Jun 2019

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Who will unleash China's commercial health insurance market?

Source: Asia Insurance Review | Dec 2018

China’s commercial health insurance market is poised for massive growth, driven by national policies, demographics and consumer demand. But the market also faces considerable challenges as it seeks to evolve to meet the population’s accelerating health insurance needs, say EY Asia-Pacific’s Effie Xin and Jonathan Zhao
Commercial health insurance is both an integral part of building China’s multi-level medical security (insurance) system and an inherent requirement of the Healthy China 2030 national strategy, which continues to open healthcare to the private sector. Led by the government, insurance companies are increasingly providing public health insurance, with their role shifting from traditional commercial insurance providers to being an important stakeholder in public health insurance. 
However, according to the White Paper on China Commercial Health Insurance, public health insurance currently offers inadequate coverage, leaving considerable unmet demand for health insurance. Customers lack confidence in their ability to pay large medical expenses. They are concerned that current health insurance may neither cover all the prescriptions they need nor cover them to attend medical treatment in places outside their own registered hometowns – according to the population registration system (hukou??) in mainland China. 
Inadequate coverage emerges from multiple factors
Traditionally, China’s health insurance market has been highly concentrated and dominated by Chinese-funded life insurance companies. Foreign-funded companies are generally subject to regulatory restrictions around business locations and cannot reach all customers — and even Sino-foreign joint ventures encounter difficulties. 
As a result, health insurance is currently sold through Chinese life or property insurance companies, with life insurers taking the biggest share of the market. This means:
  • Internally, many life and property insurers are trying to run health insurance businesses on legacy systems and processes that are not designed for the unique characteristics, and risk factors involved in health insurance. Many companies also lack sales models that enable them to gather the detailed customer information required to offer personalised products, suggest scenario-based insurance or provide quality customer experience to maximise value. 
  • Externally, health insurers must find a way to work with other health ecosystem members: Medical care providers, insurance companies, pharmaceutical enterprises, and health management service providers (MIPH). This will require better data sharing, common data standards and, most importantly, a platform to connect all players in this many-to-many market.
We are already seeing a shift to these capabilities as pure play health insurers and cross-sector companies enter the market. Currently, China has seven dedicated health insurance companies. At the other end of the spectrum, tech giants, medical institutions, pharmaceutical groups, health management institutions, and big data companies are also developing health insurance offerings.
How will the future market evolve?
In the future, we see market growth on the basis of:
  • Closed-loop models — health insurance will gradually move toward a closed-loop model with a focus on meeting the medical needs of individual customers on a family basis. Health insurance is usually a family-based purchase, with customers often buying policies for a family member or sharing their existing policy with others in their family. Therefore, health insurance products should be designed on a family basis and focused on family members, providing comprehensive services from financial compensation to health care management.
  • Ecosystem models — health insurance will shift from the traditional property or life insurance business model to a dedicated, data-driven ecosystem model. In the future, health insurance platforms will link the entire MIPH ecosystem and its supporting highly efficient internal operations. New, specialist capabilities will be required in customer insight, product research and development, channel management, operational design and risk control. At the same time, customer health data platforms with internal and external connections will help health insurers make data-driven decisions.
Ecosystem collaboration will be key
China’s medical payers and service providers are dominated by the public system and supplemented by the private system. Developing a closed-loop health insurance services model will require the joint efforts of insurance companies, hospitals, pharmaceutical companies, and health service companies to achieve data connection, system connection, and customer connection as well as to leverage synergies. 
The main components of the ecosystem are the following: 
  • Payers (insurance companies) should cooperate with the medical and health service networks not only to guarantee the quality and effectiveness of medical and health services but also to control medical and health expenditure.
  • Service providers (medical and health service networks) should work with commercial insurance companies to enhance customer experience, disperse medical risks, ease doctor-patient relationships, optimise income structure, and boost the motivation of doctors.
Because of the present situation of mainland China, it is difficult for insurance companies to penetrate the service provision market on their own. New entrants should also actively cooperate with:
  • Government departments — the collaboration of commercial health insurance and the government’s medical insurance, subject to local requirements, is vital to achieve mutual benefits. New entrants should cooperate with the government to participate in medical system reforms.
  • Local medical institutions — in mainland China, medical insurance has wide coverage yet significant regional differences. Commercial insurance companies should cooperate with local medical insurance institutions to help cut costs and standardize management. Already, in some areas, the personal account balance of a public medical card can now be used to purchase commercial health insurance. This is an important attempt to combine medical insurance with commercial insurance in the future.
  • Public hospitals — the financing model for public hospitals is by and large from government subsidies, and they are restricted from having social capital self-funding or entering into JVs with the private sector. This model started with a good intention but has gradually created inefficiencies in hospitals and detracted them from their social responsibilities, opening opportunities for insurance companies. Targeting specific diseases, commercial insurance companies can collaborate with public hospitals to reduce medical costs, and improve their income structure while ensuring the quality of medical services. 
Enormous growth potential
Demand for health insurance will only accelerate, driven by: China’s current health care funding structure, increasing personal health expenditure, the aging population, accelerating urbanisation, the burgeoning middle-class, and the growing incidence of chronic diseases. 
With China’s current social medical security capacity unable to keep pace, the scene is set for savvy commercial health insurers to fill this ever-expanding gap in the market. A 
Ms Effie Xin is EY Asia-Pacific FSO innovation and FinTech leader, and Mr Jonathan Zhao is EY Asia Pacific insurance leader. 
Disclaimer: This article contains information in summary form and is therefore intended for general guidance only. It is not intended to be a substitute for detailed research or the exercise of professional judgment. Member firms of the global EY organisation cannot accept responsibility for loss to any person relying on this article. This feature is part of a series developed for the Asian Insurance CFO Summit, jointly organised by Asia Insurance Review and EY. 
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