Following a tribute in the London 2012 Olympics that was broadcast to the world, the NHS is encouraging its member trusts to do the same and expand globally in a bid aimed at funding health services in the United Kingdom. The idea originated in the Labour Party and is now gaining speed to expand the National Health Service beyond the UK’s borders. However, will this idea affect the costs and quality of care for current residents of the UK?
The government is supporting a recommendation for large private hospitals, such as the Great Ormond Street, Royal Marsden, and Guy’s and St. Thomas’. Following the model set by Moorfields Eye Hospital in London which has set up shop in Dubai, the UK hopes to emulate the success which Moorfields’ Dubai branch has seen since its establishment overseas in 2007.
Governmental officials say that these large hospitals and entities should utilize their profits derived from their private practices and use them to develop healthcare assets overseas. After the overseas operations are established, profits from the entity should be rerouted back to the NHS to fund ongoing improvements to the UK healthcare system.
The NHS aims to make itself a global leader in providing healthcare by marketing itself as a recognizable name worldwide. By setting up hospitals overseas, it can market its services and create a demand for it.
“The NHS will be bringing together the Department of Health, the UK Trade, the National Commission Board, and form an organization that will help healthcare providers in [the UK] and develop those skills and sell them abroad for the benefit of the patients in [the UK],” says Health Minister Anne Milton, a Member of Parliament of Britain. Any kind of profits will have to be redirected back to the benefit of NHS patients, in a scheme which Ms. Milton says is a, “Win-win.”
The government is currently eyeing hospitals and institutions with great international reputations, allowing for an easier uptake of the program. Once the program becomes more successful, the government should open it up to smaller private healthcare providers.
What’s unclear at the moment is exactly where the doctors and medical practitioners will be sourced from. There are two possibilities: The NHS could source the staff from their own current employees – after all, they are the world’s fifth largest employer. Alternatively, the NHS could source the staff internationally, which could also be feasible because of the vast number of readily available professionals around the world. However, there are possible negative effects of both methods of sourcing which need to be taken into consideration.
First, if the NHS proceeds with sourcing from existing NHS staff, skilled workers in the UK may be less readily available. With workers being asked to work abroad, there could be a premium added to their salary, as well as other fringe benefits which compensate workers for their move. In addition, as these workers will be a direct foreign representation of the organization itself, there is a high chance that highly skilled workers will be recruited to move overseas first. More skilled workers may also be more adept at adapting to challenging situations, further making them a target for recruitment overseas. However, this will draw the UK’s more skilled healthcare workers away from the UK system, potentially lowering the standard of care in the country. This also represents a costlier decision because of the need to incentivize doctors to go abroad by adding benefits to their compensation packages.
What if the NHS decides to hire internationally? The goal of the NHS is to export the “brand names” of the NHS that have international and esteemed reputations. As such, it could be contradictory to start a new branch with staff who do not previous history with the NHS in essential, and especially management, roles. It would make most sense for the NHS to at least fill higher level roles with skilled medical practitioners from the NHS in order to preserve the level of service. Moreover, an international hire may not inspire as much confidence in local patients who are seeking high quality international care based on the NHS brand name. Why would they need to go to the potentially more expensive NHS which features a local hire if they can receive the same type of treatment at a potentially lower cost? Furthermore, hiring the best doctors available locally in the oversea hospital’s area might cause issues for the local healthcare system, especially if there is already an ongoing shortage of doctors in the region. If the NHS doesn’t hire in the target area but still recruits internationally, it may still represent a higher cost because of relocation packages and expatriate salaries that they may need to attract international hires.
Will the costs of healthcare increase because of the expansion? As mentioned earlier, highly skilled workers may be incentivized to take up positions in the new hospital developments overseas. As such the ability to properly provision healthcare for the nation may be reduced if the NHS does not replenish or properly account for the departure of some of its staff. Moreover, the NHS has been widely reported to be experiencing a significant shortage of workers, despite being the world’s 5th largest employer. Shortages of nurses and doctors are, in some cases, extreme, as data from the Department of Health indicates that some family doctors may be responsible for as many as 9000 patients. A new development requiring skilled practice may hinder the system, preventing patients in the UK from having adequate access to much needed healthcare services.
The demand for medical practitioners is high in the UK. There is a general shortage for the medical field, vastly due to the amount of doctors leaving the UK for better packages worldwide. In a recent report by the Policy Research Programme in the Department of Health, UK doctors are being offered attractive benefits packages, better living standards, higher control of their work, and in places with better living conditions than the UK. This incentivizes many highly trained doctors to move abroad, resulting in a shortage of doctors able to provide important healthcare services. Some of the doctors surveyed also indicated that they were disillusioned by the NHS, stating that it was bureaucratic and limiting.
This expansion overseas will not affect the highly specialized private hospitals which have a well-recognized name brand – in fact it may be quite easy bring in profits as foreigners may be attracted to these brand names. However, whether smaller hospitals will be capable of following suit or willing to remains to be seen. Many hospitals in the UK are currently designed to be providing an essential service to the community and gearing them towards acting as for-profit multinational companies may cause them to lose focus on providing quality care within the UK. If managed poorly, the implementation of this program could cause shortages and cuts to existing services as hospitals direct their attentions and funds overseas. This could affect prices negatively for the patients they service locally in the UK. With the significant burden that many general practitioners already face – upwards of 3,000 patients per doctor, some even 9,000 – and in the middle of a large scale reorganization of the NHS, the main focus should be improving these services and ensuring that the new system provides the benefits its supposed to.
This leads to a discussion about the focus of the NHS – should this really be what they are redirecting resources towards? The NHS is asking for their hospitals and entities to redirect profits from private health practice to fund their international developments. While the NHS does provide quality services to UK citizens, waiting times for both scheduled treatment and A&E care are a serious problem due to a lack of beds and medical professionals.
Could this expansion affect healthcare costs and insurance premiums? There is a possibility this could happen if the private hospitals which are establishing hospitals overseas increase charges on private care in order to raise funds to start the overseas ventures. Similarly, if the overseas private hospital programs lead to increased brain-drain on UK doctors, it could drive up the costs of private care further. Both of these possibilities could have knock on effects on the private health insurance system in the UK, which is already trying to avoid large premium rises to avoid off putting customers.
Given the NHS budget freezes and cost savings put in place as part of QIPP (Quality, Innovation, Productivity and Prevention) policies in the UK, it is understandable that new sources of income are being investigated and considered. However, it is of the utmost importance that these efforts do not come at the expense of local capabilities, especially during the largest reorganization of the NHS system in years.
Reliance Life Insurance, India’s largest private insurance company, has announced that they will be going through with an expansionary move that will see over 55,000 staff added to their force. This move is in anticipation to its future plans to move into different marketing channels.
Reliance Life Insurance is a business unit of Reliance Capital and led by Anil Ambani. Despite being one of India’s larger life insurance companies, Reliance only controls a staggering 5 percent market share. The reason for this is due to the LIC – the Life Insurance Company of India. The LIC is a government-controlled corporation which dominates the market, consuming 70 percent of the market. Reliance’s aim is to become the main alternative to the LIC.
Currently, Reliance is recruiting over 55,000 agents to join its sales force. However, not all agents will be on a commission basis – roughly 5,500 agents will be admitted to full time status with a base salary, in addition to incentives for performance, such as commissions. The rest of the hiring, over 50,000 agents, will be on a purely commission basis.
Reliance is seeking to bolster its workforce to 150,000 by the end of the current financial year, up from 120,000 which it has now. The company experiences high turnover due to the nature of the business – it is vastly pure commission so the stability of income and performance of individuals forces them to leave the business. As such, Reliance sees high attrition rates, which it hopes will not be the case with the 5,500 that they are hiring full time.
This increase in agents is aimed at replacing the 30,000 agents that left the firm during the April – June 2012 quarter. In addition, it appears that the move is in anticipation for a strategic business move that it is making.
Reliance Life Insurance is in talks with many banks in both the public and private sectors, seeking to add its products into the banks offerings. They are looking to get into bancassurance, which is a form of distribution for insurance companies by way of distributing insurance products through banks (also known as a bank insurance model or BIM).
Alternatively, Reliance can distribute its insurance products via its own agents, which it has been doing so historically. This business model is known as a tradition insurance model (TIM) whereas Reliance’s new strategy is known as a Hybrid Insurance Model.
Reliance Life Insurance’s latest move is an attempt to gain more traction in the market space not taken up by the government-run LIC. Excluding the LIC, there are 20 firms competing for 30 percent of the market share and 5 percent belongs to Reliance. Competing with Reliance are companies such as SBI Life, Metlife, ICICI Prudential, Bajaj Allianz, Max New York, and Sahara Life. Much of Reliance’s business originates from the rural markets, including over 34 percent of its new business. Moreover, Malay Ghosh, President and Executive Director of Reliance Insurance, stated that only 15 percent of the company’s business is from Tier-1 cities. With that in mind, Reliance’s new approach via bancassurance channels should allow Reliance to gain more momentum and volume throughout Tier-1 cities.
However, with Reliance’s late entry into the bankassurance market, the availability of suitable and preferred partners is low due to existing contracts and relationships in place. Reliance is in talks with many different banks, including some banks in the public sector. Currently, the Insurance Regulatory and Development Authority has regulations whereby every bank can only represent one partner for selling insurance products. To negate this reality, Reliance may be offering a small equity stake of up to five percent for banks who choose to partner with them. This incentive represents a large investment as Reliance Life has over Rs. 18,700 crore ($3.36 billion USD) assets under management and the company itself has a valuation of Rs. 11,500 crore ($2.06 billion USD).
This move by Reliance represents a significant decision with regards to its long term strategy. To be offering up to 5 percent to incentivize a partnership, Reliance is willing to further dilute its current shareholder percentages through this new direction. This isn’t the first time that Reliance had given up equity for a significant partnership.
In addition to the expansion in to bancassurance, Reliance is looking to facilitate more market penetration by its business partner Nippon Life. Official since October 2011, Nippon had acquired a 26 percent stake in Reliance for Rs. 3062 crore (US$ 551 million) and this investment represents Nippon’s faith and commitment to the Indian market. Reliance Capital, the parent company of Reliance Life Insurance, wants Nippon to bring its AUM products to the Indian market. Nippon has over US$600 billion in its management but very few of those assets are in India. Reliance is aiming to bring their assets into India in order to gain a higher market share.
Over 60 percent of Reliance’s policies are sold through their strong workforce. Their distribution networks include brokers, corporate agents, and commission-based agents. With the inclusion of their bank network, it is unsure whether their commission force will suffer due to the introduction of the new channel. Since it represents such a large percentage of business and commitment from the company, Reliance will need to be careful in how it deploys its bancassurance in a way that it doesn’t cannibalize or encroach on the commissioned agent’s territory.
During his inaugural speech of the 6th FICCI HEAL (Federation of Indian Chambers of Commerce and Industry – Health Enterprise and Learning) 2012 annual international conference in Delhi this week, Indian President Pranab Mukherjee noted that there is a “high variance” in the quality of service available in public and private sector hospitals, and that the country’s healthcare system should be developed to meet medical requirements of all sections of the population.
“There is a high variance in the quality of service available. Some private hospitals provide world class facilities, so much so that people from third countries come here for treatment giving impetus to medical tourism. On the other hand is the lack of access to even basic medical care for many people, particularly the poor and disadvantaged.”
India’s healthcare system reflects the country’s massive rich poor divide very accurately. The public healthcare system is barely able to provide essential services to the urban population, while there are many rural areas where no public health service is available at all.
The private healthcare sector has taken up some of the slack, and currently accounts for more than three quarters of total healthcare spending and a similar percentage of the country’s total hospital beds. While private hospitals provide a critical service, the majority of hospitals are based in large urban centres.
The rural population is generally also significantly poorer than the urban population, compounding the problem of availability of medical services with that of affordability. According to Future Generali India Insurance, only about 320 million, or 26% of the population, are covered by some type of health insurance and many pay for medical treatment out of the family’s savings.
Improving the affordability, availability and quality of healthcare available to India’s billion-plus population presents both a massive challenge and enormous opportunities. India’s government is actively pursuing Public Private Partnerships to try and tackle the problem, with the goal of leveraging the scale of the public system with the efficiency and quality of the private sector.
Some examples of these Public Private Partnerships working successfully already exist. The Urban Slum Healthcare Project in Andhra Pradesh is a partnership between State Commissionerate of Family Welfare and NGOs. Outsourcing of emergency transport services in 14 states where state governments are in partnership with private providers has proven to be very successful, as has the partnership between GE Healthcare and public hospitals to set up diagnostic centres within the hospitals.
While some work is being done to alleviate the plight of the currently underfunded and short staffed public system, many hospitals are feeling the pinch and have not seen any government action for years.
For instance, the state run Gandhi Hospital in Hyderabad currently has an extreme shortage of anaesthetists, extending waiting times up to two months and preventing hundreds of operations from being performed.
The shortage is causing some departments to close down, despite long waiting lists, and while the hospital is still managing to handle all emergency cases, elective surgery has been all but suspended.
The hospital usually operates five days a week, but currently has no anaesthesiologist on duty for two of those five days. Even for patients already admitted, the waiting time for procedures has gone up from three days to two weeks. According to Dr. Upender Goud, head of anaesthesia, an average of 40-53 surgeries per day are performed at Gandhi Hospital.
“The number of surgeries is not the criteria. What matters is the quality of work. Even a small mistake can cost the life of the patient. We are overburdened and hard-pressed,” says Dr. Goud.
Several representations by the anaesthesia department have been pending with the state government for nearly four years. For the time being, the officials said that they are planning to outsource a couple of specialists and are hoping that there will be some improvement to the situation within a month.
India spends only about 0.9% of its GDP on healthcare, and it will require a lot more investment than that to bring the 30 year old health system up to date. There is a shortage of more than 6000 doctors in primary care facilities across the country, while there is only 1 public hospital bed for every 2000 people. A leading government think tank recently produced a report proposing some changes to try and tackle this massive healthcare conundrum. The report suggests some radical changes in the current system. One of the major proposals is for the government to relinquish its role as the nation’s primary healthcare provider, leaving that role to private facilities, and focus on administration and management of the healthcare system It envisions a situation where the government pays private healthcare providers fixed rates for providing medical services to the public. These proposals have not been well received by the Health Ministry, which prefers to try and bolster the public system and use private resources to fill in the gaps.
It hasn’t been suggested how much such proposals would cost to implement, but in a country with such a large part of the population living in poverty, one wonders where the money will come from. India not only needs to make some major investment in its healthcare infrastructure, but its road network is falling into disrepair, the railway system is ancient and the electricity grid needs massive investment as well. While the current government is promising to spend USD1 trillion on infrastructure upgrades by 2015, the healthcare problem is far greater than a mere lack of facilities, with issues that are not so easily solved.
The situation in private hospitals is far better, the problem is that very few can afford treatment in them. With almost a billion people having to pay for any healthcare costs out of their own meagerly filled pockets, it is absolutely certain that private healthcare will stay out of reach of the vast majority of Indians for the forseeable future given that only around 6% of the population is covered by private medical insurance.
Compounding the affordability problems of healthcare, the private insurance company, Future Generali India Insurance, sees medical costs in the country increasing at an average of around 15 per cent annually. Currently only about a third of all hospitalization costs in the country are covered by health insurance, meaning the inflation in medical expenses will progressively put quality healthcare further out of reach of a growing number of Indians.
The demand for health insurance coverage in India is very high. Getting more people covered by health insurance may help with removing the urban bias in the accessibility of health care, and may also improve the standard of medical services for all Indians. If the government does decide to step back from being a healthcare provider and chooses to use the private sector to fulfill that role, the demand for private healthcare will obviously increase. As we have seen in other countries who have similar systems, there will always be a market for premium medical services, away from the throngs of people, queues and budget constraints that feature so strongly in public healthcare.
The health insurance industry is expected to grow at a rate of 16-20 per cent per annum for the next five years. The potential for growth is high but for insurance companies it is still a loss making business. Basic loss ratios, which only take into account premiums to claims, have been above 100 per cent and combined ratios which are a measure of ultimate profitability are above 120 per cent. Some of the factors making it difficult for insurers to turn a profit are a high ratio of fraudulent claims and almost no regulation of private healthcare providers, meaning that private hospitals can charge whatever they like. Furthermore, the Indian system of using third party administrators (TPA’s) to act as a kind of broker between insurers, hospitals and policyholders is prone to abuse and fraud. TPA’s are supposed to ensure that claims are dealt with smoothly, by helping the customer file a claim, working with the healthcare provider to settle bills directly, and referring clients to doctors who are able to deal directly with insurers. The reality is that currently, TPA’s are often delaying payments, offering to settle only partially, leaving policy holders with large unexpected bills, and some are even processing claims for fictional treatments at non-existent hospitals. There have been calls to regulate the role of TPA’s more strictly, but no new measures have been implemented to date.
In an effort to increase market exposure and improve efficiency and ultimately, profitability, insurers are developing strategic partnerships with banks. In one such recent move, Tamilnad Mercantile Bank Ltd, in partnership with United India Insurance Company Ltd, has launched a co-branded family healthcare product, to offer customised health insurance policy for the bank’s customers. “The cost of healthcare is going to increase rapidly in the coming years and insurance is a requirement to meet the cost of healthcare for each individual. This co-branded product will give our customers a fine risk coverage at a low premium,” said KB Nagendra Murthy, managing director and CEO of the bank.
Indian health officials have some big decisions to make. They could choose to simply try and improve the current system by investing in public healthcare infrastructure, increasing training facilities and using the private sector to simply fill in where it cannot provide care, such as in super specialized facilities or experimental treatments. Another option would be to step out of the healthcare provider role altogether, as outlined above, and simply pay private healthcare providers set amounts for treatment. This option is fraught with potential dangers of overpricing and overdiagnosis, as is the case in the USA, where providers are paid per treatment, and the more they do for a patient, the more they get paid.
The PPP model seems to be the most promising, and if done right can play into each sector’s strengths and existing infrastructure. Whichever route India decides to take to deal with its healthcare challenges, working out affordable solutions will definitely be a challenge. However, India has a reputation for innovation, creativity and adaptability in business, let’s hope they have politicians brave enough to implement the changes they need.
Teetering on the brink of economic collapse is Greece, the land of ancient mythological deities, and like the Gods before them hopes and beliefs in a timely turnabout for the Greek economy are dwindling hastily. At hand is the issue of the Eurozone: does Greece stay within and keep the Euro, or will it revert back to the obsolete drachma, the original Grecian currency which existed prior to 2001?
If the Eurozone were to retract it’s inclusion of Greece, there could be drastic effects which affect not only Greece, but the entire Eurozone as well. Specifically, the once-Eurozone-greats of Spain, Italy, and Portugal, who similarly share severely weakened economies, are significantly at risk should the Greek make an exit. It is ironic that the four major players pulling down the system are Portugal, Italy, Greece, and Spain – bearing the acronym of PIGS.
What are some of the possible issues at hand? How will the lifestyle and welfare of the residents be affected? And something more topical, with the state of Greece’s public funding slashed, what will happen to healthcare and health insurance?
Should the Greek system withdraw its participation in the Eurozone, there will be widespread effects across economies not just in the Eurozone, but around the world as well. In preparation for the withdrawal, the Greek banks will probably limit the amount that a person can withdraw from their bank accounts to prevent a bank run and a collapse of Greek banks. Greeks will need to endure the changeover of their currency from Euros to drachma as well as the subsequent devaluation of the drachma. The Euro will most likely be converted to the drachma at a pre-defined rate which will remain fixed for the duration of the changeover. As it stands, the exchange rate, which was revised in April of 2012, stood at 1:340.75. There is a glimmer of hope: many sophisticated investors and those with significant savings have already shifted their funds out of their Greek banks into foreign banks. What this means is that if Greece were to recover, the money is ready to come back in, without experiencing a dismal devaluation.
Once Greece exits, there will be defaults on their debt, which still hold their face values in Euro dollars. Even with 95 billion euros of the debts face value wiped, it still represents almost 265 billion euros. But what kind of implications will that have on the other countries whose economies are also at risk? Spain, Portugal and Italy’s liquidity is affected significantly due to investor fears of economic collapse and worries about debt repayment. Since all three countries require debt financing and liquidity for day-to-day activities, the loss of foreign investments can cause serious liquidity issues. The financial health of these countries could be in considerable trouble, especially since Italy and Portugal carry a considerable amount of debt – with inabilities to pay off the interest payments on loans and bonds, both countries could default. Currently, both countries owe more than their annual GDP.
If it turns out that Greece needs to roll in the new currency, the drachma, the currency that most likely will replace the Greek Euro, will take time to officially come into place. Experts predict that it will take four months until the currency is printed and entered back into circulation. Until then, monies held in bank accounts will likely be changed immediately, while the physical Euro, or at least those denoted by a Y which is the Greek country code, will still be accepted with those.
After the drachma is returned to the Greeks, what will likely happen is inflation, or worse, hyperinflation – you may have seen those old photos of people carrying a wheel barrel of cash just to buy a loaf of bread, or starting a fire with the local currency. If hyperinflation takes place, and this may become a reality for the Greeks should the drachma drastically devalue after its introduction, a basket of goods does not. The relative value of a drachma compared to that basket of goods will widen, resulting in the price of goods soaring.
Moreover, as the drachma is worth less and less, imports become exponentially more expensive. This is not good news for Greece as it is a net import state – Greece imports more than it exports, including food. Conversely, exports will receive a great benefit from the devaluation as one of Greece’s biggest export, tourism, will surely rise due to inexpensive holidays and cheap money.
Inflation, or hyperinflation, will cause Greece to be highly unaffordable for many of those struggling amidst the grip of unemployment; stability in the region will be hard to attain until the government gets back on its feet and is able to borrow again. Residents of Greece may leave the country in a bid to reduce the effect of the devaluation, but measures may be put in place to restrict some of these movements, including provisions on bank account withdrawals.
Compounding the damage is the cut in public spending and governmental policies which affect the business community. Specifically, a lowered minimum wage will have negative effects on residents’ ability to afford goods, making daily necessities difficult to attain. Greece’s two-tiered wage cut, was disproportionately hard on the younger generation, with the minimum wage for those under 25 cut 32 percent, instead of 22 percent. The effects of this and other cuts are being felt more acutely as goods become more expensive. As there are proponents of a spending method to get out of a recession, it seems like this is almost an impossible option for Greece at the moment whose debt outpaces its GDP by over 170%.
Businesses may begin to fail – their ability to borrow money and to keep a sufficient flow of business will be seriously affected by the devaluation of drachma. Furthermore, as citizens concerns start to turn towards more essential goods, such as accommodation, food, and other necessities, relative luxury goods and services become less important in their lives. Businesses suffer due to the lack of demand for their goods and may be forced to close doors.
And what about the necessities of healthcare and the ability to receive healthcare? Already, hospitals all over Greece are feeling a financial asphyxiation which is being transferred to the patients. Supplies are low and resources are lower. As public benefits decline, people increasingly turn to the public hospitals to receive treatment where the waits are long but the prices are lower. Significant changes have been made to treatment policies, allowing only for serious cases to be treated in a timely manner, or at all. There have been numerous reports of supplies being stolen, especially syringes and gloves.
Citizens’ ability to receive healthcare will be negatively impacted and will continue to worsen as the burden on health services is driven by the declining health of citizens. Wait times will be compounded as hospitals are flooded with demand for healthcare and an increasing lack of personnel and resources to service them. Doctors and nurses may flee to private hospitals or other countries in the wake of cuts to benefits, increases to workload and the potential of frozen salaries.
The medical system is already beginning to collapse. Big Pharmaceutical companies are refusing to provide medication because of the inability of hospitals and clinics to pay. In some cases, doctors and nurses are providing healthcare and treatment with no pay and can endure such a lifestyle for only so long.
Medical insurance will be equally negatively impacted in the near future. As businesses feel the increasing effects of the slowdown, so will local health insurers as business functions are hampered by inabilities to borrow and inflation makes existing or collected premiums insufficient for providing coverage. Moreover, premiums collected before the collapse may be converted to the drachma from the Euro and may not be enough to cover the cost of providing healthcare once devaluation sets in. Premiums will probably need to rise in order to keep pace and many may cancel their plans and opt for basic health coverage through the government because they cannot afford to keep up with the increasing premiums. This is under the assumption that the Greek government will continue to provide subsidized health coverage – under austerity measures, subsidized health coverage could very well be one of the earlier things that a government will cut. This will likely result in the collapse of many local health insurers, leaving those previously insured with them without coverage.
As for international health insurance in Greece, premiums for new plans should increase. Since premiums are calculated based on a community rating, the risk profile for those in Greece is increasing alongside the cost of providing healthcare in Greece. Those who do not have health insurance should consider purchasing an international health insurance plan prior to any change in currency that may take place. The plan will be good for the year before the devaluation takes effect, resulting in confirmed coverage for the higher costs of healthcare. It will be a money saving route for the long run. As for existing international health insurance premiums, they too will probably increase in the coming years because it will be costlier to provide healthcare in the country given the lack of supplies or credit to purchase them, as well as the possible need for more people to travel abroad to seek treatment. Furthermore, the health of the residents may continue to decline, resulting in a riskier health profile to the insurance companies, especially since big pharmaceutical companies are wary of providing more supplies on credit.
This makes acquiring an international health insurance policy in Greece much more attractive now rather than later. Before the conditions are unfavorable for you to acquire insurance, acquiring now is a safe way to hedge your bets against both financial and healthcare problems in the future.
There is salvation in sight: with the devaluation of the drachma, many exports become significantly more inexpensive across the world. This makes Greeks exports attractive, helping the country get on its way to recover. However, if the country does not exit the Euro, recovery could be long and arduous.
With Greece controlling its own currency and fiscal policies, it can make provisions and decisions which can bring it out of its slump faster. For example, if Greece wanted to increase its exports, it could further devalue its currency by printing more of it. In addition, Greece has free reign to set its own interest rates, which could facilitate lending and financing throughout the region.
Argentina and Latvia are similar examples of the two options which Greece is faced with: stay with the old currency or move on to their own. Argentina was pegged to the US dollar and Latvia is part of the Eurozone. When faced with their financial meltdowns, Argentina opted to discard the pegging and Latvia decided to stay with the Euro.
What happened was Argentina’s peso devalued significantly and unemployment soared, as did inflation. But quickly after, Argentina crawled out of their depression and reached their peak output levels in just a few years. In contrast, Latvia struggled significantly while under the Euro and GDP growth plunged to the deep negatives. Living conditions continued to decrease and is projected to start recovering in the coming years.
While American farmers are struggling to deal with widespread losses due to the sustained period of drought this summer, a second menace is thriving in the unusually dry climate. The USA is now facing its worst year of the annual West Nile Virus outbreak since the virus was first identified in the USA in 1999.
To date, there have been 26 deaths and 693 confirmed cases of the virus in 32 states, according to the U.S. Centers for Disease Control and Prevention.
The West Nile Virus is transmitted to people by infected mosquitoence no symptoms, while roughly 1 in 5 people will develop symptoms such as fever, headachs. The virus can infect people of all ages, however most people who become infected will experiee, body aches, joint pains, vomiting, diarrhea, muscle tremors, dizziness, or skin rashes. Fewer than 1 percent will develop more serious illnesses, such as West Nile encephalitis or meningitis.
Children generally have very mild illnesses associated with the West Nile Virus, but adults, especially those over 50 or those suffering from conditions that suppress the immune system, diabetes, or hypertension face the highest risk of developing a serious illness due to WNV infection.
There are no specific drugs used for treating WNV infection; medical care is mostly supportive while the person’s own immune system fights the disease. Most people who get the milder form of disease called “West Nile Fever” recover fully within a couple of weeks. However, those who develop the severe neurological disease associated with WNV often face weeks of rehabilitation and may never return to their normal level of activity.
Health officials say this summer’s dry weather has made people less concerned about mosquitoes, normally associated with wetter weather, and become less conscientious in applying the usual anti mosquito measures. Unfortunately, the type of mosquito that carries the virus does well in dry weather with occasional rain, and so the current drought has proved to be a very favourable breeding environment.
Mayor Mike Rawlings declared a state of emergency in Dallas and announced the city’s first aerial spraying of insecticide since 1966. More than 200 cases of the virus have been reported in Dallas County and 10 people have died in the state this season. Mayor Rawlings said that Dallas County accounts for 25 percent of all reported West Nile virus cases in the United States. Public health officials decided that increased measures, such as aerial spraying, are necessary because of increased findings of West Nile Virus in mosquitoes captured in traps.
The West Nile Virus is primarily an avian disease often resulting in the death of infected birds. In the Western Hemisphere, the American Crow and the American Robin are the most common carriers. The disease is spread by mosquitoes and can also infect some mammals including humans, horses and pets. Human cases of the WNV were first documented in Uganda in 1937, but it is now widespread in Africa, India, southern Europe, Australia and south west Asia. It was first detected in the USA in 1999, in New York, but infections have now been reported all over the United States, Canada, Mexico, the Caribbean and Central America.
In the USA, most infections occur between June and September with a peak in August, according to the CDC. “It is not clear why we are seeing more activity than in recent years,” CDC medical epidemiologist Marc Fischer announced on Friday. “Regardless of the reasons for the increase, people should be aware of the West Nile Virus activity in their area and take action to protect themselves and their family.”
The single most effective anti-mosquito measure is eliminating the standing water where larvae grow into adults. The proper disposal of used tires, cleaning out rain gutters, bird baths, empty flower pots and unused swimming pools greatly reduces the mosquito population in an area.
Individuals are advised to take proper precautions against mosquito bites. These include wearing light coloured, long sleeve clothing, using insect repellent containing DEET and staying indoors between dusk and dawn when mosquitoes are most active.
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In this article we will first present our findings of the premium increases and premium inflation rates in each region and country we studied, with specific insurance findings to be presented at the end. Overall our findings were that International Private Medical Insurance (iPMI) premium inflation was very high, at roughly 10.8 percent per year over a 5 year average. While variations exist between countries, the reality is that iPMI inflation rates were extremely consistent throughout the world. However, it is important to note that this is medical insurance premium inflation at the high end of the sector, and not necessarily with regards to the mass market.
Even presenting the argument that premium increases are fairly consistent on a global basis, there are some immediate outliers – Hong Kong, for example, runs at an iPMI premium inflation rate of roughly 13 percent per year, while Kenya’s premium inflation rate is approximately 9 percent per year. Although there is a difference in premium inflation rates between Hong Kong and Kenya, the difference is not overly substantial – as will be seen inside this report.
Globalsurance is pleased to reveal the results of our latest study on the international health insurance industry and rates of international medical insurance inflation around the world as of August 1st 2012.
Using 7,916 data points from 8 different International Private Medical Insurance providers in 10 different countries, Globalsurance has been able to successfully identify a number of trends within Global Medical Inflation for individual International Private Medical Insurance (iPMI) plans during the time period from 2008 to 2012. iPMI is a subsector of the greater health insurance industry which services the global population of expatriates and international High Net-Worth individuals.
The companies sampled in the studies use Age and Geographical Area of Coverage as the main variables in their premium calculations. By selecting a sample which is community rated Globalsurance has been able to efficiently identify the actual rates for premium increases in different parts of the world. Our measure of inflation is based on a sample of policies, ages, and published rates for each insurer included in the study. Globalsurance selected the most common age groups and most common policy types for our data points to achieve realistic measurements in relation to medical insurance premium inflation around the world.
While individual insurance providers and underwriters may disagree with our findings, the figures represented in this report are based on our sample and present baseline figures for all of the regions and companies we chose to consider.
It is important to note that, unlike the recent Towers Watson Report on Medical Trends, the data contained in the Globalsurance insurance review is not survey based. Rather than looking at individual responses and feelings in reference to levels of health insurance premium inflation, which may have some inherent bias dependent on the respondent, Globalsurance is analyzing the actual premium data from insurance companies with exposure to the world at large, over locally based providers operating in a single country.
Additionally, we have analyzed premium data, and not healthcare pricing data. Consequently the figures represented in this report are indicative of the levels of healthcare cost inflation which insurance perceive to be in place in the locations we sampled; profit and operating costs of the individual insurers are assumed to be unchanged. While the increase or decrease in premium values may point to actual rates of medical inflation in the countries which were included in the study they do, in fact, represent the increased costs placed on policyholders.
However, it should be noted that, while the figures contained in this report are the actual rates of iPMI premium increases for the duration of the study, the removal of Age and Policy type means that the figures presented in this study of International Medical Insurance premium inflation can be used as a suitable proxy for rates of actual medical inflation in relation to healthcare costs around the world. It should be noted that the proxy does not represent medical inflation across the entire healthcare sector within a country or region; for example, NHS cost increases in the United Kingdom are not evident in our findings. The rates of iPMI premium inflation are only a proxy for healthcare costs in High-End, private medical facilities in the countries which we considered, due to the basic nature of the international medical insurance products we are studying.
So, without any further ado, here is the Globalsurance International Insurance Review:
The rise of the middle class in East Asia is proving to be a boon for private healthcare providers. Kuala Lumpur based IHH illustrates this nicely. In their recent IPO, which was 132 times oversubscribed, IHH raised more than USD 2 billion and the shares climbed by more than 10% in the first few days of trading. The value of the company stands at around USD 8 billion. IHH is now the second largest hospital group on the planet, and the largest outside the USA.
Owned by Khazanah Nasional Bhd, a state owned investment arm, IHH tells a story of unprecedented growth. Khazanah started their move into the healthcare sector in 2005, when they bought a 13.2% stake in India’s largest private hospital group, Apollo Hospitals Enterprise. A string of acquisitions and investments in the following years have enabled IHH to build itself into the powerhouse that it is today, able to ride the wave of opportunity created by the growing economies of East Asia.
According to Frost & Sullivan, the market for healthcare in Asia Pacific region will grow by 8 % until at least 2015, and IHH already has plans to add another 3300 new beds and 17 hospital developments in China, Singapore, Malaysia and India, as well as expansion plans Turkey, Egypt and Lybia by the end of 2016.
The success of IHH has been largely due to their ability to fill the gap created by lagging national healthcare infrastructure and rising demand for quality medical services in countries like Indonesia and Malaysia. The strategic positioning of their Singapore based hospitals, all within a relatively short 3-4 hour flight from Malaysia, Indonesia, Vietnam, Myanmar and Bangladesh, has created a healthcare hub which IHH has been well positioned to exploit.
IHH is now applying their winning formula to expansion in other developing regions of the world. It recently bought a 60 percent stake in the owner of Turkey’s largest hospital group, Acibadem Saglik Hizmetleri & Ticaret AS, which it bought for $826 million. Turkey is conveniently situated within easy reach of Central and Eastern Europe, the Middle East and Africa, much like Singapore is to East Asia. IHH hopes to develop their Turkish operation into another global healthcare hub, alongside Singapore and Malaysia.
The growth of private healthcare, especially in the developing world, is certainly a good thing, providing top medical services to those who can afford it, and easing some of the burden on national healthcare systems by providing an alternative source of treatment and the associated networks of training and development facilities. IHH owns a private medical university and a nursing training centre in Malaysia. Private healthcare is also the incubator for new healthcare technologies and techniques, as public sector healthcare often doesn’t have the budget or the staff to invest in much other than proven technologies and treatments.
There is a downside to this success story though. The draw of shiny new hospitals, new technology, a better working environment and higher salaries is proving to be too much for many healthcare professionals to resist, and is causing a slow but steady exodus from the public health systems all over the world, from the poorest and most underdeveloped, to the wealthiest and most advanced, basically without exception. Patients in private healthcare enjoy the luxury of not having to wait for treatment, of being treated by doctors who are well paid, have had enough sleep and who have enough time in their day to carefully consider a patient’s diagnosis and treatment.
The state of public health services is not quite so utopian. Even in somewhere as developed as Hong Kong, the public Health Authority struggles to find staff, and is left with no choice but to require the staff it does have to work unsustainably long hours for pay which is well below the equivalent in the private sector. This situation is not only making it difficult to convince new personnel to work in the public sector, but also creates an environment that is prone to mistakes and accidents.
President of the Hong Kong Doctors Union Henry Yeung Chiu-fat said many young doctors nowadays want easier jobs. Their preference for less stressful fields has exacerbated staffing problems. For example, becoming an ophthalmologist (eye doctor) is much more competitive with less-demanding on-call work than internal medicine or emergency room jobs.
Public hospitals In Malaysia, Thailand, China, India, UAE, South Africa, Australia, and even Europe have all been struggling with this issue, with some areas being so short of staff that they are having to close departments when a particular specialist is away for any reason.
While some of the problem can be alleviated by increased salaries and reform of health departments to be able to offer more flexibility to staff, there is another factor brought on by the rise in private medical services which could make the brain drain even worse.
The option for overseas treatment offered by a growing number of private medical insurance companies, as well as the relatively cheaper cost of treatment in developing countries, has created a massive growth in medical tourism. This lucrative market requires staff who are not only medically qualified, but who are also multi-lingual and culturally sensitive. This is a relatively unique demand of the private sector, since public sector hospitals treat a relatively small percentage of foreign language speakers.
This begs the question: If the unprecedented growth in international private health services continues, which it probably will (IHH alone are building 17 new hospitals), and the private sector continues to draw in much of the top talent in the medical industry, how will the public health services maintain a high standard of care, with fewer experienced personnel and many young doctors looking elsewhere for employment?
The crisis is very real, and there needs to be some serious thinking done on the part of the public health systems, especially those of developing countries. Stop gap measures will only work for so long, as human doctors and nurses will get tired and frustrated which can lead to them making potentially serious mistakes or quitting.
In China the problem is just as real, although slightly different. The private sector is still very small in comparison to public health system, instead, the problem China faces has to do with the urban – rural divide. China has recently spent more than USD 100 billion to try and bridge this gap, providing health insurance cover to 98% of rural Chinese, and ensuring access to improved primary healthcare facilities in a massive investment in rural infrastructure. While a large proportion of the rural population now have access to modern medical facilities, and are now more able to afford it, the State has still not been able to convince doctors and nursing staff to choose to work in more rural locations. Any career minded doctor in China would choose to work in one of the top tier city hospitals, where their case load will give them more interesting work with increased opportunity for career advancement, and where there are more opportunities for generating secondary income with some private practise on the side. In Shanghai alone 9 new hospitals are being built, which will all need to be staffed. A position in the rural areas is definitely not on the average Chinese doctor’s wish list, and the State faces some serious challenges in encouraging doctors to fill rural postings.
Unless creative solutions can be put in place, it seems that staffing issues in the public sector only going to increase around the world. With so many nations now facing economic turmoil, a significant increase in public health spending is not going to be easily managed. While investing more money into public health spending and salaries may alleviate the problem, other factors are involved in many cases.
What is certain is that all this bodes very well for the private healthcare industry. Being able to obtain first class medical care is going to become more dependent on whether patients are covered by private health insurance, and the public systems could decide, as the NHS in the UK and the Health Services Executive in Ireland have, to use the private sector to take some of the burden of healthcare off of public sector facilities. Add to all these factors the ageing world population, and it looks like the ideal environment for further growth in the private healthcare industry.
The largest challenge facing private healthcare providers may end up being that of finding and keeping their staff. Inevitable rises in salaries due to industry competition, are sure to be a major factor in the profitability and affordability of private healthcare. However, medical care will still be a necessity for everyone, and with a growing middle class in many developing parts of the world, an increasing number of people will be willing and able to pay for quality care.
The International Association of Insurance Supervisors (IAIS) recently published a consultation paper titled, “Assessment Methodology for the Identification of Global Systemically Important Insurers”. In the paper, the IAIS proposed criteria which will be used to classify insurers as “global systemically important” and invited public comment until 31 July 2012. The paper was endorsed for consultation by the Financial Stability Board (FSB), which has been tasked with coordinating the overall global set of measures to reduce the moral hazard posed by global systemically important financial institutions.
“This proposed methodology results from intensive and thorough discussion within the IAIS based on the expertise from supervisors around the world,” said Peter Braumüller, Chair of the IAIS Executive Committee. “Based on a recommendation by the G20 Leaders and the Financial Stability Board, the IAIS has accomplished an important piece of financial sector reform.”
The system proposed by the IAIS is very similar to that used by the FSB to identify global systemically important banks, with some modification to reflect the difference in the Insurance business model. The intention is to be able to classify those insurers who have global significance and then, through relevant and effective legislation and continuing oversight, to maximize their stability and to minimize the effect of any financial disaster the insurers may suffer on the rest of the global economy.
Under the proposed IAIS criteria, insurers are categorised according to 18 indicators in 5 broad categories: size, global activity, interconnectedness, non-traditional activities, and substitutability. Four of the five categories are the same as for the banking sector.
The Financial Stability Board, a group of regulators tasked by the G20 nations to establish measures preventing another financial crisis as in 2008, will be using the criteria to examine a total of 48 leading insurers to determine whether they should be placed on a list of “systemic” financial institutions along with leading global banks. AIG, Allianz, Axa and Prudential are all seen as potential candidates for inclusion on the list. Insurers deemed to be high-risk could be forced to hold extra capital under new safeguards being drawn up by the FSB.
The insurance industry supports improved regulation, however, according to the International Association for the Study of Insurance Economics, commonly known as The Geneva Association, the proposed measures are still using too many banking-specific indicators, and have not been adequately modified to account for the fundamental differences between banking and insurance companies. The media and politicians tend to lump insurance and banking together under financial service companies, but the reality is that the two are fundamentally different businesses. In their response to the IAIS proposal on Monday, the Association highlights the fundamental differences between banking and insurance, and argues that research has indicated that the most accurate and efficient method for assessing risk in insurance is to focus on activities, instead of the institution as a whole.
While banks have “callable” funds, in that creditors can claim access to their deposits at short notice, insurers only have liability when an insurable event has occurred. Insurers also receive payment up front, while banks provide credit up front, and receive repayments later.
The difference between insurance and banking is clearly illustrated in how the same criteria indicate different situations for each industry. Diversification and global activity is a good example. In banking, an increase in the size and global activity of a bank means an associated increase in risk and global impact. It is precisely the opposite when it comes to insurers, because insurers use increasing numbers to lower risk.
John Fitzpatrick, the Secretary General of the Geneva Association, elaborates,”We know that if we add more size or diversify by line of business or geography, it further reduces risk. So rather than these being indicators of systemic risk, we think they’re indicators of stability and strength.”
Size and global activities carry up to 20% weight in the assessment of indicators, but this is contrary to the nature of insurance, since size and global operations decrease risk. The new proposals do not properly take into account the enhanced stability gained by insurers when they diversify into multiple international markets.
“The insurance business is based on the law of large numbers – the larger number of units that you insure, the lower the volatility of the portfolio,” explained Geneva Association Secretary General, John Fitzpatrick.
The report points to recent research by The Geneva Association which has identified two activities that do have the potential to create systemic risk as defined by the FSB’s criteria, namely speculative derivatives trading on non-insurance balance sheets and the mismanagement of short-term funding. It recommends that, “when collecting data for this methodology, focus should be given to companies engaged in potentially risky activities.
Mr. Braumüller’s makes it clear that the IAIS understands this and has taken the different risk profiles into account, “The potential for systemic risk within the insurance sector needs to be considered where insurers deviate from the traditional insurance business model and more particularly where they enter into non-traditional insurance or non-insurance activities.”
However, it seems that the Association feels that the considerations don’t go far enough. “The system must make the best possible use of regulatory capacity by focusing on activities that can create systemic risks and not misallocate capacity and resources on areas that do not.
We believe that traditional insurance activities should be removed from the process and that noninsurance activities be given a higher weighting than they are currently.”
During the financial crisis, the areas in the insurance sector which were directly affected were not related to the primary business of providing insurance coverage, but other non-insurance activities, like banking, credit issuance and mortgages.
The Association agreed that these speculative activities should face tighter controls and higher capital requirements, but stressed that it was important to recognise the difference between hedging against risk (which insurers do as a matter of course) and speculative investing.
The report called for greater clarity in how the IAIS calculated the weighting of the interconnectedness category relative to the banking and insurance industries. Banks in the current banking system are very interconnected, as was highlighted by the LIBOR scandal. However, in their assessment of the banking system, the FSB have assigned 20% weight to the interconnectedness of the institution. Insurers are not nearly as dependent upon each other or so closely connected, yet the FSB have inexplicably assigned a 30-40% weighting to interconnectedness for the insurance industry.
The substitutability measure is also called into question. Insurance products do not require immediate substitutability, unlike in the banking sector where a catastrophic failure in the payment processing and credit facilities of a bank has immediate and systemic impact. The global financial system is not dependent upon the services of insurers and an interruption in insurance coverage of hours or even days would not necessarily create the same kind of consequences. Governments have stepped in before to provide cover during crisis situations, and would be able to do so again without causing systemic interruption.
It is widely accepted that the current string of regulatory changes is a good thing, but the insurance industry is concerned that some of the measures being put in place are either politically motivated, or are being thrown together without due consideration because of pressure from the media, governments and general public. Unintended consequences of regulation can be quite serious, and if we take into account the fact that the FSB is not the only regulatory body pertaining to the Insurance industry, some nervousness in the industry is to be expected. EU officials and industry regulators are currently working through the details of Solvency II, another package of EU-wide regulations set to come into effect in January 2014.
According to a survey by the Geneva Association, 73% of leaders in the insurance industry have significant concerns about the effects of inappropriate regulation. Chairman of The Geneva Association and Chairman of the Board of Management at Munich Re, Dr Nikolaus von Bomhard, said, “The insurance industry plays a vital stabilising role in society and in the world’s economies both as a significant participant in financial markets and as a shock absorber for individuals and companies that suffer an insured loss. The results of this survey reveal that leaders of some of the world’s largest insurers are concerned that inappropriate systemic risk regulation will needlessly affect our ability to play that role.”
About the IAIS: The IAIS is a global standard setting body whose objectives are to promote effective and globally consistent regulation and supervision of the insurance industry in order to develop and maintain fair, safe and stable insurance markets for the benefit and protection of policyholders; and to contribute to global financial stability. Its membership includes insurance regulators and supervisors from over 190 jurisdictions in some 140 countries. More than
120 organisations and individuals representing professional associations, insurance and reinsurance companies, international financial institutions, consultants and other professionals are Observers. For more information, please visit www.iaisweb.org.