Private health insurance premiums in emerging markets set to double by 2020 as people want and can afford more healthcare, says Swiss Re sigma study
25 February 2015, Zurich
- Demand and expectations for better healthcare services are rising in the emerging markets
- Premiums for reimbursement-type products expected to double by 2020
- Private health insurers have the tools to meet this demand
- Private health insurance can play a key role in building sustainable national healthcare systems
- The success of innovative solutions in advanced markets has attracted interest in many emerging countries
As income levels in emerging markets rise, people spend more on healthcare services as a means to improve their quality of life. This is driving demand and expectations for better health services in the emerging markets, says Swiss Re's latest sigma study Keeping healthy in the emerging markets: insurance can help. The study shows the insurance industry is well-equipped to meet the increasing healthcare spending needs of individuals, and that it can also become a central pillar of a sustainable national healthcare delivery system.
In the emerging markets, the money to pay for healthcare has traditionally come from the government via taxation revenues and from private individuals who often make significant contributions from their household savings.
However, reliance on these two channels of healthcare financing is becoming increasingly challenging. There are growing strains on public coffers and at the same time, more advanced technologies and medicines are pushing up the price of healthcare services.
The benefits of private health insurance (PHI)
PHI provides consumers financial protection against future care-related expenses at an affordable regular premium, relieving the burden of large one-off hits to private savings. "Consumers will increasingly be purchasing PHI because it provides a means to pay for level of healthcare services they need," says Kurt Karl, Swiss Re's chief economist. PHI also offers consumers more choice with respect to place, type and level of treatment, and, with certain products, freedom to choose how to use the benefits received (eg. to cover treatment costs or perhaps as income replacement).
In this way, it can supplement and/or complement public sector health services by helping consumers pay for treatments not covered by or available from state-sponsored schemes.
For governments, PHI has the potential to be a main channel of healthcare expenditure. However, it is underused. In 2012, PHI covered less than 10% of total healthcare spending in the main emerging markets.
On the supply side, PHI can bring innovation across the value chain in healthcare, including in product development, sales and distribution, underwriting, claims, payment systems and customer services, leading to better services at lower cost. "Insurers have been able to reach new clients with the use of new technologies and by pricing products in line with willingness and ability to pay", says Clarence Wong, co-author of the study.
For example, in 2014 a mobile health insurance scheme in Nigeria called Y'ello Health was launched. Subscribers pay an affordable premium using their mobile phones for cover of basic outpatient care and minor surgery. The scheme is expected to significantly extend the reach of health insurance in Nigeria, particularly in rural areas and to the previously under- and uninsured.
Growth of PHI products
There are two main types of PHI product. The first is reimbursement-type, with which the insured is paid back the costs incurred in hospital and other treatment. The second are fixed-benefit products, whereby the insured receives a lump sum at the onset of specific conditions. Fixed-benefit products include critical illness, disability income and hospital cash insurance.
Both product types are showing strong growth in the emerging markets. Premiums from reimbursement products grew by an estimated 11.2% in real annual terms between 2003 and 2013. They are forecast to rise on average by 9.6% per year to 2020, three times the rate of global premium growth in this segment.
Table 1: Growth of reimbursement-type product premiums in emerging markets (USD billion)
Notes: Figures include premiums from both L&H and non-life insurers;
MENA=Middle East and North Africa. E=estimates, F=forecasts.
Source: National insurance regulators, Swiss Re Economic Research & Consulting.
Premium data on fixed-benefit products in the emerging markets is scarce, but expert interviews conducted for the study suggest that demand for fixed-benefit PHI products is also growing rapidly.
The PHI sector is at varied stages of development in the different emerging regions, due in large part to the different structures of national healthcare systems and health infrastructure. In Emerging Asia, many governments have earmarked reimbursement products as a growth area, and premiums are forecast to grow by 15.4% annually between 2013 and 2020, the strongest of all the emerging regions. Fixed-benefit products are also popular. For example, cancer insurance has attracted widespread interest in many markets in the region following the success of cancer products in South Korea and relapse products in Japan.
In Latin America, premiums from reimbursement-type products grew by a real annual growth rate of 6.8% from 2003 to 2013, and are forecast to average growth of 6.2% to 2020. On the fixed-benefits side, critical illness solutions are developing favourably, although lack of consumer awareness remains a key obstacle. Hospital cash insurance, another fixed-benefit product, has become increasingly common as part of bancassurance offerings.
Against a backdrop of relatively comprehensive coverage of social security benefits, overall PHI peneration is low in Central and Eastern Europe. PHI is mainly used to pay for advanced and additional treatments not covered by the public healthcare systems. Critical illness products are widely available as riders to endowment and unit-linked insurance policies, and as stand-alone solutions. Hospital cash insurance is also popular.
In Sub Saharan Africa, private out-of-pocket payments from household savings are a main component of total healthcare spending. The PHI sector remains small, however microinsurance is expected to become a main channel of healthcare expenditure in many of the region's markets.
Note to editors
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How to order this sigma study:
The English, German, French, and Spanish versions of the sigma No 1/2015, Keeping health in the emerging markets: insurance can help, are available electronically on the sigma section: www.swissre.com/sigma.
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