Following last month's survey, which highlighted mainland China's potential in the International Private Medical insurance (IPMI) market, Thomas Smith looks at what is fuelling this growth
China is a growing market for many industries, from coal to electrical components, and IPMI is no exception. However, the IPMI market is growing faster than the rest of the Chinese economy.
So why is this, and is this growth enough to make it attractive to insurers and advisers who are not currently engaging with this region?
Andrew Apps, director of ALC health, said: “This is a huge population. Even if you take just a couple of percentage points of the population – those who would want or can afford IPMI – that’s a huge number in itself, so it’s an opportunity without question.”
Aside from the demographics, the issues with domestic healthcare provision are also expected to drive further IPMI growth. Chinese healthcare is usually hospital based: local equivalents of GP services have a public perception of being a lesser service than going to a hospital. Consequently, in China there are considerably more hospital visits for minor ailments than is common in many other countries.
Alison Massey, marketing and ecommerce director at Now Health, said: “There is a massive untapped market in China, specifically the upper-affluent segment. We define upper-affluent as people who earn more than $40,000 a year but have less than $1m in assets.
“This upper-affluent segment contains the kind of people who want access to better healthcare, because they’re so concerned about health safety in China. The health issues in China are significant, and it’s totally understandable why these people want to access healthcare outside China.”
There has been a huge increase in the coverage of health insurance in recent years, as China reforms its public health sector around an insurance model.
Laurent Pochat-Cottilloux, managing director of AXA Healthcare Management Asia, said: “China has introduced a number of public insurance schemes (often at the provincial level, or for specific occupations), funded by central budgets or through a tax on salaries. There is also a universal scheme that is meant to guarantee a minimum access to healthcare for the rural population.
“In practice, all of these schemes suffer from very low cover levels and long waiting lists at the public hospitals, which are generally overcrowded. A growing minority of Chinese nationals (the urban middle class) is looking to purchase private insurance to work around these limitations.”
Pochat-Cottilloux added that people with higher incomes, foreign residents, multinational corporations located in China look for higher levels of cover. “This would involve being able to access private hospitals, with English-speaking doctors, and the VIP wings of government hospitals, better outpatient cover, maternity cover and, of course, being able to access treatment abroad. Although private hospitals in China, and the best of government hospitals, offer very good levels of care, Hong Kong is a favourite destination,” he said.
Supply chain
Another issue is cost. While this is a major factor in all healthcare at present, in China, there are unusual factors in terms of the state’s involvement. Patients are expected to organise the supply of their own drugs from outside pharmacies, which is perhaps one of the most culturally distinct aspects of Chinese healthcare. The government in China establishes the price of medications and has strict rules about which medications can be funded by the state.
Most expats are concentrated along the country’s coastline and in the capital Beijing, itself less than 100 miles from the sea. This is the area with the largest cities, the most exposure to international markets and consequently much growth in IPMI.
Pochat-Cottilloux said: “All products have to be sold by an insurance company duly authorised to conduct business in China by the Chinese insurance regulator. Health can be sold by both life and non-life companies. Foreign insurance groups have to work with local joint venture partners because they cannot own 100% of the company.
“Aside from working through the regulations, in non-life there is the particular challenge of obtaining 20-odd licences at the provincial level, which takes many years. Apart from licensing, product approval by the Chinese insurance regulator is relatively straightforward. All brokers also have to be locally licensed.”
Changing forces
As a result of these pressures, the country’s IPMI market is seeing increasing numbers of locals buying IPMI as an alternative to the local system.
Hong Liang, country manager, China at Aetna International, said: “I think the demographic has changed quite significantly. IPMI started in China about 10 years ago, when about 80% to 90% of members were expatriates. That percentage has changed significantly, as more and more locals with higher-end requirements are getting into this pool. So, depending on the provider, whether it’s Aetna, Bupa or another, locals now account for 50% or more of the total IPMI pool.”
Alison Massey from Now Health International said: “The most interesting bit of data is that our China book of business is already 50/50 expat vs local national. Our expectation was that the expat business would dominate for the first three to four years, but this has not been the case. After only two years of trading, the split was half and half.”
When it comes to the type of customer, however, many in China who are new to the IPMI market have different expectations to expats, who have grown accustomed to IPMI.
Apps said: “If you’re dealing with expatriates it’s a little bit easier, because most expatriates who go to that part of the world understand what PMI is about: it’s there for acute illness and injury. On a more local level, the culture is that insurance is like a cashplan: it’s there to be used. Every provider who is working out there is finding that the level of claims is growing very quickly, so it’s something we’re all having to be very careful about, making sure the premiums are correct, and that they’re right for the market.
“When you get new markets such as this, growing so rapidly, so do the costs, what might have been some years ago a low-cost area for healthcare is now rapidly becoming one of the most expensive places in the world for healthcare.
“This is certainly seen by private clinics and particularly those private clinics that are western staffed and have western equipment. These are among the most expensive medical facilities in the world now. In terms of IPMI against local policies, when an adviser is looking at what is available, first and foremost is to make sure the policy will be benefit-rich enough to cover the costs of what are very expensive medical facilities.
Who’s who?
For insurers, a local partner is a regulatory requirement to provide services to clients. This has the advantage of not starting from scratch for any new companies moving into the market.
For example, Bupa Global works in partnership with the Alltrust Insurance Company (AIC) in China. AIC is the insurer, while Bupa provides administration. Aetna works in partnership with China Life. This arrangement being a necessity means that there is a demand for partner companies from those wanting to access China’s market.
For those providers considering entering the Chinese IPMI market, given the considerable potential for growth, Apps warned: “It’s so easy when you’re in international business to think, ‘Oh well, it works here so it’ll work there.’ If you start thinking like that you’ll come a cropper. Culture, particularly in the Far East, plays a huge part, so you need to understand that. China is not for the meek: you have to be a little bit brave.”
While China may be experiencing double-digit growth, there are still considerable disincentives to entering the IPMI market. Some major players in the IPMI market are not at present involved in the market in mainland China.
There are many variations in proposition between different provinces, meaning those with a one-size-fits-all approach to China will struggle. Liang said: “Premium levels can vary substantially and, because local products are designed around regional healthcare systems, cover can be very different.”
Other growth areas in South East Asia with healthcare systems not especially different to China, such as Vietnam, may become increasingly popular as China’s economy slows from the effects of world markets, and a reduction in its pool of cheap labour as wage demand increases. This could see the last markets that have yet to have a major IPMI presence opened up.
Apps said: “China is just one place. I think that the whole of South East Asia is going to grow enormously over the next five to ten years. Markets outside China: places such as Vietnam, Laos, Cambodia are the ones that will be very interesting in the next few years because they are moving very quickly, and expatriates are moving in there to help to develop those countries and economies.”
