Posted on Aug 29, 2008 by Sergio Ulloa
"Since the country's embrace of the reform and opening-up policy, the development of China's insurance industry has held the attention of the world," said the China Insurance Regulatory Commission in 2006
. China is indeed a huge and promising market for health insurance. But how does health insurance in China actually work?
The vast majority of Chinese people don't have health insurance, or for that matter, access to affordable good quality healthcare. If this seems somewhat odd in a nominally socialist state, it is because it was not always the case. Mao Zedong set up a countryside healthcare system after taking power, based around agricultural communes, which brought life-long government subsidized health care to 90% of China's population, raising life expectancy and reducing infant mortality. However, with the gradual dismantlement of commune-based agriculture under the auspices of Deng Xiaoping, the rural healthcare system which was linked to the communes fell apart, subsidies stopped flowing, and hospitals were privatised. By 1985, only 9.5% of the rural population was still covered by the medical cooperative system. The rapid economic growth of China's cities has resulted in a situation where, while around 900 million of the population live there, only a third of health professionals work in the countryside
. The government's healthcare spending has risen overall, but has been falling as a percentage of the budget for more than a decade, and in any case, 80% of the healthcare budget is spent on government officials.
This worrying situation
looks like it may be set to change, as Premier Wen Jiabao recently announced a new national health-insurance program
, to be piloted in cities to start with and scheduled to be extended to the rest of the country by 2010. The government already tried to introduce cooperative medical insurance for people in the countryside in 2003, without huge success. While the situation in cities is naturally better than in the countryside, the World Bank estimated in 2005 that fewer than 60% of China's urban residents had health insurance (still a lot more than in the countryside). Employed urban residents are the only ones allowed to participate in the national health insurance program, which excludes migrant workers (though there are some schemes theoretically supposed to help
this group of people, of whom there are more than 110 million), and the unemployed.
However, of the 400 million people living in Chinese cities, and the 900 million or so in the countryside, the small proportion for whom private medical insurance is even remotely feasible still amounts to a huge number of people, and a huge potential market, and until some sort of comprehensive state health coverage is introduced, private medical insurance is set to become more and more popular with the rising numbers of middle and upper class Chinese.
The opportunities for Chinese and foreign insurance companies in the country have recently been greatly opened up. Insurance in China is still a young industry, only re-emerging, after a long hiatus, in 1984
. AIG, founded in Shanghai in 1919, was the first foreign insurer to operate in China after it reopened, returning to Shanghai in 1992. Foreign insurance companies were encouraged to bring money and expertise to China, but were greatly restricted in how they could operate, resulting in mostly joint-ventures, and were not allowed to sell health insurance. Companies usually had to have a representative office in the country for many years before they were actually allowed to do business in their own right, and this is still the first step for a foreign firm setting up in China. It is still technically illegal for companies without a license to operate in China to sell insurance to Chinese clients, and until 2005 companies with a licence were limited to operating only in certain Chinese cities
such as Beijing, Shanghai, Guangzhou and Tianjin.
Not until 2005 were geographical restrictions lifted, and companies were allowed to sell health insurance, group insurance, and pensions/annuities
, as part of changes to put China in accordance with the conditions of its accession to the WTO. This and other reforms have made the market much more open to foreign insurers
, who had a 6.9% share of the overall insurance market in 2005. On the other hand, there are still restrictions in place on entering the market, such as having to have 20 years continuous experience
in the insurance business.
Experience is however usually what sets foreign insurers apart from the Chinese companies. Most health insurance policies in China are naturally provided by Chinese companies, but these have also been subject to a great many restrictions, for example on their investment options
, though these are gradually being eased
, for example allowing them to invest in real estate, and abroad
. As many of the big Chinese insurers are still government run or owned
, they have some way to go in terms of efficient management, and though companies like Ping An appointed executives experienced with global firms
, helping them to take the second largest share of the market, Chinese insurers face a risk that global firms moving to China will headhunt their best people for their understanding of the Chinese market and regulations. Also, foreign insurers, with their greater insurance experience, professional standards, freedom from association with government bureacracy, and usually sounder investment strategies, may appear safer and more reliable to Chinese customers. This has resulted in a significant practice of Chinese people buying (or being sold) life insurance or health insurance policies illegally
from foreign companies offering products considered better than those available within China.
The ball is rolling, and the requirements of WTO membership and the opening up of the Chinese insurance market, both legally and illegally, are causing the government to have to constantly reevaluate its regulations about insurance; the need to allow Chinese insurers to be as competitive as possible, both in the home market, where they have a head-start, and abroad, means that they are likely to be given more leeway in terms of how they invest, how they are run, and what kind of products they can offer, but in the meantime global insurance companies have a window of opportunity, which they are seizing. Hopefully, amid all this excitement, the government will remember to do something for the many millions of people that cannot afford health insurance in China.