Swiss Re sigma study: To your health: diagnosing the state of healthcare and the global private medical insurance industry

19 December 2007, Zurich

According to a recent sigma study, the world spends USD 5 trillion on healthcare each year. Insurers that build up know-how, establish reliable partnerships with key stakeholders in the value chain and propose innovative solutions will emerge as the leaders in this growing industry.

Health insurance markets around the world tend to be highly regulated, and health systems are heavily influenced by institutional, cultural and economic factors. According to Dr Lukas Steinmann, co-author of the study, "Even more so than in other insurance markets, it is essential for insurers to acquire local know-how as well as a deep understanding of how each country's infrastructure works long before the first policy is sold in order to be successful."

Health insurance is a business in which various stakeholders, ie patients, doctors, companies, and even governments - often have competing interests. The business also faces additional challenges, such as escalating medical costs and claims management, which can adversely impact profitability.

Co-author Dr Raymond Yeung notes, "Insurers must anticipate regulatory, market and medical changes and incorporate the latest developments in their product design, underwriting and administration." He adds, "Insurers must also strike a balance between providing cost-effective care and providing patients with adequate choices."

The authors argue that aligning the interests of all stakeholders is key. On the demand side, this may be achieved through product design by offering a good blend of coverage, deductibles, co-payments and attractive premiums. Steinmann states, "The alignment of interests on the supply side may be accomplished through network management." Yeung adds, "Vertical integration with upstream suppliers is an unavoidable trend."

Need for an institutional framework, which allows for private insurance

According to the study, the existing self-sufficient health systems around the world will become more open and liberalised. Consequently, the market potential for medical insurers will be substantial.

The study identifies a number of factors that are necessary for developing a successful, sustainable private health insurance market. Two of the most critical are:

  • Reasonable market freedom for insurers to exploit the efficiency potential of competition
  • Limitation of regulatory and political risk (eg with governments providing a stable environment for insurers)

Need for more appropriate products and more efficiency in health insurance and health care provision

This study concludes that, in order to be economically successful, private companies have to exploit the full efficiency potential in all areas of the value chain.

The measures to be followed include:

  • Products need to promote incentives for policyholders to be cost- conscious
  • It is important to make better use of data for risk-adequate pricing of insurance
  • Management expenses need to be more closely controlled
  • All possibilities should be considered for effectively managing health care delivery costs

The last one is the most important. It will only be possible to achieve this when all stakeholders, doctors, hospitals and pharma firms are involved and the right incentives are in place.

Notes to editors

Swiss Re

Swiss Re is the world's leading and most diversified global reinsurer. The company operates through offices in more than 25 countries. Founded in Zurich, Switzerland, in 1863, Swiss Re offers financial services products that enable risk-taking essential to enterprise and progress. The company's traditional reinsurance products and related services for property and casualty, as well as the life and health business are complemented by insurance-based corporate finance solutions and supplementary services for comprehensive risk management. Swiss Re is rated "AA-" by Standard, Poor's, "Aa2" by Moody's and "A+" by A.M. Best.