China Medical Insurance market and
Swiss Re Value Proposition
Kelvyn Young
10 April 2008
Private sector participation is
gaining popularity in healthcare
100%
Private insurance
Government involvement, % ->
0%
Insurance component, % ->
Healthcare systems of 191 WHO members
50%
50%
Out-of-pocket
Social insurance
100%
Tax financing
0%
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.
Slide 2
Source: Swiss Re Economic Research & Consulting
Evolution of medical insurance business
Insurability /
Infrastructure
Integrated state
and private
offering
Hospital
cash
Critical
illness
Increasingly
mature market and
sophisticated
buyers
Regulatory
burden, little
incentive
Risk not insurable
No opportunity
USA market
Asia market
Life only
Stay
away
Administration
Slide 3
Full
reimburse
-ment
Managed
care
Underwriting,
product devt
Source: Swiss Re Economic Research & Consulting; Swiss Re L&H
Active claims
management
Insurer’s
involvement
World top 10 health underwriters
World top health underwriters by net premiums earned
USD bn
0
10
20
30
40
50
60
Top 10 US companies
UnitedHealth Group
Wellpoint Inc.
Kaiser Foundation*
1
Humana Inc.
Aetna Inc.*
Cigna Corp.*
HCSC Group
Independence Blue Cross
Top non US companies
Health Net Inc.
Highmark Inc.
Axa*
Ergo
BUPA
Allianz*
*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
Slide 4
7
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

Slide 5

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
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)

Slide 6
RMB 489 billion (USD 67 billion) in annual premiums
1. Shanghai and Qingdao survey 2006
2. Swiss Re Economic Research & Consulting
(2)
Just how large is China’s potential?
Health insurance premium income
USD Bn, excluding Critical Illness
(RMB46bn)
6.3
6
5
4
(RMB19bn)
3
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.
2.2
1.9
1.0
1
0.3
0.3
2000
2001
1.0
0.5
0
Slide 7
2002
2003 2004
2005
2006 2007
Source: McKinsey, Swiss Re Economic Research & Consulting
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
2.6
2
By
2015
Health business volume
1.
2.
3.
4.
5.
Total health insurance – includes
large proportion of long term or
short term CI business, accident
medex etc,
A few companies sell Long term
care and Income protection, but
premium volume is very small
Volume increased from 2004 to
2006, small growth during year
2007.
Loss ratio is low for CI and
individual PMI which mainly
includes hospital cash and
hospital reimbursement.
Group medical business
experience is worse then
Slide 8
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
30%
33%
35%
34%
Loss ratio
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%
79%
83%
81%
86%
Total
source: CIRC yearly published data
Contributions & funds for
Basic medical insurance system
Contribution
Employer
Fund
Additional fund
Basic Fund
Employee
individual account
 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
Slide 9
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 10
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
inpatient expenses
outpatient expenses
Slide 11
•
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
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.
5.
6.
7.
Slide 12
Copayment of the basic fund: from 3% to 30% depending on the hospital grade,
employment status or amount of actual medical expenses
Upper limit of the basic fund: From 24000 (Taiyuan) to 145000 (Guangzhou)
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)
Copayment from additional fund: from 2% to 25%
SHI Overview

1.
Outpatient
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.
Slide 13
One company has designed their own out-patient product for those
areas where there is no O/P SHI coverage
QI_BU Product features in the
current market
In Patient
Product D- rider cover above
additional fund payment. Usually
provides additional 100 - 200,000
RMB
Product Crider
Out Patient
Product F –
rider
Additional fund
40%-50% co pay
Cover co pay
Maximum RMB20,000
Additional Top up
Fund of 100,000
RMB
Cover co pay
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
Slide 14
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
Hospital Providers in China
Slide 15
1.
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
What’s standing in the way?
Key challenges in China
Current Status
Slide 16
Network
Management
Lack of hospital networks that offer better patient
services and efficient medical utilisation
Claims
Management
Limited claims management capabilities leading to
inability to contain claim ratios
Profitability
Poor profitability, particularly on group business due to
price competition and unsophisticated data analysis
Risk Management
Undeveloped and fragmented. Lack of sufficiently
skilled and experienced insurance expertise
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
Sales and marketing
Administration
Medical management
Underwriting
Customer
acquisition
Product /
benefit
design
Customer
service /
retention
Claims Mgt.
(adjudication)
Payment
processing
Building
provider
network
Provider
cost
Mgt.
Pharma.
cost
Mgt.
Case /
disease
Mgt.
= current gaps
Slide 17
Prestige Health:
Full-service capabilities
Prestige Health
Medical Insurers
Policyholder services
- Distribution & sales
Network management
- Premium collection
Claims management
- Policyholder administration
Data capture
- Customer service
Experience analysis
Swiss Re Beijing
Branch
Beijing 2 April 2008
Chee Kok POH
CEO, Prestige Health
Slide 18
Product development, pricing
and reinsurance capacity
Medical Service Provider 1
Medical Service Provider 2
Medical Service Provider 3
Medical Service Provider 4
Medical Service Provider n
Prestige Health benefits chain:
people, hospitals, insurers & the State
Slide 19
Consumers:
Hospitals:
Insurers:
the State:
Better services
and more
affordable
products
Widens customer
base, offers
patients better
services and
enhance
hospital’s
reputation
More confidence
over insurance
cost and
profitability
thereby offering
more competitive
products
Contributes to
sustainable
medical insurance
industry growth
and promotes
better use of
hospital resource
Swiss Re’s strategy to help clients succeed
Slide 20

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
Slide 24