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China Medical Insurance market and Swiss Re Value Proposition
Kelvyn Young
10 April 2008
Slide 2
Private sector participation is gaining popularity in healthcare
Healthcare systems of 191 WHO members
0%
50%
100%
0% 50% 100%
Government involvement, % ->
Insu
ranc
e c
om
ponen
t, %
->
Note: The original data is taken from WHO World Health Statistics 2007. Government involvement is measured as “general government expenditure”, which include social health insurance, as % of total health expenditure (THE). Insurance component is measured by the % of health spending financed by social health insurance and private prepaid plans. When reporting the data to WHO, there may be inconsistencies in definitions among 191 member countries.
Source: Swiss Re Economic Research & Consulting
Tax financingOut-of-pocket
Social insurancePrivate insurance
Slide 3
Insurability / Infrastructure
Insurer’s involvement
Life only
Critical
illness
Hospital
cash
Full reimbur
se-ment
Managed care
Administration Underwriting, product
devtActive claims management
Risk not insurable No opportunity
Stay away
Regulatory burden, little
incentive
Increasingly mature market
and sophisticated
buyers
Integrated state and private
offering
Source: Swiss Re Economic Research & Consulting; Swiss Re L&H
Evolution of medical insurance business
USA market
Asia market
Slide 4
World top 10 health underwriters
World top health underwriters by net premiums earned
1
0 10 20 30 40 50 60 70
UnitedHealth Group
Wellpoint Inc.
Kaiser Foundation*
Humana Inc.
Aetna Inc.*
Cigna Corp.*
HCSC Group
Independence Blue Cross
Health Net Inc.
Highmark Inc.
Axa*
Ergo
BUPA
Allianz*
USD bn
*Kaiser data refers to revenue, not NPE, Cigna: includes disability & life business, Aetna: includes group life, disability & LTC, AXA: includes all health lines, including disability, Allianz: German health business only.
Source: Company financial statements, Conning, Swiss Re Economic Research & Consulting
Top
10
US
com
pan
ies
Top
n
on
US
com
pan
ies
Slide 5
Overview:Healthcare in China
Healthcare expenditure: 4.7% of China’s GDP (1)
2004: more than RMB 759 billion (USD95 billion)
2007: estimated to be more than RMB 1,000 billion (USD 137 billion) (2)
52% directly paid by households
6% of which by commercial health insurance
A national priority
Social health insurance now a reality, but offers basic coverage:
– 1998: basic medical insurance system for urban employees (180 m people covered end 2007)
– 2003: rural cooperative medical system for rural residents (730 million people covered end 2007)
– 2010(3) : target for universal coverage
Significant work on improving hospital administration and delivery
1. WHO 2005 2. Swiss Re Economic Research & Consulting 3 . Premier Wen Jiabao
Slide 6
Medical insurance in China: large-scale potential
Growing demand and affordability 70% of affluent and upper mass customers (estimated at 41 million
households by 2010) would consider commercial medical insurance (1)
15% of the 70% would consider expensive next-generation products priced at RMB 7,400 (USD 1,000) p.a.
Consumers want better services
As affluence grows, customers seek better services, such as:
– Shorter waiting time
– Cashless services
– Better pre- and post-admission follow-ups, etc
Opportunities for introduction of new generation products
Market potential for commercial health insurance (including critical illness)
RMB 489 billion (USD 67 billion) in annual premiums (2)
1. Shanghai and Qingdao survey 2006 2. Swiss Re Economic Research & Consulting
Slide 7
Just how large is China’s potential?
Source: McKinsey, Swiss Re Economic Research & Consulting
Health insurance premium incomeUSD Bn, excluding Critical Illness
2.6
2.21.9
1.01.0
0.50.30.3
6.3
0
1
2
3
5
6
2000 2001 2002 2003 2004 2005 2006 2007 2015
By 2015, China GDP will reach USD8.4 trillion, (excluding exchange rate effect). Of the 5% spent on health, if 1.5% is funded via private medical insurance (excluding critical illness), the market will still reach USD6.3bn (CAGR: 12%)
Between 2007 and 2015, affluent population will increase their demand for supplement scheme on top of social health insurance which will keep expanding. Actual figures in-between vary year by year.
4
(RMB19bn)
(RMB46bn)
Slide 8Slide 8
Health business volume
1. Total health insurance – includes large proportion of long term or short term CI business, accident medex etc,
2. A few companies sell Long term care and Income protection, but premium volume is very small
3. Volume increased from 2004 to 2006, small growth during year 2007.
4. Loss ratio is low for CI and individual PMI which mainly includes hospital cash and hospital reimbursement.
5. Group medical business experience is worse then individual
Unit Million
Year 2007 2006 2005 2004
Volume 38,416.61 37,690.27 31,230.19 25,987.71
Total claim paid 11,686.46 12,509.92 10,791.60 8,910.32
Loss ratio 30% 33% 35% 34%
source: CIRC yearly published data
Market share for the whole life and health business
Main player 2007 2006 2005 2004
China life 40% 45% 44% 47%
Ping An 16% 17% 16% 17%
CPIC 10% 9% 10% 11%
New china life 7% 7% 6% 6%
Taikang 7% 5% 5% 6%
Total 79% 83% 81% 86%
Slide 9Slide 9
Contributions & funds for Basic medical insurance system
Decision to establish a basic medical insurance system for urban enterprise employee state council 1998
Guidance on participating basic medical insurance for urban flexible work force Ministry of Social Labour and Security[2003] no.10
Contribution Fund
Additional fund
Basic Fund
individual account
Employer
Employee
Slide 10Slide 10
Cover within the different funds
Basic Fund
1. Inpatient but limits
2. Outpatient treatment of cancer (radiotherapy, chemotherapy), renal dialysis
3. Emergency room fees leading to an inpatient claim
Additional Fund
1. Outpatient above a deductible
2. Inpatient above the basic funds benefits
Individual Account
1. Covers the gaps of the basic and additional funds
Slide 11Slide 11
Summary of outpatient and inpatient cover
Expenses above the deductible:
• Paid by additional fund
• With co pay
• Payment may be subject to upper limit - depends on local regulation
• Deductible
• Self-pay or paid with individual account
• Paid by additional fund with co pay
• With or without Upper limit
• Paid by basic fund
• With co pay
• Payment subject to Maximum limit
• Deductible
• Self-pay or paid with individual account
outp
atie
nt e
xpense
s
inpatie
nt e
xpense
s
Slide 12
SHI – Urban Scheme - Overview
Inpatient
1. Employer pays approx 8% - Employee pay 2%
2. Deductible: from 600 -2000 RMB, for example Beijing 1300 RMB
3. The amount may differ by hospital grade, employment status or even DOB
4. Copayment of the basic fund: from 3% to 30% depending on the hospital grade, employment status or amount of actual medical expenses
5. Upper limit of the basic fund: From 24000 (Taiyuan) to 145000 (Guangzhou)
6. Maximum amount paid by additional fund: No limit set for some cities such as Shanghai, Hangzhou, For other cities the limits vary from 100,000 to 300,000 RMB (Wuhan & Chongqing)
7. Copayment from additional fund: from 2% to 25%
Slide 13
SHI Overview Outpatient
1. Only some developed areas provide supplementary outpatient coverage, e.g. Beijing
Shanghai: with deductible 1542 for active work or 771 for retiree (varying by DOB), no SA, Copayment 30%-100% for actively work and 20%-55% for retiree
2. One company has designed their own out-patient product for those areas where there is no O/P SHI coverage
Slide 14
QI_BU Product features in the current market
Product D- rider cover above additional fund payment. Usually provides additional 100 - 200,000 RMB
Product C- rider
Cover co pay
Additional Top up Fund of 100,000 RMB
30% co pay on this 100,000
Product A– basic
Cover co pay
Covers SHI co pay but still have to pay small out of pocket co pay of between 10-15% up to max RMB70,000
Product B –rider cover deductible 1300
Product F – rider
Cover co pay
Additional fund
40%-50% co pay
Maximum RMB20,000
Product E –rider
Covers deductible but also has co pay on this
The example above is based on the features of the Beijing market
The features are typical of some companies, most however only have two sub-products, one is for Inpatient and the other is for outpatient
In Patient Out Patient
Slide 15
Hospital Providers in China1. Around 300,000 medical providers in the China mainland
2. 4 kinds of medical structures in China mainland: government, joint ventures, foreign owned and private. Approx 90% hospitals are government hospitals
3. Governmental hospitals in China belong to different systems: Ministry of Health (MOH), Ministry of Education (MOE), Army, City, the state etc. Most hospitals are not commercial or service oriented and have no service procedure and thus it can be difficult to build networks
4. Hospitals are divided into 3 grades: grade 3 (best), grade 2 and grade 1. Grade 3 hospitals are found in big cities. Hospitals with the name of “ Peoples’ Hospital” are usually the highest graded hospital
5. Hospitals are graded on the evaluation of the hardware but not service
Slide 16
Current Status
Profitability Poor profitability, particularly on group business due to price competition and unsophisticated data analysis
Claims Management
Limited claims management capabilities leading to inability to contain claim ratios
Risk Management
Undeveloped and fragmented. Lack of sufficiently skilled and experienced insurance expertise
Network Management
Lack of hospital networks that offer better patient services and efficient medical utilisation
What’s standing in the way?Key challenges in China
Slide 17
Swiss Re’s business model goes beyond the traditional reinsurance model
Success in medical (re)insurance demands the ability to operate and exert influence across the medical management and insurance value chains
Professional approaches to product management, claims management and medical provider management are all key success factors
Swiss Re will work, together with its partner organisations, to develop the key components of the value chain that do not currently feature in the local medical insurance markets
Underwriting
Sales and marketing
Customer acquisition
Product / benefit design
Administration
Customer service / retention
Claims Mgt. (adjudication)
Payment processing
Medical management
Building provider network
Provider cost Mgt.
Pharma. cost Mgt.
Case / disease Mgt.
= current gaps
Slide 18
Prestige Health:Full-service capabilities
Swiss Re Beijing Branch
Product development, pricing and reinsurance
capacity
Prestige Health
Policyholder servicesNetwork management
Data capture
Claims management
Experience analysis
Medical Service Provider 1Medical Service Provider 1
Medical Service Provider 2Medical Service Provider 2
Medical Service Provider 3Medical Service Provider 3
Medical Service Provider 4Medical Service Provider 4
Medical Service Provider nMedical Service Provider n
- Distribution & sales
- Premium collection
- Policyholder administration
- Customer service
Medical Insurers
Beijing 2 April 2008Chee Kok POH CEO, Prestige Health
Slide 19
Prestige Health benefits chain:people, hospitals, insurers & the State
Consumers:
Better services and
more affordable products
Hospitals:
Widens customer
base, offers patients better
services and enhance
hospital’s reputation
Insurers:
More confidence
over insurance cost
and profitability
thereby offering more competitive
products
the State:
Contributes to sustainable
medical insurance industry
growth and promotes
better use of hospital resource
Slide 20
Swiss Re’s strategy to help clients succeed
Core team in place plus strong local teams
Team totally dedicated to growing and developing PMI market
Claims Management strategy to ensure control of key aspects of the risk
Engage with regulators and governments to assist with development of the market
Provide clients with tools for success
Helping clients with data analytics and the full suite of risk management solutions
Help clients to grow their business via innovative product ideas
Appendix
1. MedeGuide
Slide 23
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