Covid impact by market
Despite declines in the numbers of resident expats and increased price sensitivity, the new report from McGrigor Group, International Private Medical Insurance: China, Hong Kong and Singapore: 2014-2024, forecasts continued but longer term IPMI/high end PMI growth, post the Covid decline, fuelled by affluent local demand, combined with the appearance of a massive new segment of interest to international insurers – ‘PMI plus’.
Overall, Asia was the least impacted region of any by the Covid pandemic in terms of gross written premium (GWP) growth. Partly, this was the result of less steep gross domestic product (GDP) declines – especially for China – than those seen in other regions (see chart 1).
IPMI GWP continued to grow at 6.75 per cent (at Constant Exchange Rates, CER) in 2020, although this was a significantly slower rate than in the previous five years, when the region experienced around 15 per cent combined annual growth rate (CAGR). The most highly impacted segment was corporates, which shrank in volume in terms of the number of lives by around eight per cent, with SMEs also shrinking but by less, at around four per cent. Renewal rates remained high, but numbers by plan fell. The most successful segment was individual with a volume growth of 10 per cent, containing both expats and locals.
Two aspects ultimately counteracting the numbers decline were firstly, the continued price increase at three per cent (in 2020), although this was considerably lower than Medical Cost Inflation (MCI) at around 8.7 per cent and secondly, the exchange rates. In the course of 2020, the Chinese yuan strengthened against the US dollar by around seven per cent. This had an ‘inflating’ effect on the overall region’s IPMI market when comparing it to dollar values of other regions, as China is such a significant proportion of the Asian regions’ IPMI market.
China, Hong Kong and Singapore’s IPMI markets
Across the three markets, including both the traditional IPMI and the PMI plus segment, China was the strongest performer between 2017 and 2020. The traditional IPMI market grew at 10 per cent, while the PMI plus segment grew at 28 per cent and together, they are over $2.5 billion in size. In Hong Kong, the overall market grew at 14 per cent, although the traditional segment was only 3.3 per cent versus 35 per cent for PMI plus. Singapore’s traditional growing IPMI market grew at 9.2 per cent, with PMI plus at a relatively modest 11.2 per cent. Much of the growth in all countries was driven by premium inflation.
In terms of margin, the data is less easy to find and analyse. PMI plus may continue to grow in the short term, but the perceived lack of profitability could lead to a reversion to traditional IPMI. In China, there were a range of reported margins over this period. The most profitable segments were SMEs and Individual. Profitability in the Hong Kong market is thin and trending downwards due to high competition, downgrading, and high medical costs. This is particularly apparent in the PMI plus market. Profitability in Singapore varies greatly between segments. The most profitable segment is Individual, particularly at the expensive policy end.
What are the main drivers of growth, and how are they changing?
Customer need continues, but has changed in composition. The traditional demand from Western corporate expats is now declining, but higher-level local corporate managers are still demanding the best level of healthcare benefits from their employers, to keep them in their positions. Across the region, local care quality, despite new builds, remains relatively low, with few and often under-resourced hospitals and clinics. The growing affluents and HNWIs want health insurance generous enough to cover this care gap. However, the need is trending to a more regional rather than international/global one, reducing the price point.
Also on a negative note, given global economic conditions, the corporate segment remains highly price sensitive and HR professionals try to buy less rich products and even non-international ones, such as PMI plus, which leads to a lower premium per person.
At the time of writing, macro-economic forces now include China’s possible alignment with Russia over Ukraine, which may worsen even more the low level of Chinese/US relations.
Also of significance are the localisation policies prevalent in all three markets. Governments are legislating for more ‘local’ hires over expats; for example, the Singaporean Government frequently tightens its foreign visa requirements.
Some newer trends are, however, driving an increased demand for IPMI products. These include increased demand from more individuals, both high and mid-net-worth individuals. Some of these are corporate assignees who are unhappy with their corporate downgrade. New buyers like contractors and digital nomads are very mobile in their work habits and prioritise healthcare, so are now demanding IPMI products rather than travel products.
Other positives are the improving GDP outlook and the continued price increase forced by medical cost inflation, which is predicted to return to historic pre-Covid levels. (see chart 2 & 3)
Prospects by market through 2025
The whole region is expected to continue its relatively fast economic growth at around 6.91 per cent CAGR (including inflation) outpacing global GDP growth of 5.54 per cent. Correspondingly, the region’s IPMI GWP will also grow quickly from 2021 to 2025 at 11.18 per cent CAGR.
The most significant growth opportunity in China is for digital health and digital health services
China’s IPMI growth returned to pre-Covid double-digit levels in 2021. In the short term, there is declining demand from traditional expats, but this will be compensated for by an increase in demand from Chinese HNWI and the burgeoning middle classes, who have more income to spend on healthcare. In the longer-term, demand will especially increase in tier two and tier three cities. Additionally, the outbound market is expected to grow as Chinese companies increasingly send more Chinese expats on assignments abroad to Europe and Africa. The most significant growth opportunity in China is for digital health and digital health services, particularly the digital therapeutics market, which is undeveloped to date. There is also significant demand from brokers for digital innovations that can facilitate the buying process of IPMI products. Geopolitical relations between China and the US (the Taiwan issue) remain an unknown factor. If these continue to deteriorate, the economy will be affected, as will the numbers of regional and Western expats coming back to the country.
Hong Kong is currently in a state of deep uncertainty, with political unrest and strict quarantine measures still in place. In the short term, we expect to see decreased demand from Western expats there, but the longer term prospect looks brighter, as we expect to see growth in the HNW segment from Hong Kong nationals and mainland Chinese. Hong Kong will remain a key financial market for China, as there is the likely creation of the Greater Bay Area connecting Hong Kong with several large cities in Guangdong province. The PMI plus segment will continue to grow, with demand driven by the remaining price-conscious expats as well as more local Chinese and Hong Kong nationals who are upgrading from pure domestic plans.
cost containment will also be very important as provider costs continue to rise and drive up IPMI premiums
Singapore’s slump in 2020 was deeper than expected. The International Monetary Fund has predicted economic growth to remain at 3.2 per cent in 2022 and 2.7 per cent for 2023. This has had one benefit, in that the Singapore government is now trying to encourage more foreigners into the country, against recent trends. Furthermore, the ongoing instability in Hong Kong and poor US-China geopolitics are predicted to give Singapore the advantage of being the best gateway to Southeast Asia for North American and European companies.
Across all markets, cost containment will also be very important as provider costs continue to rise and drive up IPMI premiums. IPMI insurers will increasingly need to keep an eye on opportunities in the lower end of IPMI and PMI plus spaces as ‘traditional’ high-end IPMI may be at risk of becoming too expensive for the market.
Adapt, change, grow - IPMI is strong
We conclude that the Asian Tiger is not dead, but it is changing drastically and IPMI providers will have to be nimble to keep up with these market changes. China, the country with the quickest recovery from Covid, has bounced back quickly, but will be damaged if tensions between China/US and China/Taiwan increase and/or if Covid persists. Singapore’s return has been slow, and we expect it to continue to improve but only slowly. Hong Kong’s recovery has been sluggish and will remain so. The creation of the Greater Bay Area has the possibility to eventually stimulate more demand for IPMI products.