the power to grant exceptions to companies who can provide a similar protection to Hong Kong-based policyholders via an existing compensation scheme overseas.
The government has also considered adding local small and medium-size enterprises (SMEs) to the list of potentially insured entities under the PPF, identifying that they usually have less resources available to assess the insurer solvency and are less capable of protecting their own interests. SME policyholders may also soon be allowed to specifically insure their exports for places and buyers of their choice under certain circumstances, and could also be offered various premium discounts through a separate government initiative.
Abiding by the consultation proposals, the Hong Kong government has set the compensation limit for each insurer at HK$1 million (US$129,000). Industry analysts observed that any further increase in the compensation limit would merely lead to a surge in levy rates without necessarily contributing any notable enhancements in terms of policyholder protection. The government noted as well that the proposed compensation limit, as is, should be able to meet 90 to 100 percent of claims generated from in force life policies, as well as be able to fully cover the claims of around 96 percent of non-life policies. Once the fund is established, policyholder compensation will be 100 percent for the first HK$100,000 (US$12,900) of any claim, plus 80 percent of the balance up to the limit.
The PPF fund will incorporate a progressive funding mechanism that charges a moderate initial levy on participants followed by a “stepped-up” levy once any insurer becomes insolvent and pay-outs are merited. The initial levy rates of the fund will be 0.07 percent on applicable premiums and will be collected from Hong Kong-based insurers directly. According to the government proposal document, the initial target fund size for the life insurance scheme will be HK$1.2 billion (US$150 million), with HK$75 million (US$9.67 million) allocated for the non-life insurance scheme. Both funds are expected to be achieving their respective fundraising goals within the first 15 years of service. Once national insurance funds are in force, the Hong Kong government claimed they would regularly meet with local insurance industry professionals, using PPF data to review and adjust levy rates as well as the fund’s overall size accordingly. It is in the scheme’s long term interest to strike a balance between enhancing protection for policyholders and minimising the additional burden placed on the Hong Kong insurance industry.
The overall goal of the PPF is to provide a safety net for Hong Kong policyholders when an insurer becomes insolvent. Hong Kong regulators have outlined quite an ambitious set of reforms for the city-state’s financial sector. The PPF move follows measures introduced last month to liberalize yuan capital requirements for local banks, as well as the planned overhaul of the country’s mandatory provident fund scheme (MPF), which will allow local employees to choose the MPF provider they want to invest with. Currently, employees in Hong Kong contribute 5 percent of their salary, capped at HK$1,000(US$130) per month, into their MPF retirement account. This contribution is then matched by employers, who have had sole power to choose the MPF provider. This will change in November 2012, when the MPF Schemes Authority enacts the Employee Choice Accounts and puts the choice of MPF provider in the hands of employees. The government hopes the scheme will put performance and fee pressure back on MPF providers, and foster a whole new financial market to stimulate the local economy. This could in turn put downward pressure on Hong Kong medical insurance rates and other financial products as well.
Life, Automobile and Health insurance continues to be an integral part of the Hong Kong economy. Despite volatile equity markets, Hong Kong’s insurers managed to keep pace with the double-digit growth rates seen in several Asia-Pacific markets last year. According to the latest figures made available on the Office of the Commissioner of Insurance (OCI) website, the Hong Kong insurance industry recorded HK$172.8 billion (US$22.2 billion) in gross written premium for the first three quarters of 2011, a 12.6 percent annual growth rate, with underwriting profits rising from HK$1.7 billion (US$220 million) to HK$2.1 billion (US$270 million) in that period as well. While these substantial growth rates may not continue during a tepid 2012, Hong Kong’s insurance companies are sure to benefit from the business potential for insurance made available across Asia-Pacific markets and Mainland China in particular.
The Hong Kong Office of the Commissioner of Insurance is a government body that works to represent the interests of policy holders and to ensure the continued stability of the insurance industry in Hong Kong. The OCI was established in June 1990.