Anthony Harrington explores the challenges of writing medical cover for the Asia market, how these are being met, and what products are emerging to meet travel and health insurance needs in this regionIn an ideal world, a western insurance company wanting to capture a slice of the emerging international medical insurance market in Asia would be able to offer the same single, well-constructed and thoroughly tested product across all markets. Unfortunately, this isn’t always the case. Evidence suggests that the Asian market is highly diverse, and rewards deep local knowledge and a strongly segmented approach as far as product design is concerned. Brokers, third party administrators and hospital administrators across Asia are virtually unanimous in their view that Asia is most definitely not a one-size-fits-all market. Instead of taking a buckshot approach with a single offering to all markets, companies need to target carefully segmented layers within specific markets. If you take that as a starting point for product design, it suggests that producing profitable medical insurance products for distribution in certain – or possibly even in the majority of – existing markets across Asia is going to be challenging. Segmentation, by definition, divides the market into smaller ‘universes’ and that makes it harder to build up a sufficient base of policyholders for a product to generate a profit. Take the Chinese market, for example. Experienced brokers in the region will tell you that first generation Chinese just do not get the concept of medical insurance. Neil Raymond, managing director at Pacific Prime in Hong Kong, has considerable experience as a broker for medical insurance products. Pacific Prime is Bupa’s biggest broker in Asia, and the company has five offices across Asia and a couple in the Middle East. Raymond says that the company’s business is largely predicated on the expat market rather than being buoyed up by burgeoning local demand, precisely because insurance as a concept still looks like a ‘con game’ to so much of the target market. He points out that first generation Chinese come from generations of Chinese families who have lived with no ‘safety net’ or state welfare to speak of, and who simply accept the idea that you have to take care of yourself and your family using your own resources.
All the evidence suggests that the Asian market is highly diverse and that it rewards deep local knowledge and a strongly segmented approach as far as product design is concernedTo do this requires a deep adherence to the idea of thrift. There is a bone-deep belief that you have to save every spare penny in order to be able to get yourself out of trouble when disaster strikes, and this includes every variety of illness and accident. The idea of paying an insurance premium to an insurance company ‘just in case’ you get ill, simply sounds daft. Why not save the money and pay for your own medical expenses if required? To break out of this mindset really requires a lifestyle change and a broadening of horizons. The target market has to become aware of the relative inadequacy of the available, local medical facilities by comparison with the quality of care or surgical expertise offered by another country, for example. “Once people get that, for serious medical conditions, it would be hugely advantageous to be able to access superior medical services outside their local area or even outside their own country, then you have a proposition that starts to make sense,” Raymond says.
Finding a nicheThis focus, of course, has been the starting point for western insurance companies. Couched in these terms, the problem transforms into a familiar actuarial calculation. What percentage of the population who sign up for international medical insurance can be expected to make a claim in any one year, and what is the average level of the claim likely to be? Once you are able to plug realistic figures into that model you can start to see how many policies would need to be sold to support various levels of payout under the policy. However, Raymond warns that trying to base medical insurance products for the Asian market on actuarial calculations based on decades of experience with Western markets is likely to be a losing proposition. The basic concept of insurance – that it works by spreading the cost of claims over a large pool of subscribers, only a portion of whom are expected to claim in any one year – has little resonance in Asia. For many Asian people, if they pay for a product, they expect to get some tangible benefit from handing over their cash. Explanations about the concept of mutuality implicit in the idea of a large body of non-claiming subscribers funding the claims of the few tend to fall on stony ground. “People are quite interested in accessing the best medical facilities. That definitely has some appeal. And they get the concept of making sure that you are healthy or are in a position to recover if you get ill. However, taken as a whole, this story is not compelling enough to make them want to hand over $5000 or $10,000 a year for an international medical insurance policy,” Raymond notes. Pricing a product much under this level is likely to generate losses rather than profits, since many hospitals across Asia routinely over-charge patients who come to them on international medical insurance policies.
People are quite interested in accessing the best medical facilities. That definitely has some appealWhere insurance companies are having some success, he notes, is with ‘child-only’ policies. “Chinese [people] who have made their money absolutely want to make sure that their children get the best care – and this is accentuated by the legacy of the ‘one child per couple’ policy that prevailed in China for so long.” However, he notes that these policies, too, tend to generate losses rather than profits for insurance companies precisely because the doting parents will call on the policy for the most minor childhood ailments. “In China, the parents will rush their kids off to the doctor for the slightest thing, so that really builds costs and makes it very hard for any company to make a ‘child-only’ policy profitable in China,” he notes. Globally, however, child-only policies have proved successful, demonstrating again just how carefully segmented and structured insurance companies need to be when designing products for specific Asian countries.
Addressing the mindsetAnother problem for insurance companies dealing with Chinese brokers, as opposed to brokers buying services for the expat community, argues Raymond, is that Chinese brokers tend to work unswervingly for their clients and not for the insurance company. If they think that there is a fair chance that their clients will be able to claim more than they pay out on a particular policy, then they will sell that policy aggressively. “If there is a loophole in an international plan then they will point this out loudly to everyone they sell to, and that loophole will be exploited aggressively,” he comments. None of this, of course, is good for the insurance sector. Again, to understand why some Chinese brokers are so thoroughly on the side of the client, rather than being focused on acting as a distribution channel for the industry, it’s important to realise that the broker often owes his or her relationship with the client to some other factor or because of some other service they are providing. It is not a ‘pure’ broker-client relationship. “Generally their thinking is very short-term. They are looking for something they can sell to their clients and they can’t sell insurance per se, because the clients don’t get it. If there is a loophole, however, that can be exploited, then that makes the whole thing so much more attractive,” Raymond says. One of the areas where there has been some real progress in segmentation and in tailoring a product to a specific local need is in the way in which local insurers in China are mimicking the high-end western international medical insurance products. Minutes Leung, senior business development manager at Bupa Global in Hong Kong, explains that these products are known generically as ‘local high-end’. As the name suggests, they are a hybrid product, half way between a local travel insurance policy and a full blown international medical policy. “We see more people buying this middle-of-the-road local high-end cover since it is seen as better suited to their means and to their needs,” she says. Naturally, the ‘local’ qualification on these products tells its own story about the more restrictive nature of these products by comparison with a full-blown international medical insurance product. The policyholder is not necessarily going to get a free pass to select a medical services provider in Singapore or the UK from his or her local high-end product. What they will probably get is the ability to go across the border to access medical services in a neighbouring state.
Without local contacts who have an established relationship with local hospitals and medical providers, the insurance company is going to get hammeredLeung points out that since medical insurance premiums increase with age, the older people get, the more expensive the local high-end product becomes, until there is not much difference in price between it and a comprehensive international medical policy. This suggests that there is probably a developing market for the comprehensive policies among the well-to-do in their 50s and 60s. Again, the point here goes to the power of segmentation and highly specific targeted marketing. “We see all the major insurers trying to tap the Asian market and they do have some real advantages as against the local high-end policies,” Leung says. Not only are the Western-style policies less restrictive, the claims experience is often vastly better, from the client’s perspective. “With a local high-end policy, receipts are everything. Plus there are a lot of hidden costs and conditions that can catch people out. If you fly outside the local area and then want to claim, you can find that your cover under the policy has reduced dramatically. They really have some glaring weaknesses when they are used as travel medical policies,” she notes.
they are a hybrid product, half way between a local travel insurance policy and a full blown international medical policyOne big selling point in China that insurers can exploit is the desire to queue-jump when it comes to obtaining medical services. “You can really use these policies to get into hospital so much faster and to access treatment much faster. But the policies have to be designed with Chinese sentiments and requirements in mind, and we do not see much of that yet,” she notes.
Managing costsAnother factor that insurance companies have to take into account if they want to finish up with profitable medical insurance products is the absolute requirement to manage costs. Mario Babin, managing director of Global Assistance & Healthcare in Indonesia, and head of assistance services for the group, explains that the best way of doing this is to use third party administrators (TPAs) wherever possible in Asia. “Medical insurance is all about the different pricing policies that hospitals have. Many, if not most hospitals across Asia will routinely charge different rates to patients with medical insurance, knowing that the deep pockets of an insurance company lies behind the patient. Without local contacts who have an established relationship with local hospitals and medical providers, the insurance company is going to get hammered,” he comments. This is not a problem that can be passed off to policyholders. Consumers are becoming ever-more demanding at the same time as they are shopping around for the best priced product, Babin says. They want their insurance company to guarantee that payments will be met. To stop costs running out of control, the insurance company needs to work through a TPA that already has an agreed pricing structure with a network of hospitals, or who – as in Global Assistance & Healthcare’s case – has its own hospital network. “This is very much a country-specific market. In Indonesia you can get very solid pricing agreements. In Singapore, however, there is a long history of doctors charging whatever they like. The only reasonable approach here is for us to work through our own centres, and we have some 80 medical centres in Singapore, which means we can help insurance companies save substantially on all outpatient consultations,” notes Babin. The best approach is for the insurance company to free up the TPA to manage the contract by allowing the TPA to negotiate directly with the policyholder. The most obvious way of doing this is to have the TPA’s number on the policy document as the point of contact for the client as and when they need to call on the service.
the policies have to be designed with Chinese sentiments and requirements in mind, and we do not see much of that yetWhile all of this emphasises the difficulties for Western insurance companies of creating and sustaining profitable medical insurance policies in Asia, the online distribution channel could make things both better and worse. On the plus side, as David Bowles, global insurance markets consultant at international financial market research and consulting company Finaccord notes, in the case of China, the way people access the market for medical insurance has considerable parallels with the way they access travel and travel insurance. Over the last few years, the Internet has emerged as the favourite way of purchasing all three (medical insurance, travel insurance and travel itself). “In China and India, we estimate that the online channel accounts for around 60 to 70 per cent of travel insurance premiums,” Bowles notes. This is especially the case because people tend to book travel within tour groups and travel insurance (with some medical insurance cover as part of the travel insurance) tends to be a packaged option with the tour. Bowles adds that since China is a major growth market for the cruise industry, we can expect to see combination medical insurance and travel insurance products sold to the high-net-worth individuals buying cruise holidays. The same, perhaps for a wider audience, is true of flight bookings, where the insurance component can come as part of a package deal. On the down side, the Internet opens up the danger that unwary insurance companies could find that they have written a large number of loss making policies in double quick time. Again, the online channel needs to be wrapped up in the same disciplines as the broker direct channel, with TPAs as the first point of contact, managing any medical treatments that policyholders need to access. The takeaway point for insurance companies is that they need to take a holistic view that embraces both product design and operational effectiveness if they expect to see a solid profit from their Asian endeavours. ⬛