Sino-Foreign Insurers Target China’s High-End Health and Medical Insurance Market

A burgeoning Chinese middle class and a growing expatriate population are creating an emerging high-end private health care business market for insurers as medical and health insurance development is being promoted by government medical reform measures.

Foreign players enter China's private health and medical insurance market mainly by acquiring equity stakes in or forming partnerships with domestic leading insurers.

Such deals included South Africa-based Discovery Holdings acquiring a 25% stake in Ping An Health Insurance Co. of China, a subsidiary of Ping An Insurance (Group) Company of China in 2009; while Germany-based DKV Group, part of Munich Re, jointly set up PICC Health Insurance Co. Ltd. with the largest Chinese nonlife insurer, PICC Group, in 2005. In November 2011, Hong Kong-based New Health International partnered with Minan Property and Casualty Insurance Co. to distribute international medical insurance to China-based consumers.

The health insurance market in China is not yet clearly established, as the government is conducting medical reforms that will lead to continuous market consolidation. China is looking to western financial services providers and insurers to modernize the market with their capital and techniques, said Shanghai-based Johan van Rooyen, general manager of Ping An Health .

"The market is still in an early stage and has been expected to reach a double-digit growth in 2011. When all factors line up, the potential market growth could reach 40% to 50%," said van Rooyen.

People in China usually buy saving-type products rather than health insurance, and van Rooyen said the culture and habits haven't yet changed. Another challenge is setting the "right pricing" to hedge against the competition coming from local players, he said.

The Chinese health care system has seen rapid growth and change in recent years, with a large proportion of the population covered by a social health insurance system. In its view of the market, Discovery saw there is "inadequate access" to top-tier hospitals and health care facilities, as patients generally end up paying 50% to 60% out of pocket, and often struggle to gain access to high-end care (Best's News Service, Dec. 2, 2009).

Medical costs in China and Hong Kong are the highest in the world after the United States at present. Yet, international medical insurance is "hugely lacking" in China, where local general medical policies do not cover treatment outside mainland China, making them unappealing to both Chinese customers who travel internationally and expatriates stationed in China, according to Martin Garcia, chief executive officer of Now Health International.

Discovery saw that with a growing amount of disposable income among the 25 million to 40 million middle-class households in China, "many consumers can afford top-up cover," while demand is growing for cover for private health care facilities, diagnostics and branded drugs that fall outside the limited SHI benefits.

The Chinese government recognized the limitations of the SHI and through a reform process is "encouraging private health care insurance providers to play an active role in developing a multilevel health insurance system," Discovery earlier said.

To capture this market opportunity, Ping An Health'svan Rooyen said a good strategy is to introduce a differentiated product approach targeting the domestic high-end consumer. "Personalized and consumer-friendly products with strong risk management can help unlock this vital market potential," he noted.

China is reforming the medical system, as the SHI system cannot afford to pay everything. Individuals who can afford it can be encouraged to buy heath insurance, said van Rooyen. "It is important to keep people in the risk pool, encourage them to become healthier and have healthy lifestyles, while consumer-friendly products can attract buyers, including employers," he said.

When people become more conscious of having better medical and health protection, private health insurance will become more competitive. "It's a crowded market, but still has growth spaces, in particular for companies who can offer innovative products with improved risk management and advanced technology solutions," van Rooyen noted.

Following its equity stake transaction with Discovery, Ping An Health is now focusing on the high-end market, which comprises the expatriate market in China and the local wealthy consumer.

According to van Rooyen, 80% of traditional expatriates are in the high-end health insurance market in China, including those coming from the Greater China regions (including Hong Kong and Taiwan), and the Association of South East Asian Nations (ASEAN). These constitute an "exciting new market," while expatriates coming from Europe and America make products more expensive, with different cost structures. Another new business segment is the local wealth market, with a monthly income of around 5,000 yuan(US$792) or more per person, he said.

For health insurance distribution channels, multinational companies in China generally rely on and are advised by brokers who have regional networks. Local companies and individual markets usually buy the product through agents, said van Rooyen.

Van Rooyen expects that in the future, the Chinese health insurance market will expand from the high-end segment into the middle-class segment, and the industry will see "an organic development with explosive growth" when the country's medical reform creates a standard that allows market players to use reliable data to carry out efficient risk management and gain consumer trust.

There are currently four companies operating health insurance in China: Ping An Insurance (Group) Company of China, PICC Health Insurance Co. Ltd., Kunlun Health Insurance Co., Ltd. and Hexie Health Insurance Co. Ltd.

In the first 11 months of 2011, Ping An's life insurance segment, including business conducted through Ping An Life, Ping An Annuity and Ping An Health, reported total cumulative premium income of more than 110.03 billion yuan. PICC Health reported cumulative premium income of 4.08 billion yuan. Kunlun Health and Hexie Health respectively generated premium incomes of 69.49 million yuan and 1.52 million yuan, according to the China Insurance Regulatory Commission.

(By Rebecca Ng, Hong Kong news editor: Rebecca.Ng@ambest.com)