Posted on Nov 16, 2012 by Sergio Ulloa
High increases are expected in 2013 across the Cigna Global Expat plus plan recently acquired from Van Breda. Currently undergoing a re-branding under the Cigna name, these latest increases will undoubtedly dissapoint policyholders and leave them questioning their faith in Cigna.
Numerous providers (Bupa International, Aetna Global Benefits, AXA PPP) have released their annual increases and have been performing well under the trend of the past 5 years. Policyholders attached to a Cigna
Global Expat plus plan however, can expect to see an increase of 29% on their premium for all renewals in 2013 and it is understood by Globalsurance that increases could reach up to 50% in certain markets (Singapore, China, Hong Kong).
Globalsurance analysts are not considering these increases to be related to medical insurance inflation, but rather adjusting to the pricing in the market. This drastic increase may cause customers to wonder whether these increases would have occurred if Van Breda was not now a part of Cigna and may blame Cigna's own 'economic model and costs' plan as the cause of the increase in premiums.
Van Breda was purchased by Cigna in August 2010 for a reported USD 300- 400 million. Prior to the purchase, Van Breda was one of the market's leading NGO/INGO health insurance providers. Many analysts propose that one of major factors propelling the acquisition was Van Breda's market position, yet the acquisition also saw the purchase of Van Breda's small individual and SME international medical insurance plans
named Expat Plus. Projections show that Van Breda covered up to 700,000 people with their international health insurance products, and the acquisition was seen as a major move by Cigna to expand its international presence and prominence in the market.
Like many other health insurance companies
in the industry, Cigna knows the importance that the international market will play in the health insurance sector. Cigna's acquisition and re-branding of Van Breda under the Cigna name is seen as only a first step for the company to continue to expand its international operations.
It has not yet been determined if this merge will be beneficial for Cigna or Globalsurance customers with Van Breda policies. Many customers may not be happy about the projected increases, and there are expectations that there may be some client management issues for Globalsurance. Preparations are being made in the event of some negative outcomes as customers' policies expire. One affect that has already been realized is the loss of the NATO contact. Van Breda was formerly the insurer for NATO, considered one of the largest health insurance plans in the world with a premium of about USD 100 million. However, in early 2012, NATO moved its business to Allianz, which was a detrimental hit to the Van Breda portfolio. Other smaller corporate and personal plans are also expected to be lost as customers will seek out other options for their health insurance coverage.
"The dramatic change in premiums is going to be very disappointing for our clients who will likely put this huge increase down to the Cigna acquisition and consequent re-branding. We normally prefer insurers to adjust premiums in a more balanced way rather than in such a dramatic jump. If the portfolio is not performing well, we understand something must be done but I think such a big increase in one year with no obvious reason is a mistake, clients will think this is the hand of Cigna," said Mr Neil Raymond, CEO of Globalsurance, about the proposed premium increases.
It is not uncommon for insurers to make adjustments to the pricing of their policies that are more than the typical medical inflation. However, insurers must use caution when making these kinds of adjustments as even if the loss ratio of a plan portfolio is wrong and consequently unsustainable, making such dramatic increases sends negative signals across the market.
As one example, Allianz Worldwide Care had to enforce a similar kind of adjustment back in 2006 because of maternity losses, yet the company was able to recover. As one of the leading distributors for AWC, Globalsurance had to commit many resources when it came to the time to manage the change by providing thorough information to clients about the reason behind the change.
"When Allianz made the market adjustment in 2006 it was very tough on clients and we invested a lot of time with each client to help them to understand. At the time, Allianz was fortunate that their plan administration and claims settlement department was performing well so clients did not want to move. More importantly, Allianz did not change their brand. My concern with the Expat plus premium jump is clients will associate this negative change with Cigna, not with the benefit premium balance on the plan. This Cigna premium jump is going to be much harder for us to explain," said Mr. Raymond.
Analysis by Globalsurance regarding the Expat Plus plan shows that the premium increases are reasonable and competitive when compared to others in the market.
"The Expat plus plan has normally been great value for money and its claims settlement is one of the best in the market, we encounter few problems here. There are admin issues on the plan though, principally because it is run on a 'European style' basis whereby the premium adjustments always occur on the 1st of January even if you renew later on in the year. This concept is often very hard to understand for most clients," said Mr Owen Ryan, from Globalsurance's Operations team. With that, despite the seemingly drastic increases, he asserts that the premiums for the Expat Plus plan for 2013 are more on par with market averages and are priced competitively.
Cigna may face another issue as they continue to bring Van Breda under the Cigna brand with the recent launch of its 'Global Health Options' plan. This plan was previously a competitor with Van Breda's Expat Plus plan, and analysts at Globalsurance have expressed concern that customers' perceptions of Cigna may also negatively affect the company's Global Health Options plan.
Mr Raymond offered his opinion on this matter saying: "Cigna has a lot of things going on in the international private medical insurance market with global and regional plans
having been recently launched in the past and we understand there is still more in the pipeline. I think the management of the old Van Breda portfolio needs to be considered carefully as this will impact the Brand".
He commented further with: "Cigna clearly has the ambition and capability to be a leader in the iPMI market and we fully anticipate this to happen but managing all parts of the portfolio around the world is key, in reality they may be run as separate P&L but they are also under one Brand. We do not want to see another case of AVIVA in Hong Kong". On this, Mr. Raymond is speaking of when AVIVA left the Hong Kong high medical market and abandoned clients, including those with cancer or heart disease. This move was shocking for those both in the industry and out of it.
Despite the uncertainty of the premium increase, analysts at Globalsurance are positive and hopeful in their outlooks for the medium and long-term future of Cigna as a major player in the international market. While the next few months and year will be a test for Cigna, it will be a clear indication of their ability to remain a strong player in the market despite less-than thrilling news for policyholders.