China and the International PMI Marketplace

Recent figures report that in excess of 300,000 expatriates are now living and working in the fastest growing marketplace in the world – China.

As with any rapidly expanding global economy, a whole new set of challenges are created within all sectors of industry – that of International Private Medical Insurance is in no way an exception to this.

Whereas a major focus of attention in recent times has been the Middle East, more and more International Private Medical Insurers and Providers are awakening to China’s potential and the healthcare needs of it’s expatriate residents. In the past, employers have very much based their Far East operations outside of mainland China, operating remotely with managers and key decision makers based in Hong Kong, Singapore and other major commercial centres. Now that an increasingly sizeable and highly skilled workforce is migrating into China, developing the country’s infrastructure to the demands of the modern capitalist world, management and control structures are being put in place locally in China. Operations are being controlled and decisions are being made “in situ” and an understanding of local issues and challenges is required – not only by those expatriates themselves but also by the providers of key services to them, such as meeting their health insurance needs.

The opportunity for the International Private Medical Insurance Industry that this expansion provides is one that has its fair share of issues and challenges that need to be overcome. Four key areas are apparent that dictate how insurers and plan providers must be prepared to adapt and assimilate in order to achieve long term success and growth – regulation, the medical infrastructure, claims experience and costs, and language barriers.

Until and/or unless there is a significant relaxation within the regulation of medical insurance in China, current government policies are potentially the greatest obstacle to success. “Foreign” companies are not permitted to advertise or sell their products “on the ground” and the Chinese authorities seem determined to control currency flows out of and in to the country. A provider of expatriate medical insurance needs therefore to investigate further options to meet the demands and needs of their expatriate target market.

In addition to this, “local” Chinese medical insurance plans provide only for treatment in China itself – a situation that is unsatisfactory to the majority of expats, who want the best care at their fingertips whether it be in select advanced Chinese medical facilities or in a more medically advanced area such as Hong Kong, Singapore or even further afield. Brokers in China are now also less and less willing to take the risk of selling “non-admitted” policies and the potential repercussions of losing their licenses by doing so.

It is with these factors in mind that more and more insurers and providers are embarking on joint ventures with companies already established and licensed in China, in order to allow them to market and distribute International Private Medical Insurance plans within the current regulatory framework.

One of the first to do this was Goodhealth, who in March 2006 announced an exclusive partnership agreement with China Life – the largest life and health operator in the country. Such co-operation will allow the expatriate population the “best of both worlds”, giving access to the best Chinese healthcare facilities but at the same time providing a wider geographic scope of treatment, be it for elective care or through medical evacuation. Having a prior long-term presence in Hong Kong has also been beneficial to Goodhealth, enabling them to build a closer view of the developing market and the needs associated with it. Other companies are also exploring the opportunities with significant joint ventures taking place, notably InterGlobal’s recent signing of a Memorandum of Agreement with Royal and Sun Alliance Insurance in May 2006.

The current medical infrastructure in China is a further source of concern for the ever-expanding expatriate presence. With estimates that less than one in ten state hospitals are of a good “western” standard and the majority of these being concentrated in the major cities, the new non-indigenous population require the peace of mind that, should anything happen to them, they will have access to first class facilities. Even though China’s social and medical infrastructure is developing, and new high quality hospitals are being built, customers still require choice and flexibility in the standard of care required to meet their medical insurance needs – both within China and also accessing treatment abroad and even their home country.

With the development of healthcare in China comes a further challenge to the International Private Medical Insurance industry – that of cost containment. The new mainly privately funded and owned Chinese hospitals and medical facilities are working to financial targets and the instances of overcharging, prolonged and unnecessary hospital stays, and even falsifying treatment are becoming increasingly frequent. This leads to costs being reflected back on the customer, with many insurers and plan providers already rating their premium costs significantly higher for customers in China than elsewhere in the world (in some cases, premiums have become as high as for someone living and receiving treatment in the USA).

As the market develops further, insurers and providers must look at ways to suppress such inflationary costs. Both by undertaking joint ventures with Chinese companies and contracting with medical providers at pre-agreed treatment costs will be beneficial for customer and provider alike. Indeed, GoodHealth already operate and expanding direct settlement network of outpatient facilities throughout China.

There still is one further hurdle to overcome in the region, and one that to a great extent integrates within the areas already mentioned – that of language. Very few doctors speak English and medical reports/invoices are mainly in Chinese, necessitating costly translation services and associated costs as well as potentially delaying claims settlement. Establishing an operation in China through joint venture or other means, with Chinese speaking staff is a move that could greatly alleviate these problems.

Andrew Wilson

Sales and Business Development Director

Medibroker Limited

8th June 2007

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