1. Medical Insurance in China How is it different from India? Medical Insurance in China Global Conference of Actuaries Mumbai, February 2010

2. Slide 2 Agenda  A Brief History of Healthcare in China  Major Problems in Chinese Healthcare  Healthcare Reform in China  Private Health Insurance in China  Issues for Private Health Insurers in China  Health Insurance Product Development in China  India and China – Comparisons and Potential Lessons Medical Insurance in China Global Conference of Actuaries Mumbai, February 2010

3. Slide 3 1. A Brief History of Healthcare in China 1949-1978 Central Planning – near universal basic healthcare – low cost with emphasis on prevention 1978-2000s Decentralisation, Market-Based Reforms – reduced central government funding – healthcare operators encouraged generate own sources of revenue – collapse of rural social health insurance Medical Insurance in China Global Conference of Actuaries Mumbai, February 2010

4. Slide 4 2. Major Problems in Chinese Healthcare Decline in quality of healthcare – much slower improvements in life expectancy – poor handling of epidemics Inequality of access to healthcare – lower socio-economic classes and rural population High Out-of-Pocket Expenditure – ~50% OOP, even with social health insurance Misaligned Incentives for Healthcare Providers – fee for service encourages over-servicing Medical Insurance in China Global Conference of Actuaries Mumbai, February 2010

5. Slide 5 2. Major Problems in Chinese Healthcare Medical Insurance in China Global Conference of Actuaries Mumbai, February 2010 Source: China’s Ministry of Health High Out-of-Pocket Costs

6. Slide 6 2. Major Problems in Chinese Healthcare Medical Insurance in China Global Conference of Actuaries Mumbai, February 2010 High Cost of Pharmaceuticals Source: China’s Ministry of Health Average cost per inpatient visitAverage cost per outpatient visit

7. Slide 7 3. Healthcare Reform in China By 2011 – Expanding Social Health Insurance to cover 90% or more of the population – Increasing government expenditure on public health services, including primary care gatekeepers – Reforming the pharmaceutical market By 2020 – Universal healthcare system – Accessible and affordable healthcare for all Medical Insurance in China Global Conference of Actuaries Mumbai, February 2010

8. Slide 8 3. Healthcare Reform in China Urban Employee Basic Medical InsuranceNew Rural Cooperative System Administered locally, the funds and accounts are used to finance inpatient and outpatient expenditure within the formularies set by the Ministry of Health and the Price Bureau. Similar to the urban plan, except that the central and local treasuries contribute instead of the employers. Rural households enroll into this scheme on a voluntary basis.

9. Slide 9 4. Private Health Insurance in China Medical Insurance in China Global Conference of Actuaries Mumbai, February 2010 Total health insurance premium income of Chinese insurers Sources: Yearbook of China‘s Insurance, CIRC, Swiss Re Economic Research & Consulting

10. Slide 10 4. Private Health Insurance in China Medical Insurance in China Global Conference of Actuaries Mumbai, February 2010 70% individual business, 30% group business

11. Slide 11 4. Private Health Insurance in China Group Medical Insurance – Privatised Social Health Insurance – Qibu – Supplementary reimbursement to SHI – annually renewable, mostly loss-making Individual Medical Insurance – mostly riders to basic life insurance plans – mostly guaranteed renewable, with reviewable rates – limited coverage for expenses outside of SHI system – mostly profitable, but with problematic pockets Critical Illness, Hospital Cash, Surgical Cash Medical Insurance in China Global Conference of Actuaries Mumbai, February 2010

12. Slide 12 5. Issues for Private Health Insurers Interaction with Social Health Insurance – within SHI framework – coordination with SHI benefits Regional and other SHI disparities – utilisation rates vary – medical costs vary – SHI coverage varies IBNR and Claim Delays – SHI payments often not resolved until end of year – Groups renew before claims experience is known Medical Insurance in China Global Conference of Actuaries Mumbai, February 2010

13. Slide 13 5. Issues for Private Health Insurers Loss-making business – withdraw from group market – focus on smaller groups where competition is less – focus on individual business with better margins – upsell as many riders as possible – importance of data and systems Claims management – follow SHI claim payment decisions – high volume, low cost claims – late notification of claims Medical Insurance in China Global Conference of Actuaries Mumbai, February 2010

14. Slide 14 6. Health Insurance Product Development Medical Insurance in China Global Conference of Actuaries Mumbai, February 2010 Lower Mid Upper Lower/ Mass Upper Mid High Upper High Global ~ 0.1 0.4mio 15-30K Upper ~ 9.4 35mio 1-3K Middle Lower ~ 12.6 46mio 0.5-1K Middle Mass ~ 0.5 2mio 3-12K Affluent Masses ~ 77.3 284mio 0.3-0.5K Target premium*** No. of urban Chinese** Share of Chinese urban households* *Data for 2005: In percent (Source: State Statistical Bureau of the People's Republic of China, China Statistical Yearbook) ** Data for 2005: In absolute figures (Source: State Statistical Bureau of the People's Republic of China, China Statistical Yearbook) ***Absolute figures in RMB p.a. (Source: Swiss Re’s estimate) Customer Segmentation

15. Slide 15 6. Health Insurance Product Development Medical Insurance in China Global Conference of Actuaries Mumbai, February 2010 Customer Segments and Product Needs

16. Slide 16 7. India and China – Comparisons and Lessons Socially Disadvantaged and Rural Sector – government subsidies required – fee-for-service reimbursement increases utilisation without necessarily improving outcomes – control over supply-side (eg fixed tariffs, package rates, gatekeepers) necessary to restrain cost Loss-Making Group Business – difficult to cross-subsidise large portfolio of loss- making business against other smaller portfolios – temptation for top-line growth is ever-present – turning a loss-making portfolio into a profitable one is extremely difficult Medical Insurance in China Global Conference of Actuaries Mumbai, February 2010

17. Slide 17 7. India and China – Comparisons and Lessons Reimbursement with Fixed Tariffs – price regulation on some healthcare costs drives providers towards services with less price regulation – alignment of provider incentives to government objectives and patient outcomes is crucial Balance between Acute and Preventative care – acute and catastrophic care involves high costs and benefits relatively few people, but is where private insurance is most useful – preventative and basic healthcare is unexciting, but often has a bigger impact on overall health objectives Medical Insurance in China Global Conference of Actuaries Mumbai, February 2010