Foreign firms make a dash for health pie

China's health insurance sector is attracting increasing international interest from companies looking to become established in the area which according to insiders will see substantial growth.

Foreign groups are looking to set up consulting firms, entering into joint ventures and buying stakes in local companies in a bid to take a piece of what could generate a substantial part of the country's GPD in the near future.

A report from DKV Deutsche Krankenversicherung AG, a German-based private health insurer, suggested the market could triple in size by 2015.

The group believes that the growth reflects the rise in living standards across the country.

Industry forecasters claim that by 2010, health insurance premiums in China could reach 60 billion yuan. They say the development is due in part to "a combination of the growing elderly population and an expanding economy. Healthcare spending is expected to account for 6 to 7 percent of GDP, pushing the health insurance market".

Swiss Re, the world's largest reinsurer, reported in a recent study that China spent more than 1 trillion yuan on healthcare in 2007. Commercial medical insurance covered less than 6 percent of these costs, implying a market potential of 489 billion yuan.

It is this potential that has encouraged foreign investors to jump on a financial bandwagon and move more directly into the sector. Most choose to run a third-party administrator (TPA) company first or buy shares in local businesses to gain presence in the sector.

WellPoint, one of the biggest US health insurers, set up its Beijing representative office in April. And the company, together with Premera Blue Cross, another US health insurer based in Idaho and Combined Benefits Management, plans to establish a TPA in Shanghai.

"We need first to understand the market. The representative office and the Shanghai company will help to do this," said John P. Domeika, president of WellPoint's Shanghai joint venture. "But when the time is right, we will also join hands with local companies to start a health insurance group."

Swiss Re recently received approval to establish a health care consulting company and a TPA in China - Beijing Prestige Health Consulting Services Co Ltd.

It is expected to open later this year, and will provide consulting and outsourcing services to hospitals, insurers, policyholders and employers.

TPAs provide specialist claims administration services. They can keep medical insurance costs down, help insurance companies become more efficient and provide improved and more up-to-date services to policy holders.

But companies are also opting to take the more direct route into the market by entering joint ventures.

"Sales channels and government resources will be the major concerns when seeking our Chinese partner," said Paul Gregersen, head of Bupa's representative office. Bupa has been long looking for a suitable Chinese partner. "If everything moves on smoothly, we will apply for a health insurance license in September next year," he added.

Compared with WellPoint, Swiss Re and Bupa, DKV has moved quicker and more aggressively. In 2004, the German insurer took a 19.9 percent stake in PICC Health Insurance Co, China's first specialized health insurer. It is optimistic that the sector will move in its favor.

"We hope that the Chinese regulator will issue an independent rule on health insurance companies," said Jochen Messemer, a member of the executive board of DKV. He hopes China will increase the number of joint venture branches a company is allowed to open a year. This appears to be a sign of the group's commitment to the industry.

Yet despite the positive predictions that experts have for the market, the four established Chinese local health insurers - PICC Health Insurance Co Ltd, Ping An Health Insurance Co Ltd, Kunlun Health Insurance Co Ltd and Reward Health Insurance Co Ltd - are witnessing a difficult spell.

Statistics from the China Insurance Regulatory Commission (CIRC) show that the premiums of those four companies reached 2.62 billion yuan by the end of last year, accounting for 6.7 percent of the whole health insurance market. From the 2.62 billion yuan premiums, PICC Health won the lion's share with a premium income of 2.605 billion yuan.

Lin Yaomin, president of Kunlun Health Insurance, said professional health insurers are mainly developing protection-oriented products, but currently investment-oriented products are more popular with consumers.

"We are now having a really difficult time," Lin told the Economic Observer.

Currently, China's health insurance products are not only run by professional health insurance companies but also by life and non-life insurers. As general insurers often take health insurance as additional risk or have even been known to send them to their clients as presents - most health insurance premiums are taken by general insurers.

According to Fang Zhinan, general manager of CITIC-Prudential Life Insurance (Beijing branch), professional health insurance companies will struggle to beat life insurers in the short term.

"With a small customer base, health insurers are faced with pretty high risks, due to the law of large numbers, and the fundamentals of the insurance industry," Fang told China Daily.

Without a policy that supports professional health insurers, it will be difficult to make a profit, he added.

It seems that for the time being, professional health insurance groups' main advantages lie with their more delicate services.

(China Daily 06/04/2008 page15)