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No 1/2015

Keeping healthy in
emerging markets:
insurance can help

01 Executive summary
02 Introduction
06 Healthcare systems
13 The role of private
health insurance
16 The PHI market in
emerging economies
22 Outlook: better health
for more people
30 Conclusion
31 Appendix

Executive summary
The emerging markets need healthy
workers to sustain their strong growth
trajectories.

A healthy population supports economic growth. Since it is widely accepted that the
emerging markets will drive global growth in the future, it is in everyones interest
that people living and working in those markets are fit and healthy. To date, however,
the healthcare systems in many emerging markets have had insufficient investment,
leading to poor infrastructure and quality of services.

Currently, emerging markets have a small


share of global healthcare spending, but
this will rise.

Global spending on healthcare in 2012 was USD 7.2 trillion, and 22% of that
(USD 1.6 trillion) was in the emerging markets. Demand for healthcare services in
emerging markets is rising as their economies grow, access to services improves,
populations expand and age, urbanisation continues and as the prevalence of
chronic diseases increases.

State funds and household savings


are the main channels of healthcare
spending in the emerging markets.

In emerging markets, healthcare has traditionally been funded by the state through
general taxation revenues, alongside a significant contribution from private household
savings. The private health insurance (PHI) sector can facilitate an expansion of
services. To date, PHI has covered just a small proportion of total healthcare spending
in the emerging markets: less than 10% in the main emerging markets in 2012.
It can play a larger role. With rising incomes, more people will want to and be able to
spend extra on health and on health insurance.

Private health insurance can play


a bigger role, as a pooler of risk.

PHI includes products that reimburse the medical expenses of the insured and those
that pay fixed benefits upon diagnosis of a disease or disability. In countries where
healthcare is mostly state-provided, PHI can be used to fill the gaps in coverage
for example by covering treatments not included in public provision. PHI offers
individuals and households protection against major healthcare expenses. By
pooling the risks of the insured, PHI allows consumers to pay an affordable regular
premium and thereby share the cost of treatments required with the others in the
pool. This is of particular value in the low income emerging market environment
because the cost of treatment, particularly emergency procedures, can be well
beyond the means of the average household. PHI also offers consumers more choice
with respect to place, type and level of treatment as and when it is required. And
with fixed-benefit products, consumers can choose how to use the benefits
received, for instance to cover the cost of treatment or perhaps as income
replacement.

Demand for health insurance in emerging


markets is rising and is projected to
increase robustly.

Demand for PHI in the emerging markets has been rising rapidly. Reimbursementtype medical insurance premiums are estimated to have grown by 11.2% in real
annual terms between 2003 and 2013, and are forecast to grow by 10% per year
up to 2020, twice the pace of projected real gross domestic product (GDP) growth.
To maximise the opportunity, insurers need to understand the different healthcare
systems in the various emerging markets, in particular the role of PHI in relation to
other state-funded and social health programmes. Insurers also need to design
products that better meet evolving consumer needs. Innovative use of distribution
channels and awareness campaigns can further increase PHI penetration.

Insurers can provide better services at a


lower cost by focusing on efficiency and
effectiveness.

By aligning their interests with stakeholders and focusing on consumer needs,


insurers can help to drive better service at a lower cost. This can be done through
the adoption of health and wellness programmes, and by improving service
effectiveness in each stage of treatment by analysing processes and outcomes in
the pre-admission, treatment and post-treatment phases. Insurers are also using
Third Party Administrators to improve efficiency in claims management and other
functions. Lastly, they are setting up as mono-line health insurers to benefit from the
concessionary measures (eg, preferential tax rates), offered by some governments.

Swiss Re sigma No 1/2015 1

Introduction
Good health is a duty to yourself, to your contemporaries, to your inheritors, the
the progress of the world. Gwendolyn Brooks
Healthy workers drive economic growth
and development.

The World Health Organisation (WHO) defines health as a state of complete


physical, mental and social well-being and not merely the absence of disease or
infirmity.1 The wellness of its citizens impacts a countrys economic growth. A
healthy working population is more productive, the labour market participation rate
is higher and illness is less of an economic burden. Health impacts the long-term
growth outlook also. For example, children in poor health spend less time in school,
which can negatively impact their earnings potential in adult life.

For example, the high incidence of ill


health is part of the reason behind
Africas track record of low growth
relative to other regions.

A study in 1998 found that half of the economic growth differential between Africa
and rest of the world could be attributed to the prevalence of ill-health in Africa and
the low life expectancy there.2 Other studies further support the assertion that good
health means stronger growth. For example, one report found that a 40% extension
to life expectancy from 50 to 70 years increases per capita income growth by
1.4 percentage points (ppt).3 Another study found that tropical countries in which
there had been a 10% reduction in the incidence of malaria experienced a 0.3 ppt
gain in annual GDP.4

Despite improvements in medicine and


life expectancy, the incidence of chronic
diseases in the emerging markets is
rising,

Advances in medicine have led to improved health and longer life expectancy in
the emerging markets. Even so, the incidence of chronic disease in these markets
is increasing: according to the WHO, nearly 80% of global chronic disease-related
deaths occur in low and middle-income countries.5 Diabetes, cancer and cardiovascular disease (CVD) are increasingly prevalent. In 2013, about 80% of the worlds
382 million diabetics lived in low and middle-income countries. China had 96 million
diabetics, the world leader, followed by India with 67 million cases.6

reducing productive work years.

The impact of the proliferation of chronic diseases can be assessed using the
disability-adjusted life years measure, which expresses the number of productive
years lost due to illness, disability and early death (see Figure 1). Based on WHO
estimates, chronic diseases accounted for 40% of the productive years lost in
emerging markets in 2000. The ratio has since risen to more than 50%, meaning
that chronic conditions have overtaken communicable and other ailments as the
major disease burden in these markets.

Figure 1:
Lost healthy years of life by cause in
emerging markets, 2000 and 2012, %

2000

49%

40%

38%

2012
0%

20%

11%

51%
40%

60%

11%
80%

100%

Communicable, maternal, perinatal and nutritional conditions


Non-communicable/chronic diseases
Injuries
Source: Global Health Estimates, WHO, 2014.

1 Constitution of the World Health Organization, WHO, 1948, http://www.who.int/about/definition/en/


print.html
2 D.E. Bloom and J.D. Sachs, Geography, demography and economic growth in Africa, Brooking Papers
on Economic Activity, vol 2, 1998, pp 207295.
3 R.J. Barro, Health and Economic Growth, Annals of Economic and Finance, vol 12 no 2, 2013, p 341.
http://down.aefweb.net/WorkingPapers/w572.pdf
4 J.L. Gallup and J.D. Sachs, The Economic Burden of Malaria, CID Working Paper, No 52, July 2000, p 7.
5 Chronic diseases and health promotion, WHO, 2015, http://www.who.int/chp/en/
6 Diabetes: Facts and Figures, International Diabetes Federation, Figures include undiagnosed diabetes
cases. http://www.idf.org/sites/default/files/EN_6E_Atlas_Full_0.pdf

2 Swiss Re sigma No 1/2015

Healthcare systems in emerging markets


are typically under-developed and
over-burdened...

With under-developed healthcare infrastructure and systems, some emerging


markets are also highly vulnerable to epidemics like Ebola and Avian Flu. The recent
outbreak of Ebola continues to wreak havoc in western Africa, despite the measures
taken by local governments and the WHO to contain the epidemic. The World Bank
estimates that the outbreak will cut growth in Guinea in 2014 by 1ppt, taking the
GDP gain down to 3.5%. The impact on Sierra Leones economy is likely to be larger.7

Paying for healthcare


even though total healthcare spending
is on the rise.

To address the challenge of communicable and chronic diseases, and meet the
needs of expanding populations, emerging markets have allocated more resources
to healthcare services in the last decade. Strong economic growth and rising
incomes means healthcare spending has increased faster than the rate of GDP
growth in most emerging countries (see Figure 2). This has come about because
with increasing purchasing power and economic wealth, people and governments
tend to spend an increasing share of income on health and improving quality of life.

Figure 2:
Total healthcare expenditure and GDP
in emerging markets, 2002 and 2012

Total healthcare expenditure,


USD billion

Nominal GDP,
USD billion
27 812

1 567

15.8%

14.8%

6 992

360

2002

2012

2002

2012

Note: Growth rates are the compounded annual increase between 2002 and 2012.
Source: Global Health Expenditure Database (WHO), Swiss Re Economic Research&Consulting.

Healthcare in the emerging markets is


mostly paid for by the state and through
private means.

Healthcare in emerging markets is paid for mostly by governments using general


tax revenues, and by private out-of-pocket payments. In countries where the public
sector accounts for a major part of healthcare expenditure, cost escalation and
competition from national defence, pension, education, infrastructure and other
public service spending obligations makes it increasingly difficult for governments
to sustain existing growth levels of healthcare funding. Systems heavily reliant on
out-of-pocket financing face similar sustainability challenges.

Private health insurance can also


contribute to the overall financing
of a national healthcare system.

Private health insurance is another channel of healthcare expenditure. PHI is still in


an infant stage of development in most emerging countries, and there is growing
recognition that it can play a bigger role in building a system of sustainable
healthcare service delivery. PHI offers people security against the financial impact
of medical expenses, and is an alternative and more efficient means of paying for
care services than precautionary savings.8 PHI is risk-pooling whereby individual
premiums from many are collected and used to reimburse the medical expenses
incurred by a few insureds, and to make fixed-benefit payments to (a few) insureds
to cover costs such as lost income and other expenses. This avoids financial hardship
and under-treatment for those unable to afford the costs of care which can be very
7 R. Hamilton, Ebola crisis: The economic impact, bbc.com, 20 August 2014, http://www.bbc.com/
news/business-28865434
8 Social health insurance schemes also perform these functions, but PHI typically offers more flexibility
and consumer choice.

Swiss Re sigma No 1/2015 3

Introduction

high as out-of-pocket payments. For example, the WHO estimates that 900 million
people in Asia Pacific are vulnerable to impoverishment due to healthcare costs.9

PHI = medical + health insurance10


PHI is an umbrella term for medical
and health insurance.

Health insurance provides for the payment of benefits as a result of sickness or injury.
PHI has historically been characterised as voluntary, for-profit commercial coverage.
The scope of PHI has broadened over the years to include more benefits. For example,
apart from helping the insureds cover the actual cost of medical treatment, products
are also available to protect against loss of income due to disability (disability
insurance) and cover the expenses incurred in old-age dependency care.

Medical insurance reimburses for


expenses at healthcare facilities.

Based on the nature of benefits, PHI can be segregated in two broad product
categories: reimbursement-type medical insurance and fixed-benefit health insurance
products. Reimbursement-type medical insurance indemnifies the expenses incurred
by the insured for hospital and other treatments arising from illness or injury (see
Figure 3). There are usually limits to reimbursement and sub-limits for different
procedures. A significant chunk of the medical insurance business is sponsored by
employers as part of the benefits offered to employees (group medical insurance).
Indemnity-type insurance is often short term and premium rates can be adjusted
periodically (although rigid regulation is sometimes applied for re-pricing). Copayments and deductibles are common features of these products, used as a way
to reduce moral hazard and overuse of healthcare services.

Figure 3:
Schematic representation of medical
and health insurance

Private health insurance

Medical insurance products


Pay benefits in proportion to the
actual cost of medical treatment.
Trigger for payment is a medical
expense.
Available for in-patient and/or outpatient procedures.
Usually come with requirements
on deductibles, coinsurance or
co-payments.

Fixed-benefit products
Include hospital cash, critical illness
insurance, disability income and
long-term care insurance.
Benefits are usually paid as a lumpsum or as an income stream (eg, in
disability income insurance).

Source: Swiss Re Economic Research&Consulting.

Fixed benefit insurance is triggered by


onset of a condition, not the cost of
treatment.

Fixed-benefit health insurance payments are triggered by the development of


specified conditions. Benefits are usually defined and not correlated to the cost of
treatment. Products include critical illness, disability income, hospital cash and longterm care (LTC) insurance. For example, hospital cash insurance pays a daily amount
starting from admittance into hospital, and continues until the hospital stay ends or
reaches the maximum duration stipulated in the insurance contract.

9 Health Financing Strategy for the Asia Pacific Region (20102015), WHO, 2009.
10 More information can be found in sigma 6/2007 To your health: diagnosing the state of healthcare
and the global private medical insurance industry, Swiss Re.

4 Swiss Re sigma No 1/2015

In most markets, L&H and non-life


insurers can write PHI.

Both life&health (L&H) and non-life insurers can write reimbursement-type medical
and fixed-benefit health insurance. In the case of non-life companies, they can only
write fixed-benefit products if the policy does not include a death benefit. Typically
non-life insurers write short-term policies, while L&H firms write longer-term contracts
and riders to ordinary life products. In many markets there are specialised health
insurance companies that write only medical and health insurance products. Monoline insurers like these sometimes benefit from regulatory concessions such as lower
minimum capital requirements.

PHI can help pay for peoples healthcare


needs.

This sigma reviews recent developments in the PHI industry in emerging markets,
with particular emphasis on its role in helping people pay for their medical and
health needs within the framework of nation-specific care provision systems.

Swiss Re sigma No 1/2015 5

Healthcare systems
Responding to a populations healthcare needs and expectations
A well-functioning healthcare system
provides treatment

A well-functioning healthcare system responds in a balanced way to a populations


needs and expectations, according to the WHO,11 by ensuring:
Access to essential medicines and health products;
Motivated and skilled healthcare workers;
Integrated, high-quality, patient-centred services at all levels, from primary to
tertiary care;
A combination of priority programmes for health promotion and disease control,
including prevention and treatment;
Information systems that yield timely and accurate data for decision-making; and
Sufficient funds that are used equitably and efficiently, and reserved for healthcare
spending.

and prevention.

A critical feature of an effective healthcare system is that it provides treatment and


prevention. Many studies confirm the importance of preventive measures in
maintaining good health. An example is a study conducted by the WHO on the
impact of insecticide-treated mosquito nets on overall childhood mortality and
malaria-related morbidity in Sub-Saharan Africa.12 The study concluded that the nets
reduced all-cause child mortality by an average of 18% in Sub-Saharan Africa; the
nets also reduced clinical episodes of malaria by 50% on average.

High-quality care infrastructure, which


many emerging markets lack, is another
core component.

Sufficient and high-quality infrastructure is another core requirement of an effective


healthcare system, and a common shortfall in many emerging markets. For instance,
Table 1 provides indication of the availability of hospital beds, physicians and nurses
for the general population in Southeast Asia and Africa. It also shows that there are
much fewer such resources per person than in advanced countries.

Table 1:
Number of physicians, nurses and
hospital beds per 10000 population,
globally and in the BRIC economies*

Density per 10000 population (20062013**)

Americas
Europe
Western Pacific***
Eastern Mediterranean
South East Asia
Africa
High-income countries
Upper middle-income countries
Lower middle-income countries
Low-income countries
Russia
Brazil
China
India

Physicians

Nurses

Hospital beds

21
33
15
11
6
3
29
16
8
2
43
19
15
7

46
81
25
16
15
12
87
25
18
5
85
76
15
17

23
53
43
8
10
na****
54
32
10
21
97
23
38
7

Notes: *BRIC = Brazil, Russia, India and China; **data is based on latest information available from different
regions / counties between the years 20062013; *** by WHO definition, Western Pacific includes East
Asian markets (eg, China, the Philippines and Indonesia) and also the Pacific countries such as the Solomon
Islands and Vanuatu. **** na = not available.
Source: The 2013 update Global Health Workforce Statistics, WHO, 2013, and Swiss Re Economic
Research&Consulting.

11 Key Components of a Well-Functioning Health System, WHO, May 2010, p 1.


12 Insecticide-Treated Mosquito Nets: A WHO Position Statement, WHO, August 2007, p 3.

6 Swiss Re sigma No 1/2015

Russia, Brazil and China have made good


progress in building care infrastructure in
recent years.

There have been some positive developments in the healthcare infrastructure of the
larger emerging countries in recent years. For example, today the density of health
infrastructure in Russia is among the highest in the emerging markets. This is largely
due to the National Priority Project for Health launched by the government in 2006.
The programme budget for the period 2006 to 2009 was USD 13 billion. It was
spent on higher salaries for primary and emergency care physicians, the purchase
of primary care equipment and vaccination programmes.13

Now more people in these countries


can access healthcare services.

In Brazil, the government initiated reform of its national health system, Sistema nico
de Sade (SUS), in 1996. A central premise of the reform was decentralised universal
access, with municipalities providing comprehensive and free healthcare to each
individual. Key elements of the strategy have been primary care and Family Health
Teams, including doctors, nurses, dentists and other health workers. These have
provided access to healthcare services to more people.14

India still lags some of its emerging


market peers in this respect.

China has also made significant progress in developing its healthcare facilities over
the last decade. It now has close to the same number of beds and physicians per
10000 people as upper middle income countries. Around 90% of the hospitals in
China are currently state-owned. The remaining 10% are private and are used mostly
by affluent Chinese and foreigners in the urban areas.15 In India, while significant
efforts have been made to expand coverage, the healthcare infrastructure lags many
emerging country peers. Long queues at emergency units, beds in hospital corridors,
and a scarcity of doctors and medicine in rural areas remain common place.

Healthcare expenditures and financing


Well-functioning health care systems
need sustainable finance.

A well-functioning healthcare system needs sustainable financing. This can be


facilitated by a mix of financing channels general tax revenues, targeted healthcare
taxes, employer-provided insurance, private health insurance and out-of-pocket
expenses. Figure 4 illustrates how health expenditures are financed. Ultimately, it is
consumers and employers who pay for healthcare, either directly or through taxes.
Theoretical and empirical research on employer-provided insurance programmes
indicate that the tax incidence16 of employer-provided schemes also actually falls
mostly upon workers, through less employment and/or lower wages.17 In other
words, consumers (taxpayers) bear the brunt of all healthcare costs. Nevertheless,
the financing channels have important income and wealth distribution implications.
For example, the burden of healthcare paid from general taxes will fall more heavily
on wealthy individuals in a progressive tax regime in which higher earners are
taxed more heavily. Alternatively, a health insurance tax can be a fixed, flat-rate or a
percent of income. The latter would likewise place a higher burden on higher-income
individuals since everyone has access to the same public healthcare benefits.

13 Snapshot Report on Russias Healthcare Infrastructure Industry, Deloitte and Informa Life Sciences
Exhibitions, November 2013, p 1.
14 Flawed but fair: Brazils health system reaches out to the poor, Bulletin of the World Health
Organization, vol 86 no 4, April 2008, p 241320, http://www.who.int/bulletin/
volumes/86/4/08-030408/en/
15 F.J. Goguen and J.D. Connolly, Global Wealth Creation: The Impact on Emerging Markets Health Care,
The Boston Company Asset Management, LLC, August 2012, p 4.
16 In economics, tax incidence is the analysis of the effect of a particular tax on the distribution of
economic welfare. Tax incidence is said to fall upon the group that ultimately bears the burden of, or
ultimately has to pay, the tax. Source: http://en.wikipedia.org/wiki/Tax_incidence
17 See, for example, J. Gruber and A.B. Krueger, The Incidence of Mandated Employer-provided
Insurance: Lessons from Workers Compensation Insurance, The National Bureau of Economic
Research, January 1991, pp119139, http://www.nber.org/chapters/c11270.pdf

Swiss Re sigma No 1/2015 7

Healthcare systems

Figure 4:
Healthcare financing mechanism

Healthcare providers

Risk pooling entity

General taxation

Social insurance

Tax collector

Social insurance
revenue collector

PHI

Out of pocket
expenditure

Taxes/contributions
Consumers/employers
Source: Adapted from W. Savedoff and N. Sekhri, Private health insurance: implications for developing
countries, WHO, Discussion Paper no 3, 2004.

There are different expenditure channels,


each with their own financing source.

Financing channels
The organisation of healthcare systems and the associated expenditure channels
vary across emerging markets. The Appendix describes the systems of select
countries. The following are the main expenditure channels.

Government-provided healthcare is
funded through general taxes,

Government-provided healthcare. Many emerging markets provide public


healthcare services paid for by the government through general taxes. Services
can be provided free of charge at the point of delivery, or at subsidised rates.

while social health insurance is mostly


funded from health-specific taxation
programmes.

Social health insurance (SHI). SHI schemes are mostly funded by individuals from
their wages, as they pay taxes or premiums specifically designated for healthcare
services. The schemes can exist in many forms and can be directly administered
by governments or social security offices, or through sickness funds. As with
private reimbursement-type medical insurance, co-payments and deductibles are
included to discourage moral hazard and over-utilisation of medical services.18
Participation can be voluntary or mandatory. Uptake of voluntary SHI depends on
the co-payments and benefit packages as well as the level of government
subsidies (from general taxes) in insurance premiums.

Out-of-pocket spending makes up the


bulk of healthcare expenditure in many
emerging markets.

Out-of-pocket expenses. This refers to spending on healthcare using private


household income and resources. In many emerging markets, the government
and SHI schemes do not provide comprehensive coverage, and the private
insurance market is underdeveloped. In these cases, the bulk of national
healthcare expenditure is direct private payments for services by individuals.

Private insurance can inject resources


into healthcare systems, increase
consumer choice and improve services.

Private health insurance. PHI plans are pre-paid and enrolment is generally
voluntary. Some plans may be subsidised or heavily regulated. Insurance premiums
can be paid by individuals, employers or government subsidies, but are channelled
through private insurance companies. In some countries like the US, many
individuals get PHI from, and share the premium payments with, their employers.
PHI can inject resources into health systems, add to consumer choice, and help
make healthcare systems more responsive.19

18 In an insurance policy, the deductible is the amount that must be paid out-of-pocket before an insurer
pays any benefit. A co-payment is a payment paid by the insured person each time a medical service is
accessed.
19 F. Colombo and N. Tapay, Private Health Insurance in OECD Countries, OECD, 2004, pp 1953.

8 Swiss Re sigma No 1/2015

Foreign aid and charities are important


sources of expenditure in some emerging
markets.

Other private expenditure. Healthcare expenditure can also come from foreign aid
or domestic charity organisations. This is an important channel in some markets,
particularly in Africa. However, external donor assistance may crowd out domestic
sources and can be variable over time.

In emerging markets, government


expenditure and out-of-pocket payment
are the major payment channels.

In any one system, healthcare expenditure is typically a mix of these channels. In the
emerging markets, healthcare is mostly paid for through government expenditure
or SHI (financed by general taxation). As Figure 5 shows, in 2012 government
spending and SHI accounted for 32% of total healthcare expenditure in India and
76% in Thailand. Another main channel of expenditure in many countries was direct
out-of-pocket payments (58% of total health spending in India and 52% in the
Philippines, but just 7.2% in South Africa). Pre-payment through PHI accounted for
just a small share of total expenditure.

Figure 5:
Breakdown of national healthcare
expenditure by channel, 2012

100%
80%
60%
40%
20%

Private health insurance


Social health insurance
Government-financed healthcare

South Africa

Turkey

Russia

Poland

Hungary

Mexico

Brazil

Argentina

Vietnam

Thailand

Philippines

Malaysia

Indonesia

India

China

0%

Other private expenditure


Out-of-pocket payments

Source: Global Health Expenditure Database, WHO.

PHI is usually a small proportion of


national spending on healthcare.

With the exception of South Africa and Brazil, less than 10% of total expenditure
in the main emerging markets in 2012 came from PHI. In both China and India,
for example, PHI accounted for just 3.1% of total healthcare expenditure.

Challenges facing healthcare systems in emerging markets


An over-reliance on public-provided
care services could strain national
budgets in the future.

Government spending on healthcare is an important pillar of almost all emerging


market healthcare systems. It has the advantage of offering equitable and stable
services over time. Public finances in the emerging markets are less strained than in
the advanced countries but an over-reliance on public-provided healthcare will likely
put increasing strain on national budgets as demand for services rises.

Swiss Re sigma No 1/2015 9

Healthcare systems

Managing and containing public


spending on health has become a top
priority in many countries.

Some governments have been finding ways to improve the cost efficiency of public
healthcare and to address the issue of the rising strain on public finances. In Mexico,
for example, the government implemented centralised price negotiations in 2008
to keep the cost of drugs down, and introduced reverse auctions in 2009. In this
system, the suppliers of drugs compete to win business from the government and
can undercut one another.20 In Thailand, the government employs a capitation and
case-based payments system through which the government pays healthcare
providers depending on the number of beneficiaries registered, thus incentivising
hospitals and other healthcare providers to be more cost conscious (see Box below).

The public-sector Universal Coverage


Scheme in Thailand covers 70% of the
population.

Funding universal healthcare services in Thailand


Thailand launched its Universal Coverage Scheme (UCS) in 2002. The UCS
extended healthcare insurance to the population not covered by the existing Civil
Servant Medical Benefit Scheme (CSMBS) and the Social Security Scheme (SSS).
By 2011, the UCS provided cover to 48 million people, or 70% of the total
population, up from 45 million members when it started.21

The UCS was designed with a goal


of cost-containment in mind.

The UCS has mechanisms to contain costs. For example:


An independent organisation, the National Health Security Office (NHSO) was
created to administer the funds that the UCS receives from the government to
purchase services from healthcare providers. Payment for outpatient services is
based on the capitation model, in which healthcare providers are allocated a
budget at the beginning of each year based on the number of beneficiaries
registered. The cost per beneficiary is set by the NHSO. The capitation model
incentivises healthcare providers to be more cost conscious because they have to
manage expenditure within a fixed budget.
To lower costs, the UCS encourages the use of generic drugs. For high-priced
equipment and medicine, a central price negotiation system is in place to
collectively bargain for lower prices.

Households that rely on out-of-pocket


payments are vulnerable to catastrophic
health expenditure.

Cost escalation is also fuelling the growth


of healthcare expenses.

Catastrophic health expenditure


A main channel of healthcare expenditure in many emerging markets is out-ofpocket payments. However, a system heavily reliant on private spending presents
significant challenges, not least the need for individuals to build up precautionary
savings to be able to pay for medical emergencies. This is an unwelcome stress,
especially for low-income households, when out-of-pocket payments reach
catastrophic level (ie, when they force households to reduce spending on basic
necessities). Millions of households in emerging markets have been pushed into
poverty by the need to pay for medical emergencies.22 In general, health systems
heavily reliant on out-of-pocket payments offer less protection to individuals and
households against catastrophic healthcare expenditure.
The rising costs of healthcare
Healthcare costs in many emerging markets are expected to increase faster than
GDP, more so in markets where healthcare expenditure as a percentage of GDP is
still relatively low. A key contributor to cost escalation is medical innovation and the
increasing use of new technologies in medicine and treatments. Though welcome,
advances in medicine and treatments can also push costs higher.

20 IMSS and its Public Procurement System, Mexican Institute for Social Security and OECD,
January 2012, p 7.
21 Health Financing Reform in Thailand: Toward Universal Coverage under Fiscal Constraints, World
Bank, January 2013, pp 2-4.
22 Designing Health Financing Systems to Reduce Catastrophic Health Expenditure, WHO, 2005, p 2.

10 Swiss Re sigma No 1/2015

While more effective new drugs are


becoming available

they can be prohibitively expensive


for consumers in emerging markets.

The high cost of treatments23


Advancements in different forms of treatment over the years have improved the
quality of life for many millions of people, but can come with higher costs. A case in
point is the recent development of a drug for the treatment of the hepatitis C virus
(HCV). The virus is a main cause of liver cancer, and treating HCV will reduce the
number of cases of the deadly cancer. Until recently, there has been no effective
vaccine for HCV. Then, in 2013, the US Food and Drugs Administration approved
the use of a new drug called Sofosbuvir for the treatment of chronic HCV infection.
Sofosbuvir cures about 80% of patients infected with HCV, much more than previous
generations of drugs, and has fewer side effects.
However, Sofosbuvir is expensive. In the US, the cost of a 12-week course for HCV
genotype 1 and 2 is USD 84000, and a 24-week course for HCV genotype 3 costs
USD 168000. This is not affordable for most governments, let alone people, in
emerging markets. The drugs maker plans to licence some producers in low- and
middle-income markets to make Sofosbuvir and expects the price to be as low as
USD 2000 for a 24-week treatment course. Sofosbuvirs patent protection is due
to expire in 2029. Before then, other pharmacy companies may develop drugs with
a similar mechanism, and this could help lower the cost of treatment. Nevertheless,
this example shows that medical advancements, while welcome, can add significantly
to the cost of healthcare provision.
Economic, demographic and other factors
Other factors will also contribute to rising healthcare spending in the coming years.

The heightened expectations of


an expanding middle class,

Economic growth and wealthier societies. Real GDP in the emerging markets
overall is forecast to grow by an annual average of 5% between 2014 and 2020,24
and around 60% of the worlds middle-income population is projected to be in the
emerging markets by 2020.25 Growth and rising incomes will generate additional
demand for healthcare services: people and governments tend to spend more on
health as wealth increases because they want to improve quality of life.

an expanding and ageing population

Population growth and ageing. The emerging markets total population is forecast
to grow from 6.1 billion in 2015 to 8.2 billion in 2050, with more than 14% of the
population aged over 65 years by that time (up from 6% in 2015).26 The much
larger population will require more healthcare infrastructure. At the same time,
the expanding old-age population will increase the financial burden for societies
as a whole, given the relatively high medical costs of the elderly. Many emerging
markets still have a young population profile, but this is changing. In Latin America
and Asia, for example, the number of people aged 65 years and over is expected
to double by 2030.27 Furthermore, healthcare expenditure will rise alongside
better and more frequent screening, leading to higher discovery rates of diseases
such as cancer before they become fatal.

23
24
25
26
27

Cancer Trend Study 2014 Liver Cancer, Swiss Re, November 2014.
Forecast from Swiss Re Economic Research&Consulting.
The Emerging Middle Class in Developing Countries, OECD Development Centre, January 2010, p 28.
World Population Prospects: The 2012 Revision, UN Population Division.
sigma 5/2014: How will we care? Finding sustainable long-term care solutions for an ageing world,
Swiss Re, p 2.

Swiss Re sigma No 1/2015 11

Healthcare systems

and ongoing urbanisation are all


contributing to rising healthcare costs.

The impact of climate change on


healthcare expenditure is increasing.

Urbanisation. Emerging market societies are becoming ever-more urban. The


percentage of the population living in urban centres in the emerging markets is
forecast to increase from 49% in 2015 to 63% by 2050.28 More people living in
towns and cities can materially impact the demand for health services, given the
lower levels of physical activity, increased consumption of processed foods, and
psychological stresses associated with urban lifestyle. The (re)emergence of
communicable diseases has also been seen in those emerging market cities with
poor water and sanitation facilities. High population densities present higher risk
of spread of infectious illnesses and pandemics. Some urban areas also have
higher air pollution which can negatively affect health. Meanwhile, traditional
inter-generational lifestyle support may decline given a shift to typically smaller
households in towns and cities or if elders are left behind in rural areas.
Climate change and health costs29
Other factors which are difficult to quantify can impact healthcare expenditure also.
One is climate change, which impacts the social and environmental determinants of
health: temperature, clean air, safe drinking water, sufficient food and secure shelter.
The health effects of a changing climate are likely to be negative. For example,
very high air temperatures contribute directly to deaths from cardiovascular and
respiratory disease, particularly among the elderly. High temperatures also raise the
levels of ozone and other pollutants in the air that exacerbate cardiovascular and
respiratory disease.

Often the worlds poorest are most


impacted by natural disasters associated
with climate change.

In addition, sea levels are rising, glaciers are melting and precipitation patterns are
changing. Increasingly variable rainfall patterns could affect the supply of fresh
water. A lack of safe water can compromise hygiene and increase the risk of
diarrheal disease. Floods also appear to be more frequent and intense. Floods
heighten the risk of water-borne diseases, can cause physical injuries, damage
homes and disrupt the supply of medical and health services. Moreover, increasing
frequency of weather-related natural disasters, often in many of the worlds poorest
regions, will likely disrupt the production of staple foods.

It is estimated that climate change will


cause an additional 250000 deaths
each year between 2030 and 2050.

A WHO assessment taking into account only a subset of the possible health impacts,
and assuming continued economic growth and improvement in health infrastructure,
estimated approximately 250000 additional deaths due to climate change per year
between 2030 and 2050.30 All populations will be affected by climate change, but
some are more vulnerable than others. People living in small island developing states
and other coastal regions, megacities, and mountainous and polar regions are
particularly vulnerable. Countries with weak health infrastructure will be the least
able to cope.

With the pressure of rising costs,


all options, including PHI, need to
be considered.

These different factors will generate higher costs, demand for and spending on
healthcare. The challenges are many and the authorities in many emerging markets
need to establish a more efficient and sustainable system of paying for care services.
Different options are available, including privatisation of public-sector health
schemes, raising fees or co-payments, increasing SHI premiums, outsourcing part of
healthcare services or stepping up cost containment efforts. One more option is to
grow the PHI sector and thereby the role it plays as one of the channels of national
healthcare spending.

28 World Urbanization Prospects: The 2014 Revision, UN Population Division. Emerging markets are
based on the UN definition of less developed countries, including Africa, Asia (except Japan), Latin
America and the Caribbean plus Melanesia, Micronesia and Polynesia.
29 Climate change and health, WHO Fact sheet No.266, August 2014, http://www.who.int/mediacentre/
factsheets/fs266/en/.
30 Quantitative risk assessment of the effects of climate change on selected causes of death, 2030s and
2050s, WHO, 2014, p. 13, http://www.who.int/globalchange/publications/quantitative-riskassessment/en/

12 Swiss Re sigma No 1/2015

The role of private health insurance


The utility of PHI
Why PHI?

When people buy PHI, they acquire protection against the costs of future care needs.
However, in many countries people can access healthcare services from the public
sector and through SHI schemes. So why then should people want to buy the
protection that PHI offers? Why does PHI exist?

PHI offers a number of benefits

PHI offers a number of benefits. For example, it can be tailored to consumer needs
and give consumers more choice in terms of options such as private rooms for
hospital stays, things that become a growing expectation as incomes rise. It can also
increase efficiency and quality of treatment, and flexibility. For instance, fixed-benefit
products give consumers freedom to choose how to use the benefits paid. They can
use the benefits to pay for the cost of treatment and rehabilitation or, if they wish, to
make up lost income incurred by being unable to work in the period of illness.

as part of an integrated national


healthcare system.

It is against this backdrop and rising concerns over the efficiency and sustainability
of existing, mostly publicly-funded healthcare systems in emerging markets that PHI
is gaining more attention. PHI offers the following advantages over other expenditure
channels and can thereby improve the effectiveness of a national healthcare system.

PHI is particularly useful if a household


has a high-cost medical emergency.

Increases household financial security. The need for precautionary savings can
hold back household spending on other life priorities (eg, education). By pooling
the risks of many, PHI offers households protection against the financial risk of
high-cost medical emergencies without setting aside savings to pay for treatment.
Instead, people pay a regular premium and share the risk of an emergency with
the others in the insurance pool. This lowers the cost of the emergency treatment,
making it cheaper for households than if they were to pay out-of-pocket at the
time of consumption. In similar vein, the risk pool helps households manage
healthcare cost escalation. Some PHI products also protect against loss of
income.

Insurers provide many different plans and


can tailor solutions to the needs of the
customer, improving consumer choice.

Tailored to customer needs, with choice and flexibility. Health and medical
insurance policies can be designed according to an individuals needs and
financing abilities. This is not restricted to the provision of insurance to high networth individuals or expatriates, but is also available to low-income households
through, for example, micro health insurance schemes. With PHI, consumers can
choose the level of coverage they want based on their individual needs. In this
way, PHI gives consumers choice, more so than public healthcare systems in
which services tend to be standardised for general population requirements.

PHI provides claims payments after a


medical expense, reducing financial
strain.

Timeliness of insurance funding. With PHI, people receive benefits at the time
that they need funds to cover the costs of treatment. For example, cancer
insurance products allow policyholders to draw fixed benefits once illness is
diagnosed, meaning that funds for treatment and other expenses are immediately
available. The scope of PHI products varies across regions and in some areas,
reimbursement-type indemnity insurance is popular. Here the insured pays the
medical bills and is reimbursed, or the costs of the treatment are paid directly by
the insurer. Either way, payment can be timed to reduce unnecessary strain on
policyholders finances.

The price of PHI varies with the health


risk of the family, thus providing an
incentive to lead a healthier lifestyle.

Insurance encourages risk mitigation and cost containment. The prospect of


lower premiums can be used to encourage policyholders to give up risky lifestyle
habits such as smoking and alcohol. To this end, insurers can also proactively
promote healthy living by educating policyholders about the benefits of good
health, and by providing information on wellness programmes. Further, private
insurers operate in a competitive market in which quality, efficiency and lower
cost are key drivers. With many years of experience, insurers have developed
expertise in cost control, a benefit for consumers also when the savings feed
through into lower premiums.

Swiss Re sigma No 1/2015 13

The role of private health insurance

PHI does have limitations.

PHI can play different roles.

That the utility PHI offers comes from it being part of an integrated system means
that by definition, PHI is not a universal solution. And nor does it come without its
own limitations. For instance, insurers need to assess individuals to determine their
respective risk level and corresponding premiums. While the industrys ability to
assess and underwrite different kinds of risks has improved over time, certain
consumer segments remain uninsurable or expensive to insure (eg, those with
existing health conditions). These consumers are usually dependent on public health
schemes.
The different forms of private health insurance
PHI can take different forms, depending on its role in a given healthcare system.
It can be a primary source of coverage for population groups without access
to public healthcare (eg, in the US). This could be because there is no public
healthcare, or because individuals or the population groups are not eligible.
PHI can duplicate existing public universal coverage by offering a private alternative
for those who opt out of SHI. Duplicate PHI operates in parallel with the healthcare
provided by the state but typically offers quicker access and a wider choice of
services for the insured.
PHI can also complement SHI or public services. In this case, PHI is used to pay
for expenses not fully covered or reimbursed by the public scheme, for example in
helping to pay for co-payments (ie, it covers the residual costs).
Finally, PHI can supplement SHI and government plans by paying for services not
covered by public schemes. These could be ancillary or selective services such as
dental and optical treatments, LTC, rehabilitation, alternative medicine, upgraded
hospital accommodation and optional (eg, cosmetic) services.

China has supplementary PHI.

China provides an example of supplementary PHI. There urban medical insurance is


dominated by social security funds, financed by mandatory employer and employee
contributions, and administrated at the local or provincial government levels. PHI is
currently primarily used as a supplementary pillar to fill gaps in cover. In addition,
some local/provincial governments have outsourced their social insurance
obligations to private insurers.

India provides subsidies to lower income


households for PHI.

In India, the central and state governments are changing their role from that of
provider of public healthcare, to purchaser of and payer for care services through
insurance. In 2007, the central government launched the Rashtriya Swasthya Bima
Yojana (RSBY) scheme which provides state subsidies to those living below the
poverty line so that they can access authorised health insurance cover.31

31 See Appendix for country-specific details of the existing healthcare systems in major emerging markets.

14 Swiss Re sigma No 1/2015

PHI profitability faces a number of risks,


such as

Market risks for private health insurers


As with all insurance, PHI is a risk business and insurers operating in the sector face
a range of risks that can affect profitability.

adverse selection

Adverse-selection is a strategic behaviour by the more informed partner in a


contract against the interests of the less informed. In PHI, individuals think about
their own probability of using health services when choosing an insurance policy.
Those who expect to make regular use of services will tend to choose more
generous plans than those who anticipate limited use. Insurers will incur losses if a
large portion of policyholders are those who expect to have health expenditures
greater than or equal to the premiums paid. Regulations imposing standard health
insurance contracts, restricting premium rates and disallowing insurers to acquire
information on potential customers health conditions before offering cover can
exacerbate the adverse selection risk problem for insurers.32

moral hazard

Moral hazard occurs when the behaviour of the insured changes in a way that
raises costs for the insurer. When individuals buy health insurance, they no longer
bear the full cost of medical services and have an incentive to over-use services,
even in cases when treatment may not be necessary. Or, the insured may
undertake more risky (eg, sporting) activities, knowing that any injuries will be
covered. Coinsurance, co-payments and deductibles reduce the risk of moral
hazard by putting some of the burden of the costs of medical services back onto
the insured, dampening the incentive of the insured to over-consume.

medical cost trend risks

Medical cost trend risks arise from new technologies and drugs (which often
result in higher claims costs), additional availability of care infrastructure and
services, behaviour and lifestyle changes and increasing life expectancy. As these
factors rise, medical expenditures also increase. Cost trend risks are systematic
and cannot be diversified and are also difficult to forecast. Again, the risk can be
exacerbated by regulations that limit insurers ability to react to market
developments.

lack of alignment of interests

Lack of alignment of interests of policyholders, medical service providers and


health insurers can lead to market inefficiencies and higher costs for insurers.
Costs may go up because of supplier induced demand, moral hazard or lack of
management of diseases and cases. Insurers attempt to minimise inefficiencies
by building provider networks and introducing cost and medical management to
align the interests of all stakeholders.

and regulatory risks.

Regulatory risks. Healthcare markets are usually heavily regulated to ensure


insurability and foster competition. Regulatory frameworks differ across countries
but have the broad aim of protecting consumers, particularly the vulnerable, while
also encouraging competition among carriers. Regulation tackles issues such as
access to PHI (insurability), affordability and fairness because it is difficult for
individuals in poor health to get insurance in a purely free market. Regulators can
introduce rules that ban individual risk-based pricing, mandate open enrolment,
prohibit the cancelation of individual contracts by the insurer, and define a binding
list of benefits that need to be insured. Intended to protect the insureds, rules like
these also, however, constrain an insurers ability to adapt to changing market
conditions.

32 How Adverse Selection Affects the Health Insurance Market, Harvard School of Public Health,
March 2001, pp 12.

Swiss Re sigma No 1/2015 15

The PHI market in emerging economies


The PHI market comprises of
reimbursement-type medical and
fixed-benefit health products.

Private health insurance comprises of reimbursement-type medical insurance and


fixed-benefit health insurance products. This chapter first looks at reimbursementtype medical insurance products (collectively referred to here as private medical
insurance (PMI)), in emerging markets where data is available. The discussion of
fixed-benefit health insurance products that follows focuses on three main products
and is based on qualitative comments from market practitioners.

The private medical insurance market in emerging economies


Reimbursement-type medical products
have witnessed strong growth over the
past years.

Emerging market PMI premiums are estimated to have increased by around 10%
to USD 36 billion in 2013 (3.6% of the estimated global total of USD 1005 billion).
Of these, non-life and L&H companies wrote USD 11.8 billion (33% of total) and
USD 7.6 billion (21%), respectively (see Figure 6). Another USD 14 billion (39%)
was written by specialised health insurers.

Figure 6:
Shares of PMI by carrier in emerging
markets, 2013E
Total:
USD 36 billion

Non-life
L&H
Composite
Specialised health insurers

32.7%
21.0%
7.5%
38.8%

E = estimates.
Source: Swiss Re Economic Research&Consulting.

PMI penetration in the emerging


markets is generally very low.

Figure 7 shows the penetration rate (PMI as a percentage of GDP) in the major
emerging markets in 2012, compared to total healthcare expenditure as a
percentage of GDP. Brazil spends most on healthcare and also has the highest PMI
penetration rate.33 This is due to the success of specialised health insurers there.
Mexico, Chile and Colombia also have relatively high PMI penetration rates, and
advanced healthcare infrastructure. In Central and Eastern Europe (CEE), total
healthcare expenditure is also high but comes mostly from government coffers,
which explains the low PMI penetration rates in individual countries. In Emerging
Asia, both PMI penetration and total healthcare spending are low.

33 In Brazil, PMI mainly refers to medical insurance policies issued by so-called specialised insurance
operators, and excludes PHI issued by other institutions like self-managed operators, philanthropic
groups, medical cooperatives etc.

16 Swiss Re sigma No 1/2015

Figure 7:
PMI premiums and total healthcare
expenditure as % of GDP in select
emerging markets, 2012

10%

Total health expenditure as % of GDP

9%
8%

Brazil
Hungary

Czech Republic

7%
6% Vietnam
5%

Poland
China

Turkey

Philippines

4%

Russia

Israel
Mexico

India
Malaysia

3%
2%

Chile

Colombia

Saudia Arabia

Thailand

Indonesia

0.0%

UAE

0.1%

0.2%

0.3%

0.4%

0.5%

PMI as % of GDP
Source: WHO, Swiss Re Economic Research&Consulting.

However, PMI premiums have increased


at a real annual average rate of 11.2% in
the past decade.

Table 2:
Direct PMI premium volumes by region,
in USD billions

PMI penetration in the emerging markets remains low, but premiums have been
rising rapidly over the last decade. Between 2003 and 2013, premiums rose by a
real compound annual growth rate (CAGR) of 11.2%, compared to 3.5% globally.
In terms of geographical volume distribution, Latin America was the leader with
premiums of USD 14.9 billion (41% of emerging market total) in 2013. Of the
remaining USD 9.4 billion (26%) came from Emerging Asia, USD 7.4 billion (21%)
from the Middle East and North Africa, and USD 4.3 billion (12%) from CEE.

Emerging markets
Latin America
Central&Eastern Europe
MENA
Emerging Asia
World

Direct PMI
2003

Direct PMI
2013E

Real CAGR
20032013E

5.4
3.6
0.1
0.6
1.0
518.7

36.0
14.9
4.3
7.4
9.4
1005.2

11.2%
6.8%
12.1%
18.9%
19.0%
3.5%

Note: MENA = Middle East&North Africa, including also Turkey. Figures include premiums from L&H,
non-life insurers, composite and specialised health carriers. E = estimate.
Source: National insurance regulators, Swiss Re Economic Research&Consulting.

PMI is in the early stages of development


in Emerging Asia

and Third Party Administrators are


increasingly being used.

Emerging Asia
Medical insurance premiums in Emerging Asia have grown by a real CAGR of 19%
over the last decade, but the industry is in very early stages of development. Many
governments have earmarked PMI as a key growth area. China and India, for
example, are encouraging the establishment of stand-alone or specialised health
insurers. In recent years, India has improved regulations governing health insurance,
focusing on standardisation and transparency. In China, PMI operates alongside a
rapidly expanding SHI scheme.
In both China and India, a niche segment serving high-end customers is emerging
while in emerging Asia generally, the use of Third-Party Administrators (TPA) is
becoming more common. A TPA is an administrator enlisted on behalf of an insurer
to administer claims and other functions in the insurance value chain, the aim being
to better align the interests of medical service providers and control costs.

Swiss Re sigma No 1/2015 17

The PHI market in emerging economies

Latin America has a relatively large PMI


sector, but there is still a lot of unmet
demand.

PMI has not been a big hit in CEE yet,


other than in Russia.

There is a lot of private spending on


healthcare in MENA, mostly out-ofpocket. Micro-health insurance will
be a mainstay in SSA.

Profitability in PMI can vary depending


on the regulatory and market
environment.

Latin America
In Latin America, medical insurance premiums have been growing by a real CAGR of
6.8% since 2003. Large parts of the health sector in the region were privatised in
reforms in the 1990s (Chile initiated reforms much earlier, in 1981). Apart from more
people taking up private insurance, the growth of the PMI industry has also been
driven by escalating healthcare costs pushing up PMI premiums. However, the initial
flourish of the industry in the 1990s and associated rise in number of foreign insurers
in the market has not yielded sufficiently larger access to better healthcare, nor
better insurance products. Brazils universal health system, for example, struggles to
meet the needs of all. Many citizens feel insecure with the limited cover they have,34
and constraints on health insurance underwriting in the form of mandatory restriction
on risk selection means there is little innovation and a lack of incentive to control
costs. Argentina, Chile, Colombia and Peru similarly have large healthcare coverage
gaps.
Central and Eastern Europe
In CEE, PMI has yet to become an important channel of healthcare payments. In
many countries, PMI schemes were introduced in the course of the transition to
market-based economies in the 1990s, supported by health sector reforms and
state-driven pilot programmes to establish PMI as a pillar of the healthcare system
(for example, in Estonia and Hungary). In an environment of escalating healthcare
costs, contributions to private prepaid schemes have increased in many countries in
recent years. Even so, PMI penetration generally remains low. Russia, the largest
market, accounts for over 80% of total PMI premiums in the region.
Middle East and Sub-Saharan Africa
Private expenditure is an important source of healthcare finance in the Middle East
and North Africa, but PMI is a relatively new phenomenon: only Saudi Arabia, UAE,
Israel and Turkey have a sizeable PMI industry. Out-of-pocket payments account for
the bulk of private spending. In Sub-Saharan Africa (SSA) excluding South Africa, a
very small percentage of the population has PMI, and premiums and the breadth of
cover are small. Micro health insurance schemes have been introduced in Burkina
Faso, Cameroon, the Ivory Coast, Ghana, Guinea, Mali, Nigeria, Senegal, Tanzania,
Togo and Uganda. The schemes offer less-comprehensive cover than PMI and the
resulting premiums are low in comparison. Micro health insurance is likely to become
a building block in the financing of future health expenditure in this region.
PMI profitability in emerging markets
The role, regulatory regimes and profitability of PMI in different markets varies
significantly. For example, supplementary and complementary PMI is typically less
regulated than primary and duplicate systems. And competitive pressures in
supplementary PMI tend to be lower because consumers usually stay with an insurer
for many years (existing health issues can make it difficult to switch providers).
Hence loss ratios in supplementary PMI tend to be lower.35 In India, in contrast,
where PMI is largely primary in nature, profitability has remained low. The sector loss
ratio has consistently been above 90% (see Figure 8). PMI premiums have grown
significantly in the past 10 years, but claims have also been high.

34 Brazil Customer Survey Report 2013 Capturing Future Opportunities, Swiss Re. The survey showed
that 40% of Brazilians fear that they would suffer and struggle financially if they were affected by a
long-term illness or disability.
35 Theloss ratiois the ratio of total losses incurred (paid and reserved) in claims plus adjustment expenses
divided by the total premiums earned.

18 Swiss Re sigma No 1/2015

Figure 8:
Loss ratio and real growth rate of
medical insurance industry in India

140%

70%
60%

120%

50%

100%

40%

80%

30%

60%

20%

40%

10%

20%
0%

0%
2006

2007

2008

2009

2010

2011

2012

Medical insurance premiums, real growth rate (LHS)


Loss ratio (RHS)
Source: Insurance Regulatory&Development Authority of India (IRDA), Swiss Re Economic
Research&Consulting.

However, the reserves required to write


PMI tends to be low and profits come
early.

From an insurers perspective, medical insurance is typically high-frequency and low


severity in nature, and thus has a relatively low reserve requirement. Profits emerge
early, in contrast to traditional life insurance where profits materialise many years
after inception. Premiums are usually collected in monthly or quarterly payments,
providing the liquidity to help insurers cover claims and expenses. Another key
feature of PMI is the need to align the interests of various stakeholders in the
healthcare value chain, which requires strong management skills and technical
expertise on the part of the insurers. The large number of policies and sub-limits
typically help insurers manage exposure. However, financial losses can still occur in
times of peak claims (eg, pandemics) or because of unexpected market changes.

Fixed-benefit health insurance in emerging markets


Fixed-benefit health insurance products
are increasingly attractive in some
emerging markets.

Critical illness insurance is popular in


some Emerging Asia markets including
China.

Insurers are also exporting successful


practices from advanced markets to
Emerging Asia.

Fixed-benefit health insurance is also developing rapidly in some emerging markets,


though overall indemnity-type products generally remain more common. The major
fixed-benefit products include critical illness and hospital cash, and LTC insurance is
available on a limited base. The market setting of fixed-benefit health insurance in
key emerging regions is discussed below.36
Emerging Asia
Critical illness insurance is the main fixed-benefit product in Emerging Asia where,
in some markets, it is more popular than indemnity-type medical insurance. Critical
illness cover is available on a stand-alone basis and as a rider to life policies. Strong
competition has prompted insurers to offer more comprehensive product features
including guaranteed renewal and refund-of-premiums at maturity. The number of
conditions included in critical insurance policies has also been increasing. Critical
illness insurance is particularly popular in China among young consumers looking
for an income protection vehicle, and among older consumers who use it to insure
against unexpected medical expenses. In Southeast Asia, there have been concerns
about the perceived high cost of critical illness insurance, and also that the products
are complex and difficult to understand. Hence, a strong agency network to market
and explain the products to consumers is critical and overall, the market is reported
to have grown strongly over the past few years.
Cancer insurance has attracted interest in many Emerging Asian markets following
the success of, for example, senior cancer products in South Korea and relapse
cancer products in Japan. Nevertheless, consumers in Emerging Asia still tend to
prefer policies that offer premium refunds and comprehensive coverage. Hospital
36 Information on fixed-benefit health insurance products in this section is based mostly on interviews.

Swiss Re sigma No 1/2015 19

The PHI market in emerging economies

cash is also available in most emerging Asian markets, usually as a rider to life or
medical insurance policies, although standalone policies are available. Hospital cash
is generally regarded as an affordable alternative to PMI, and there is wide variation
in benefit levels and payment periods.
LTC insurance is undeveloped.

Critical illness insurance is developing


slowly in Latin America.

Lack of health infrastructure is one


reason for the lack of development
of traditional LTC insurance.

In CEE markets, critical illness insurance


is gaining acceptance.

Hospital cash plans are also readily


available...

20 Swiss Re sigma No 1/2015

The least developed product in the region is LTC insurance, which is currently
available on a fixed-benefit basis in China only. The Chinese market is small but with
a fast-ageing population, many insurers see potential. Some have been investing in
retirement villages as a means to expand their reach into the old-age care market.
Latin America
In Latin America, critical illness insurance is available and is usually considered to
be an alternative or supplement to medical insurance. It comes as a rider to life
insurance products, particularly in group insurance. Due to the wide coverage of
existing medical insurance products, the development of critical illness insurance
has been slow in many markets. In Brazil, for instance, premiums from critical or
terminal illness cover (doenas graves ou doena terminal) provided by life carriers
amounted to USD 190 million in 2013, less than 1% of total life insurance premiums.
Most products currently offer low benefits and are only for specific medical conditions
(usually five to seven). Insurers are not yet ready to offer long-term guarantees and
most products are relatively short-term in nature. Key obstacles to the development
of the segment are lack of data and consumer awareness, and an unfavourable
commission structure that discourages agents from selling pure protection products.
There is also a need to standardise definitions of critical illnesses. The segment is
seen as having strong growth potential, particularly in more advanced Latin
American markets.
Hospital cash is available as a daily cash benefit or loss of income protection, and is
increasingly being distributed by banks and as microinsurance. In comparison, LTC
insurance is virtually non-existent in Latin America. For example, in Brazil nursing
homes exist almost solely in major metropolitan areas and are mainly supported by
religious institutions.
Central and Eastern Europe
Critical illness insurance products are relatively well developed in many CEE markets,
as a result of rising health awareness and increasing incidence of major illnesses.
Against the backdrop of relatively comprehensive coverage of social security
benefits in most CEE markets, health insurance is mainly used to finance advanced
and additional treatments not covered by the public healthcare system. Critical
illness covers are usually sold as riders to endowment and unit-linked life policies,
while standalone policies are also available. The more difficult economic environment
over the past few years has encouraged a shift from savings to protection products,
thus supporting the popularity of health insurance products. The number of covered
illnesses varies by market, but more complex products are increasingly available, as
agents (the main distribution channel for critical illness products) demand more
conditions to increase product attractiveness to consumers. Additional features like
multiple payments are also available in some markets, for example Poland.
Hospital cash benefit plans are also readily available in most CEE markets. The
plans are sold on both an individual and group basis as riders to life policies or as
standalone cover. Given the relatively comprehensive social security benefits, there
is limited financial need for hospital cash insurance and many consumers prefer
other protection products like critical illness insurance. The main type of cover
provides a daily allowance during a hospital stay (up to a maximum sum assured)
due to illness or an accident.

but LTC insurance is still relatively


limited.

Critical illness insurance is still in


its infancy in SSA.

Hospital cash and LTC insurance are


also immature products.

Insurance agents are the main


distribution channel for private health
insurance products...

At present LTC insurance products are generally not available in CEE. State provision
of old-age care is available in some markets. For example, the Czech Republic provides
LTC medical care through a mixture of domiciliary care and nursing homes. The
Czech government has signalled an intention to develop LTC insurance.
Sub-Saharan Africa
Critical illness insurance is not widely available in SSA. Limited covers can be bought
as a rider to a life or personal accident policy, usually on a group basis. A lump sum
benefit is paid in the event of an insured being diagnosed with one of a list of critical
illnesses. These usually include cancer, hepatitis, stroke, coronary artery failure, renal
failure and leukaemia.
Hospital cash benefit is likewise a small segment in SSA, as the health insurance
market is dominated by indemnity-type covers. Hospital cash is available in some
markets such as Zimbabwe, Kenya and Nigeria, as an optional rider on a life or
personal accident policy. Most SSA governments have no provision for LTC, and
private facilities or insurance schemes are very limited. LTC insurance is unlikely to
gain popularity in the near future as the extended family, in which family members
look after the elderly and other members with long-term illnesses, plays an important
role in the local cultures. Moreover, the health insurance and pension provisions
systems in the region would need to be developed much further before attention is
turned to LTC insurance.
Distributing health insurance in emerging markets: challenges faced
Whether reimbursement or fixed benefit, there are challenges in executing effective
distribution of health insurance products in the emerging markets. A fundamental
issue is lack of knowledge about health insurance distributors/providers and the
benefits that PHI can offer, on the part of the consumer. From the outset, this acts as
a constraint on demand.37 It also highlights the importance and prevalence of the
use of insurance agents to distribute health and medical insurance products. Studies
have also shown that consumers in emerging markets generally prefer agents to
other channels when seeking information on health insurance and when actually
purchasing cover.38 Agents can better explain the benefits and coverage available to
potential customers, while also taking into consideration their other insurance needs.
At the same time, consumers can feedback to insurers their needs and requirements
through agents. In some Latin American markets, this feedback loop has underpinned
the rise in number of conditions included in critical illness products.

but a problem can be that agents get


better commissions from selling
savings-type products.

However, a common challenge can be agents reluctance to sell stand-alone risk


products when their commission structure favours sales of higher premium savings
products. This is compounded by perceptions that PHI policies require more aftersales services given the higher probability of claims compared to traditional life
products. Insurance companies have started to better incentivise agents in order to
promote the distribution of more protection products. Non-agent channels are also
being explored to reach a wider segment of the uninsured population.

Insurance firms are exploring other


channels, including telemarketing and
online distribution.

Telemarketing and online channels are suitable for the distribution of some simple
health insurance products. For example, hospital cash is widely distributed through
telemarketing and online in many emerging markets because the product comes
with standardised features and is easy to understand. In some less developed
markets, insurers have made use of mobile technologies to distribute simple health
insurance products to mobile phone subscribers.39 The use of bancassurance to
deepen penetration has so far had limited success, given that banks are usually more
eager to sell deposit-substitute than pure protection products.

37 See Asia Medical Survey 2014, Swiss Re.


38 See Spotlight on Distribution in Asia: Consumer Channel and Product Preferences, 2014, Swiss Re.
39 See Box: Examples of innovation in solution and strategy, p 27.

Swiss Re sigma No 1/2015 21

Outlook: better health for more people


Private health insurance growth prospects in emerging markets
PMI premiums will grow by around 10%
per annum through 2020

As an indication of the market potential, reimbursement-type medical insurance


premiums in emerging markets are forecast to grow by around 10% per annum in
the period 2013 to 2020, significantly outpacing the 3.2% rate of increase of global
medical insurance premiums (see Table 3). The growth in demand will be driven by
economic and population expansion, urbanisation, technological progress and aging
populations. Of the different emerging regions, premiums are expected to grow most
in Emerging Asia due to rapid economic development and an expanding middleclass, followed by MENA, Latin America and CEE.

as demand for tailor-made healthcare


services increases alongside economic
growth.

The projected growth in PMI premiums reflects the difficulties emerging markets
will increasingly face with their current over-reliance on state spending and out-ofpocket payments to pay for a functioning healthcare system. The challenges include
lack of incentives to contain costs and higher financial risk to individuals and
households due to unexpected medical expenses. The projected growth in premiums
also reflects the anticipated greater expectations as to the diversity and quality of
healthcare services available that will come as the middle class expands.

Table 3:
Premiums in USD billion and projected
growth of PMI in emerging markets

Emerging markets
Latin America
Central&Eastern Europe
MENA
Emerging Asia
World

Direct PMI
2013E

Direct PMI
2020F

Additional
premiums
20132020F

Real CAGR
20132020F

36.0
14.9
4.3
7.4
9.4
1005.2

78.8
25.3
6.2
15.6
31.8
1475.7

42.8
10.4
1.9
8.2
22.4
470.5

9.6%
6.2%
5.0%
9.7%
15.4%
3.2%

Note: Figures include premiums of both L&H and non-life insurers. E = estimate, F = forecasts.
Source: National insurance regulators, Swiss Re Economic Research&Consulting.

The authorities can promote the growth


of PHI in emerging markets

Government initiatives and regulations


The authorities can facilitate the development of PHI as an integral pillar of a
sustainable healthcare system with different initiatives. For instance, they can
proactively promote PHI products through consumer education, dispute resolution,
as well as tax and other subsidies to lower the effective premiums paid by consumers.
Governments can help increase insurance supply by offering preferential treatment
for specialised health insurers, such as less onerous business registration and capital
requirements. Furthermore, governments can incentivise insurers and the medical
services industry to co-develop health management schemes with an aim to
improve efficiency and contain cost escalation.

or constrain the share of PHI in the


overall delivery of healthcare services.

Countries take different views on how much healthcare should be publicly funded.
The more healthcare is provided through government and SHI programmes, the
smaller the market available for PHI. Nevertheless, PHI can expand the scope of
healthcare via supplementary and complementary schemes which increase
consumers options. Emerging markets can benefit from the wider use of PHI from
current extreme low levels through more conducive regulations, for example if
regulations do not limit insurers ability to price and underwrite health risks properly.

Insurers sometimes participate in SHI


schemes as administrators.

When private insurers participate in SHI schemes, their involvement is usually


heavily regulated. Insurers may be limited in their ability to refuse risks or preconditions. In some instances, private insurers are enlisted to help with the
administration of the insurance scheme but do not share the insurance risk, which is
borne by the state or municipal governments instead. This is the case in Russia
where mandatory health insurance was introduced in 1993. The scheme is financed
mainly by the government and administered by health insurers, who do not take any
insurance risk.

22 Swiss Re sigma No 1/2015

In India, regulations created in 2013


should benefit insurers in the long run,
although they may inflict some shortterm pain.

In February 2013, the Indian regulator IRDA issued the Health Insurance Regulations,
applicable to all kinds of health, personal accident and travel insurance products sold
by any insurance company (life or non-life) in India. The regulations require, among
other, that all health insurance products henceforth be renewable for lifetime,
without any maximum age cap. At the same time, health insurance shall ordinarily
allow anyone below age 65 to obtain coverage, insurers must pay at least 50% of
the pre-insurance medical check-up fee, and premium rates for renewals cannot
be based on individual policy claims experience. From a medium- to long-term
perspective, the regulations can be seen as a positive for Indias insurers. They
challenge the issues faced by the sector in a structured way, and provide more clarity
and transparency to all stakeholders involved. This will, eventually, help build
consumer trust and demand for health insurance products. However, in the short
term, health insurers will need to adjust their products/practices to comply with the
new regulatory environment, and may also suffer a slowdown in premium growth.

Public-private partnerships can also help


extend PHI penetration.

Public-private partnerships have also been gaining traction recently. With the ability
to change regulations and provide financial subsidies, governments can help health
insurers increase penetration, particularly in remote locations and for the poor who
would otherwise not be able to afford insurance. The proliferation of health microinsurance is one example of public-private partnership helping to reduce the
vulnerability of the poor from unexpected medical expenses.

China says PHI will be a central pillar of


the social security system.

It will also promote innovation and foreign


investment in PHI in the Shanghai Pilot
Free Trade Zone.

Knowing the consumer can inform


intelligent PHI product design.

Regulatory support to develop the health insurance market in China


In a directive published in August 2014, the State Council of China vowed to
incorporate PHI as a pillar of Chinas social security system. According to the
directive, PHI will become a key channel of healthcare spending for individuals and
families, insurers will become major service providers of enterprise health insurance
schemes, and the State Council will support qualified enterprises to set up their own
commercial health insurance schemes to supplement the governments health
insurance scheme. Preferential tax treatment related to health insurance is under
consideration as well.
In addition, as part of Chinas initiative to establish and develop the Shanghai Pilot
Free Trade Zone (FTZ), in September 2013 the China Insurance Regulatory
Commission (CIRC) announced preferential treatment for health insurers within the
FTZ.40 In particular, the CIRC commits to supporting the establishment of foreigninvested professional health insurance institutions in the FTZ and innovation in
insurance products. The CIRC has also granted insurers in the FTZ first-ever rights
to develop insurance clauses, with members allowed to use such clauses at their
own discretion after making relevant filings with the regulator.41 These measures are
expected to encourage the development of innovative PHI products and increase
uptake of PHI in the FTZ. Successful PHI models could be replicated nationwide in
the future, which could boost PHI penetration in China.
Understanding the consumer to extend the reach of PHI
Consumer preferences and behaviours play an important role in the purchase of PHI.
Cultural factors and differences in risk aversion across national contexts may account
for different inclinations to buy medical and health insurance. Forging deeper
understanding of local consumers can help extend the reach of PHI. Along these
lines, a 2013 survey reviewed consumer attitudes towards medical reimbursement
products in China, Hong Kong, India, Indonesia, Malaysia and Thailand. The survey
covered 2561 respondents aged 20 to 70 years.42 The highlights show that there is
high awareness of medical reimbursement insurance in most markets (see Figure 9),
40 Opinions of the China Insurance Regulatory Commission to Support the China (Shanghai) Pilot Free
Trade Zone, CIRC, September 2013, http://www.circ.gov.cn/web/site0/tab5207/info3870375.htm
41 CIRC notice of additional measures to support the Shanghai Pilot Free Trade Zone, CIRC, May 2014,
http://www.circ.gov.cn/web/site0/tab5168/info3915906.htm
42 Medical Insurance: from awareness to protection, Swiss Re, 2014

Swiss Re sigma No 1/2015 23

Outlook: better health for more people

but levels of ownership vary significantly. There is a large gap between high
awareness and low ownership of PHI in India, Indonesia and Thailand in particular.
The reasons given for low uptake were affordability, lack of understanding of
products and the availability of state provisions. The responses point to a market
opportunity for simple, easy-to-issue and affordable products in these countries.

Figure 9:
Awareness and ownership of medical
reimbursement insurance in Asia, 2013

100%
80%
60%
40%
20%
0%
China

Hong Kong

India

Awareness

Indonesia

Malaysia

Thailand

Medical reimbursement plan ownership

Source: Swiss Re Asia Medical Survey 2014.

For example, upgrading existing


products with comprehensive cover
features could increase uptake in
already high-ownership markets.

Many respondents in China and Malaysia said they had medical reimbursement
insurance policies. However, out-of-pocket expenditure and family support are still
the main channels of healthcare financing in these markets, pointing to possible low
reimbursement rates and limited coverage from existing products. The high
ownership rates likely reflect the sample population, as many respondents were from
major urban centres where insurance penetration is generally higher than average.
Another finding was that respondents in these markets showed a high intention to
purchase a new medical policy or upgrade existing policies in the next 12 months.
To take advantage of these findings and extend their reach, insurers could introduce
comprehensive coverage features such as hospital networks and semi-private
rooms, and maximise the sum insured for consumers at a price they can afford.

Disease-specific reimbursement
products could also boost sales.

Respondents also expressed concern about their ability to pay for medical expenses
in the case of critical illness. In China, for example, only 9% of respondents said they
were confident that they would be able to afford the costs of cancer treatment if
they were to be hit by the disease. This suggests disease-specific reimbursement
products with a focus on critical conditions, and backed by a range of added
wellness and service solutions, is another area where insurers could do more.

24 Swiss Re sigma No 1/2015

Figure 10:
Intention to buy reimbursement medical
insurance in the next 12 months in Asia

80%
60%
40%
20%
0%
China

Hong Kong

India

Indonesia

Malaysia

Thailand

Non-owner of medical reimbursement insurance


Existing owner of any medical reimbursement insurance
Source: Swiss Re Asia Medical Survey 2014.

Value-added PHI cover features are


popular among consumers in many
emerging markets.

Insurers are already taking steps to


capitalise on the emerging market
opportunity.

Finally, respondents in all markets showed a very high level of interest in almost all
of the value-added cover options such as family package benefits, optical and
dental benefits, guaranteed renewability, maternity benefits and gym membership.
Consumers are willing to pay extra for improved products, and value-added services
are highly prized, suggesting another avenue through which insurers could further
extend the reach of PHI.
Building penetration through innovation and efficiency
Private insurance can help sustain and improve the quality of healthcare in emerging
markets. Many insurers have already taken actions to capitalise on the business
opportunity open to them. These include cross- and up-selling to allow preunderwritten offers of new products or riders for existing policyholders, maintaining
more regular contact with clients to better understand their needs, and steps to
improve underwriting processes and pricing.

Innovation can accelerate the growth of


the PHI market.

Health insurers have also been innovating to broaden their reach. Innovations span
the entire value chain including product development, sales and distribution,
underwriting, claims, payment systems and customer services. Insurers have
reached new clients through phone marketing and sales, pricing products in line
with a target segments willingness and ability to pay, and by designing products
that encourage preventive health measures.

An example is the potential use of


telemedicine to lower the cost of
delivering healthcare services.

Information and communication technologies also have potential to address some of


the challenges in providing accessible, cost effective, high-quality healthcare and
insurance. For example, telemedicine uses information and communication
technologies to provide clinical healthcare from long distances. This is particularly
beneficial for rural and underserved communities in developing countries groups
that traditionally suffer from lack of access to health care.43 Health insurers are
beginning to take advantage of these innovations to help to improve penetration,
though currently this is only at an infant stage of development.
Services provided by telemedicine include:44
Primary care and specialist referral services. When a primary care physician or a
specialist provides consultation to a patient via live interactive video, transmission
of diagnostic images, vital signs, video clips and other patient data electronically;

43 Telemedicine: opportunities and developments in Member States report on the second global survey
on eHealth, WHO, 2010, p 6, http://www.who.int/goe/publications/goe_telemedicine_2010.pdf
44 What is Telemedicine?, American Telemedicine Association, http://www.americantelemed.org/
about-telemedicine/what-is-telemedicine

Swiss Re sigma No 1/2015 25

Outlook: better health for more people

Remote patient monitoring. This includes using devices to remotely collect and
send data to a remote diagnostic testing facility for interpretation. Such services
can be used to supplement the use of visiting nurses; and
Health education. The use of wireless devices and online discussion groups by
consumers to obtain health information. It also involves continuing medical
education credits and special medical education seminars for health professionals
in remote locations.

In Nigeria, health insurance is sold


through mobile phones.

Mobile payments will significantly extend


the reach of PHI.

In Guatemala, product design based


on client segmentation

is helping micro insurers reach more


consumers.

Examples of innovation in solutions and strategy


Example 1 Nigeria: health insurance through mobile phone subscriptions45
In July 2014, Salt&Einstein MTS, a mobile financial service aggregator and MTN
Nigeria, a phone operator, entered into partnership with the National Health
Insurance Scheme of Nigeria to launch Yello Health. This is a mobile health
insurance product giving subscribers access to pre-defined medical treatments
at an accredited Health Maintenance Organisation (HMO) of their choice.
Yello Health covers basic outpatient care and minor surgery on a pre-paid basis for a
period of one year at a premium of NGN 35 per day (USD 0.21), NGN 250 per week
(USD 1.50) or NGN 1000 per month (USD 6.00).46 Premiums can be paid through
subscribers mobile phones via their unique MTS service IDs. Payment is easy and
flexible, and the scheme is expected to significantly extend the reach of health
insurance throughout Nigeria, particularly in rural areas and to the previously underand uninsured.
Example 2 Guatemala: client segmentation in micro-insurance product design47
In November 2010, Aseguradora Rural, S.A. (Rural Insurance) in Guatemala initiated
the Aseguradora Rural Project. The focus was to design health micro-insurance
products to meet the needs of Banrurals different client segments. Banrural is
Guatemalas leading microfinance bank. The project categorised clients as follows:
(1) micro-credit clients who are small-scale entrepreneurs and live in nonmetropolitan areas; (2) women, mostly housewives and entrepreneurs, from urban
and rural areas; (3) recipients of overseas remittances; (4) recipients of the national
programme of conditional cash transfers; and (5) users of a village banking scheme.
Extensive research was conducted into the characteristics and needs of Banrurals
clients. Focus groups, interviews, medical care statistics and analysis of clients
socio-economic and epidemiological profile, lifestyle, financial behaviour and
attitudes towards insurance were used to identify potential market segments and
product coverage. Clients opinions about the coverage offered, past medical
experiences and their willingness to pay for these services were also incorporated
into product design. The aim was to develop a range of health micro-insurance
products for at least two client segments in two years, with an expectation that at
least 15% of Banrurals total 55000 client base would purchase health microinsurance. The outcome was much better: by the end of January 2013, the number
of policies issued was 12453 (ie, to 22% of the banks clients) and there were only
735 cancelations.

45 MTN Nigeria, Salt&Einstein MTS Launch Yello Health mHealth Insurance Scheme,
www.govtechnology.com, 21 July 2014, http://www.govtechnology.com.ng/top-story/1810/
mtn-nigeria-salt-einstein-mts-launch-%E2%80%9Cy%E2%80%99ello-health%E2%80%9D-mhealthinsurance-scheme/#sthash.WLMNTb9N.dpuf; MTN Nigeria partners NHIS to introduce Mobile Health
Insurance Scheme, www.businessdayonline.com, 28 July 2014, http://businessdayonline.
com/2014/07/mtn-nigeria-partners-nhis-to-introduce-mobile-health-insurance-scheme/
46 NGN 1 = USD 0.006
47 Health and life micro insurance products to Banrural clients in Guatemala, Micro Insurance Innovation
Facility, April 2013, http://www.impactinsurance.org/projects/lessons/health-and-lifemicroinsurance-products-banrural

26 Swiss Re sigma No 1/2015

Building awareness also helps.

In Bangladesh, educating consumers has


increased willingness-to-pay for PHI.

Another way to extend the reach of healthcare insurance in emerging markets is


through public education on health and medical insurance matters. For most lowincome households, the concept of insurance to protect against the cost of illness,
accident and extended ill health is new, untested and not well understood. Education
programmes can be used as a tool to spread knowledge and uptake of health
insurance.
Educating consumers in Bangladesh about health insurance48
Educating consumers increases willingness-to-pay for and knowledge of health
insurance, according to a study conducted by the International Centre for Diarrhoeal
Disease Research of Bangladesh. Informal sector workers were invited to attend
education sessions held once a week between December 2010 and April 2011.
The sessions included workshops and discussions on health conditions, healthcare
spending, facilities, insurance mechanisms and utility of health insurance. After the
teach-ins had been completed, surveys showed that willingness-to-pay for health
insurance was 34% higher among those who had come along to the sessions than
among those who did not, suggesting that education can help generate more
demand. The study also demonstrates that education should be comprehensive,
including explanation of what health insurance is and involves, and should address
the healthcare needs of the target audience group in order to build consumer trust.

Trends in PHI in emerging markets


Insurers are increasingly taking
ownership of cost control in their
medical management strategies.

A key value proposition of PHI is private insurers expertise in improving the quality of
medical service and cost containment. These in turn depend on aligning the interests
of different stakeholders through the medical services value chain. On the demand
side, this can be done by incorporating a blend of deductibles, co-payments and
attractive rates into product design. On the supply side, network management can
make a difference. There has been vertical integration in some emerging markets
with insurers purchasing ownership stakes in upstream suppliers, and this trend is
likely to continue. Further, insurers are increasingly assuming cost containment as
part of their medical management strategies. Holistic risk and medical management
will likely become standard practices as the market develops.

Figure 11:
The three areas of medical management
by insurers

Pre-admission

Medical information
Nurse line
Telemedicine
Pre-authorization
Screening
Wellness

Provider
management
List of preferred
providers
Preferred rates
Value added services
Protocols
Performance review
and audit

Post-diagnosis
management

Disease management
Efficacy
Safety
Cost
Post-diagnosis review

Source: Swiss Re Economic Research&Consulting.

48 Jahangir A. M. Khan, Impact of education on informal workers willingness-to-pay and knowledge of


health insurance, International Centre for Diarrhoeal Disease Research Bangladesh, March 2012.

Swiss Re sigma No 1/2015 27

Outlook: better health for more people

Insurers are using pre-admission


management to keep people healthy.

Medical management has already evolved significantly in the advanced markets,


partly in response to rising healthcare costs and tightening fiscal budgets. Now
insurers in emerging markets are assuming a larger role in medical management
also. For example, different aspects of the pre-admission stage in medical
management have been identified as having a positive impact on containing claims.
Discovery, an insurer in South Africa, has successfully introduced an incentive-based
wellness programme called Vitality which offers discounts on vacations, flights and
consumer products to members who lead healthy lifestyles. Measurable outcomes
of the programme include a reduced number of hospital admissions, member
satisfaction and profitable growth.49

Provider management by insurers


can improve the services provided
at healthcare facilities.

Insurers are also focusing on other parts of the medical management value chain
such as provider management. Here the intention is to align the interests of the
medical service providers (MSPs) with that of the insurer and insureds to make
the delivery of health services more efficient. As an example, a drug maker and a
reinsurer in China jointly developed and marketed a health insurance product that
covers advanced cancer drugs and treatment (see Box below).

An example is cooperation between


Swiss Re and Roche

A drug maker and reinsurer provide a cancer insurance solution in China


Pharmaceutical companies that develop new generation of drugs and treatments for
cancers are eyeing expansion in emerging markets. However, the high cost of their
cancer drugs and treatments put them out of reach of many people.50

offering affordable cancer product


insurance solutions to emerging market
customers who otherwise could not pay
for expensive treatments.

In a novel approach to address this problem, Swiss pharmaceutical company Roche


and Swiss Re established a health insurance partnership to provide innovative fixedbenefit cancer insurance solutions in China. Under the partnership, Swiss Re
provides technical support to local Chinese insurers on product design, pricing and
reinsurance support, while Roche provides health data needed to set up the policies,
and marketing support including training for the sales force and health seminars for
end consumers. A basic cancer insurance product is priced at an affordable annual
premium of USD 50. As of April 2013, 10 out of the top 20 insurers in China were
providing cancer insurance products under the Roche-Swiss Re programme.51

Post-diagnosis utilisation management


by insurers can help people better
manage disease progression.

Finally, insurers are also looking at utilisation management, including disease


management, which represents a system of coordinated healthcare interventions
and communications for populations with conditions in which patient self-care
efforts are significant.52 Disease management programmes have been introduced
in developed countries, such as the chronic disease management programmes in
Australia (see box below) and many other advanced markets. The models could be
adopted by insurers in emerging markets also.

49 Audited results and cash dividend declaration for year ended June 2014, Discovery, 2014 https://
www.discovery.co.za/discovery_coza/web/linked_content/pdfs/investor_relations/2014_annual_
results_presentation.pdf
50 Roche Seeks Insurance Policy for the Chinese Market, The Burrill Report, 13 November 2012, http://
www.burrillreport.com/article-roche_seeks_insurance_policy_for_the_chinese_market.html.
51 Roche to boost cancer drug sales in China with Swiss Re health insurance partnership, HIS,
15 November 2012, http://www.ihs.com/products/global-insight/industry-economic-report.
aspx?id=1065973425. See also Li Hong, Gordon G. Liu and C. Glaetzer, Financing Innovative
Medicines in Mainland China: The Role of Commercial Health Insurance, 16 July 2013, p 131
52 http://en.wikipedia.org/wiki/Disease_management_(health)

28 Swiss Re sigma No 1/2015

Australia introduced a series of


healthcare reforms in 2007...

Chronic disease management in Australia53


In 2007, Australia underwent a series of private healthcare reforms, including the
introduction of the Broader Health Cover (BHC) programme.

including disease management


programs...

A key feature of BHC is chronic disease management programmes (CDMPs) to help


insureds reduce their health risk factors, better manage their health status and delay
disease progression. CDMPs involve the development of written treatment plans,
such as stop-smoking, weight-loss and stress-management programmes. CDMPs
can be directly provided by health insurers or contracted out to a service provider.
The health insurer defines the type, frequency and duration of a programme,
coordinates with the health professionals who deliver the associated services, and
monitors patient compliance. More recently, health insurers have been developing
and offering mobile health apps that support healthy lifestyles.

to help manage chronic diseases


among insureds.

The benefits of disease management programmes are manifold. Policyholders stay


healthier and are better able to manage chronic conditions. As a result, insurers face
fewer and less expensive claims, which in turn can lower health premiums.

Mono-line health insurance is a growing


business.

At the same time, taking heed of the unique business nature of health and medical
insurance, many emerging market regulators have chosen to incentivise participation
by allowing the formation of mono-line health insurers. For instance, in 2006 there
was only one mono-line health insurer in India. Now there are five, and there are more
in the pipeline. The business written by health mono-liners in India grew at real CAGR
of 89% between 2006 and 2012. Mono-line insurers are attracted to the market by
rising health costs, low penetration of health insurance and the focus on universal
healthcare. In China, meanwhile, the government is similarly offering preferential
terms and conditions to encourage healthcare institutions to set up as specialised
health insurers. That said, non-life and L&H insurers will continue to carry a full suite
of health products, thus ensuring the continuation of a diverse set of providers.

Insurers will also continue to make


more use of TPAs to better manage
the interests of all stakeholders.

Furthermore, health insurers will continue to use TPAs to better align the interests
of the different stakeholders in the value chain. TPAs are normally contracted by a
health insurer to administer services, including claims administration, premium
collection, policy enrolment and management of its network of healthcare service
providers. TPAs can provide policyholders with faster and focused claims
management, immediate access to highly trained claim administrators and access
to cashless services. TPAs can also enable insurers to lower overheads and claims
management costs, and better control possible fraud by the private healthcare
providers.

The role of TPAs often needs to


be clarified by regulations.

The use of TPAs has gained traction in many emerging markets over the past decade,
because it is difficult for new foreign and domestic players to manage the whole
medical management process (for example, build provider networks). However,
as markets mature, larger insurers will likely internalise TPAs to better manage costs,
as has been seen in some advanced markets like the US. Meanwhile, regulations
governing the operation of TPAs are still evolving. For instance, the 2013 Health
Insurance Regulations in India designate insurers, not TPAs, as the responsible party
for choosing participants in a hospital network. Furthermore, the onus of accepting
and rejecting claims lies with insurers. The TPAs will only administer and process
claims on behalf of the insurers. In the case of India, the responsibility of TPAs has
been significantly diluted but the added clarity afforded to the respective roles of
different stakeholders should foster more efficient cooperation in the future.

53 Chronic disease management: the role of private health insurance, Parliament of Australia, 4 October
2013, http://www.aph.gov.au/About_Parliament/Parliamentary_Departments/Parliamentary_
Library/pubs/rp/rp1314/ChronDisease

Swiss Re sigma No 1/2015 29

Conclusion
Demand for health insurance in emerging
markets is strong

Collectively, the emerging markets spent USD 1.6 trillion on healthcare in 2012, or
22% of the global total. Traditionally, most of that has come from government and
private household spending, but the role of private insurance as a channel of
healthcare spending has expanded in recent years. Demand for health insurance in
emerging markets is rising fast. Medical insurance premiums grew by an average
annual rate of 11.2% between 2003 and 2013 and are forecast to grow by around
10% each year up to 2020, with most demand coming from Emerging Asia. Even so,
the global share of emerging market private medical insurance premiums will be just
5.3% in 2020. There is and will be a large business opportunity for private health
insurance in these markets as household income levels rise in the coming years.

but public funds and private savings


cannot sustain the healthcare systems in
emerging markets.

Many emerging market governments recognise the need for a stronger PHI sector.
With rising concerns about fiscal sustainability, higher treatment costs, the greater
incidence of chronic diseases and rising consumer health expectations, the
traditional reliance on government coffers and household savings will become
increasingly strained. PHI can help make the use of scarce funds more efficient:
it offers individuals and households an alternative channel to pay their healthcare
costs by means of regular premiums into prepaid plans and the benefit of risk
pooling. This in turn reduces household financial vulnerability, and introduces
incentives to providers to improve the quality of care services and manage cost
escalation. Depending on its role in a national healthcare system, PHI also offers
more tailored and flexible choices to consumers.

The authorities need to make more use of


the PHI sectors expertise and capital to
manage societys future care needs.

In some countries, policymakers have introduced initiatives such as public-private


partnerships in micro insurance and regulatory changes to support growth of the
health insurance sector. To fully play their part in extending the reach of coverage,
insurers need to understand their own role in relation to other public-funded and
social health insurance schemes, and also design products that better meet
consumer needs. Innovative use of distribution channels and awareness campaigns
can also help. Insurers should also adopt proactive risk management strategies, at
the pre-admission stage, during treatment and in post-treatment utilisation analyses.

PHI is an integral part of a sustainable


healthcare system.

To grow the PHI sector is not an end in itself. PHI offers an alternative choice to help
consumers manage their spending on healthcare, and can be important in helping to
form sustainable national healthcare delivery systems. However, policymakers must
determine what role PHI should play in existing systems, and how it can develop to
better serve future needs. PHI is not the ultimate solution to the healthcare challenge
in emerging markets, but an important component of an integrated response.

30 Swiss Re sigma No 1/2015

Appendix
Private health insurance schemes in select emerging markets54
Asia
Market

Overview

China

As of 2013, the three pillars of 1. Urban Employee


Basic Medical
the national health insurance
Insurance (UEBMI):
scheme covered 95% of the
265 million people
total population. The target is
enrolled in 2013.
to increase that to 98% by
2015, according to the Report 2. Urban Resident
of the 18th National Congress.
Basic Medical
Insurance: 271
million people
enrolled 2013.
3. New Rural
Cooperative Medical
System: 805 million
people enrolled in
2013.
4. P
 HI: The private
sector is still small,
but growing rapidly.
Total premiums
were CNY 86.3
billion in 2012, up
25% from 2011.
1. Government/social
Public-sector healthcare
health insurance.
schemes dominate. The term
health insurance includes
medical insurance
(mediclaim) and health
insurance. Mediclaim is
reimbursement-type policies
generally sold by non-life
insurers; health insurance is
mainly critical illness and long- 2. State and Central
term care (LTC)-type plans,
government
sold mostly by life insurers.
employee health
The PHI sector has grown
insurance schemes.
rapidly since 2000, with
premiums up by an annual
average of 28.4% in 2001
3. Private health
2012. However, the growth is
insurance.
from a very low starting point.
Out-of-pocket payments still
make up a large chunk of total
healthcare expenditure.

India

Type of system

4. P
 ublic private
partnership (PPP)
health insurance.

Coverage and benefits

Financing

Mandatory basic health insurance for Funded by employers and


employees.
urban citizens working in stateowned or private enterprises.

Voluntary basic health insurance for


urban residents not eligible for
UEBMI (eg, senior citizens,
unemployed, children, students,
disabled).
Voluntary basic medical insurance for
rural residents.

Funded by government
(general taxes) and by
individuals.

Basic Medical Insurance (BMI) as a


supplement to national health
schemes. Also high-end VIP medical
insurance and critical illness
insurance.

Funded by individuals and


employers.

Targeted mainly at rural and poorer


segments of society, and is
characterized by low sum insured
and premiums. This includes the
launch of central and state
government-funded SHI schemes
such as Rashtriya Swasthya Bima
Yojana (RSBY) which provides
coverage up to INR 30000.
As of 1950, health insurance for state
and central government employees.
Two branches: the Employee State
Insurance Scheme (ESIS) and the
Central Government Health Scheme
(CGHS).

Largely funded by general


taxes to government. For
RSBY, insureds must pay an
annual nominal fee of INR 30.

According to latest data from the


IRDA, just 1.9% of the population
(23.6 million people) bought private
health insurance voluntarily. Basic,
and intermediate to comprehensive
covers are available.
India has championed the use of
PPP to increase health insurance
penetration. PPP is usually with lower
sums insured and lower premiums.
Government subsidies have helped
increase penetration.

Funded by individuals and


employers.

Funded by government
(general taxes) and by
individuals.

ESIS and CGHS are funded


by contributions from
government tax collections
and employees.

Government/non-profit
organisations team up with
commercial insurers to
provide health insurance at
a subsidised rate. Only a
minimal contribution from the
end consumer is required.

54 All country information derived from national supervisors, industry associations, AXCO, Swiss Re ER&C.

Swiss Re sigma No 1/2015 31

Appendix

Asia
Market

Overview

The
Philippines

About 84% of the population 1. Social health


insurance is
is enrolled in the National
represented by the
Health Insurance Program
NHIP, administered
(NHIP), including those under
by the Philippine
the Social Security System
Health Insurance
and their dependents, the
Corporation.
Government Service
Insurance System and their
2. Private health
dependents, and workers in
insurance.
the informal sector. PHI is
available on an individual and
group basis from life and
non-life insurers, Health
Maintenance Organisations
(HMOs) and other selfadministered plans. PHI cover
is relatively low given the high
enrolment in NHIP.

Indonesia

In January 2014, Indonesia


launched its universal
healthcare programme,
known locally as Jaminan
Kesehatan Nasional (JKN).
The goal is to provide health
insurance to the entire
population by January 2019.
After stage 1 implementation
in 2014, the JKN covers
almost half of the population.
The PHI sector is still in early
stage of development.

Type of system

1. National health
insurance.

2. Private health
insurance.

Malaysia

1. National health
The Malaysian healthcare
insurance.
system consists of tax-funded
and government-run universal
services and a fast-growing
private sector. Public sector
health services are organised
under a civil service structure
and are centrally administered
by the Ministry of Health.

2. Private health
insurance.

32 Swiss Re sigma No 1/2015

Coverage and benefits

Financing

The NHIP provides extensive cover


and benefits including in- and
out-patient treatment, and personal
preventive, emergency and transfer
services.

Contributions from employers


and employees, and
government subsidies.

(1) PHI on offer includes traditional


reimbursement products for
in-patient costs, together with
hospital cash benefits and optional
covers for out-patient expenses,
including dental and optical
treatment costs.
(2) HMO plans are used to
supplement the state health plan and
provide cover for in- and out-patient
costs. HMO cover levels are generally
lower than PHI from insurers.
JKN provides comprehensive
benefits, from the treatment of
infectious diseases such as influenza
to expensive medical intervention like
open-heart surgery, dialysis and
cancer therapies.

Contribution from individuals,


employers and employees.

Private insurance companies are


allowed to sell health insurance
products including traditional
indemnity, managed care, personal
accident and other forms of health
insurance.
Comprehensive coverage ranging
from preventive and primary
healthcare to tertiary hospital care.

The private sector offers clinics and


hospitals, mainly in urban areas.

Government subsidies and


contribution from employers
and employees. Those
earning wages from either
formal state- or private-sector
employment pay a premium
equivalent to 5% of their salary
(4% payable by employers,
1% by employees). All other
members, including informal
workers, the self-employed
and investors pay monthly
premiums of between IDR
2550059500 each.
Individuals, employers/
employees.

General taxes (direct and


indirect) and non-tax
revenues collected by the
federal government. The
allocation of funds by the
Treasury to the Ministry of
Health is based on past
spending plus any additional
increment determined by
estimated increases in
inflation (CPI). The Treasury
provides additional funds in
times of need, such as during
disease outbreaks.
Mostly funded by out-ofpocket payments.

Asia
Market

Overview

Type of system

Coverage and benefits

Financing

Thailand

The Universal Health Care


policy of 2002 has resulted in
99% universal coverage. The
system is based on primary
healthcare. The network of
health institutions provides
good coverage, with strong
pro-poor bias.

1. National health
insurance.

The scheme is financed by


general tax revenues.

Vietnam is working to develop


a universal healthcare system
to provide all citizens with
basic care. It has signed a
memorandum of
understanding on health
cooperation with Thailand and
will get help from the latter to
develop its scheme.

State-owned
enterprises, public
offices, foreign and
foreign-invested
enterprises, export
processing zones, and
private firms with 10 or
more workers are
required to provide
compulsory medical
insurance to
employees. Demand
for PHI is growing.

A comprehensive package of care,


including both curative and
preventive care.
There are many private medical
facilities across Thailand, including
hospitals, clinics and medical
centres. There is no general
practitioner system. People go
directly to a hospital for treatment,
which is available on a same-day
basis for private-paying patients.
The compulsory medical insurance
does not cover occupational illness or
disease, HIV/AIDS, some mental
illnesses and sexually-transmitted
diseases.

Vietnam

2. Private health
insurance.

Individuals, employers and


employees.

Individuals, employers and


employees

Swiss Re sigma No 1/2015 33

Appendix

Latin America
Market

Overview

Brazil

In 2013, the publicly-provided 1. Single public healthcare system


(SUS)
healthcare system covered
about 150 million, or 75% of
the population. There were
50.3 million PHI/ health plan
policyholders, mostly
middle- and high-income
families, and through group
insurance programs.
2. Mais Sade: a comprehensive
primary care programme.

Type of system

3. Private health insurance

Mexico

Healthcare provision is
decentralised. Services are
provided by three branches of
public-sector schemes and
through private health cover.

1. Social Security Institute (IMSS):


in 2013, covered about 35%
of the population (40 million
people).
2. Public sector institutions:
Government Workers Security and
Social Services Institute (ISSSTE);
state oil company employee
scheme (PEMEX); separate
schemes for army, Ministry of
Defence, National Defence
Secretariat, and the navy.
3. Social health protection system
(Seguro Popular, SISSP): covered
around 35% of the population
(41 million people) in 2013. Ten
million people had affiliation to both
SISSP and IMSS. The governments
conditional cash-transfer scheme
Prospera also provides cash
incentives to the poor to visit clinics
and receive health education.
4. Private health insurance covered
7% of the population (8 million
people) in 2013. PHI is provided by
private medical establishments,
insurance companies and specialist
health institutions (ISES) which own
healthcare establishments directly.

34 Swiss Re sigma No 1/2015

Coverage and benefits

Financing

Constitutionallyguaranteed free medical


assistance for all from
public hospitals or private
providers reimbursed by
the state.

Primarily financed by
central government via
general taxes; the
remainder by state and
municipal governments
via taxes, development
bank and multi-lateral
borrowing, and PHI.
General taxes.

The programme includes


various initiatives to
improve Brazils healthcare
provision: family planning,
family health, old age care,
vaccinations, dental care,
improving public
awareness, organ donor
registrations, sexual health
and medical training.
PHI supplements state
provisions in Brazil.
Voluntary PHI is available
from medical cooperatives, HMOs,
specialised health insurers
and self-administered
plans. LTC insurance is
generally not available.
Critical illness is available
as an add-on to PHI plans.
Private-sector workers and
their families. Provisions
include consultations, basic
out- and in-patient care,
and medical benefits.
These schemes cover
employees of public sector
institutions. Benefits
include consultations, basic
outpatient and hospital
care.

Contribution from
individuals, employers
and employees.

Funded by employer and


employee contributions.

Funded by employer and


employee contributions,
and transfers from the
federal government
revenues to avoid
insolvency.

Users pay a meanstested subscription.


Federal and state
governments
supplement each local
area as necessary from
general tax funds,
depending on the
number of people
affiliated.
PHI uptake is mainly by the Funded by individuals
affluent. Covers range from and employers.
basic, intermediate to
comprehensive, and tend
to be purchased by those
looking for a more
complete health service.
SISSP is aimed at
informally-employed
independent workers and
their families.

Latin America
Market

Overview

Type of system

Argentina

The public sector accounted


for 69% of total healthcare
spending in 2012, and private
expenditure the rest.
Traditionally PHI has provided
cover for about 10% of the
population

Uninsured and
underinsured have access
to public hospitals
providing free healthcare
for most in- and out-patient
treatments.
2. Social insurance trusts (Obras
SHI schemes for employees
sociales) run by trade unions and
and dependants, providing
professional associations under the cover for all types of
supervision of the National Social
medical attention. Certain
Security Administration and
exclusions such as dentistry
Superintendent of Health Services. and psychiatric treatment.
3. Special schemes: Plan Remediar
and Programa de Atencin Mdica
Integral (PAMI).

Chile

Coverage and benefits

Financing

1. The Ministry of Health runs a


network of hospitals and health
centres.

4. Private health insurance is provided


by conventional insurance firms,
pre-paid plans, and insurance
schemes run by private hospitals.
Dual healthcare system: both 1. Social health insurance: National
Health Fund (FONASA), which
public and private systems
covers 80% of the population.
provide mandatory healthcare.
The Ministry of Health
oversees the entire system
and also public healthcare
system comprising 29
decentralized regional health
services (SNSS), the National
Health Fund (FONASA), the
Public Health Institute, and a
network of locally-based
primary care facilities.
Guaranteed universal access
was introduced under the
Plan AUGE in 2005.
2. Private health providers (ISAPRE):
open or closed pre-paid medical
plans, covering 17% of the
population.

3. O ther private health insurance


schemes.

Free medicine for those


below the poverty line
(Plan Remediar); LTC for
retirees (PAMI).
Cover can be
comprehensive and can
also act as a top-up to
public-sector provisions.
FONASA covers all
employed persons in Chile
but also the unemployed
and most low-income
households. There are a
few exceptions: the police,
armed services and
universities. All citizens are
guaranteed medical care
under FONASA. There are
no exclusions for age,
gender, earnings level or
pre-existing conditions.

ISAPRE plans must at a


minimum provide cover
equivalent to FONASA.
ISAPRE tends to attract
higher-income individuals.
Those who do not choose
ISAPRE are automatically
enrolled in FONASA.

Provide cover over and


above that provided by
FONASA and ISAPRE (eg,
for catastrophe-related
costs).

General tax revenues.

Pay-as-you-go system
funded by employers
and employees via
compulsory payroll
deductions (3% of
wages) and employer
contributions (6%).
General tax funds and
support from the
Inter-American
Development Bank
(IADB).
Privately funded, 28%
from prepaid plans.

All employed persons


make a mandatory
contribution of 7% of
monthly gross earnings.
Dependents included
free of charge. The
self-employed will make
full contributions as of
2018. The unemployed
are not charged.
Employee contributions
account for 40% of
funding, central
government (taxes) 40%
and co-payments the
rest.
Affiliates payroll
deductions vary
according to the specific
coverage plan and
co-payments at the time
of service (10-30% of
services cost). It is
common for members to
make additional
payments for wider
cover.
Privately funded.

Swiss Re sigma No 1/2015 35

Appendix

Latin America
Market

Overview

Colombia

Universal healthcare insurance 1. Social health insurance delivered by


public health system (Nueva EPS)
scheme, the Plan Obligatorio
and private healthcare providers
de Salud (POS). The scheme
(EPS).
covers formal-sector workers
and employers, the
unemployed and very poor.
The government plans to
extend universal cover to the
3% of Colombians who remain
uninsured and who tend to live
in remote regions. Private
pre-paid medicine companies
and conventional insurance
make up the rest.

Type of system

2. Pre-paid medicine companies


(EMPs) and conventional life and
non-life insurance companies.

3. Special schemes.

Venezuela

Around 75% of the population 1. Social Security Institute (IVSS).


(20 million) used the public
health system (IVSS) in 2011,
though that number is likely to
have declined significantly due
to chronic under-funding and
mismanagement. Private
health insurance covers
around 10% of the population.
The remainder are covered
under the Barrio Adentro
scheme.
2. M
 ision Barrio Adentro Program.

3. Private health insurance: pre-paid


providers (prepagas) and
conventional healthcare insurers.

36 Swiss Re sigma No 1/2015

Coverage and benefits

Financing

All employed or selfemployed persons. Basic


POS benefits cover
common disease or
accident and maternity.

All employed persons


make compulsory
contributions equal to
12.5% of salary
(employers pay 8.5%,
employees 4%); the
self-employed pay the
full 12.5%. One
percentage goes to a
solidarity fund used for
treatment of subsidised
members. Government
subsidies cover the
unemployed and very
poor.
Privately funded.

Complementary to POS,
therefore only cover gaps.
For most consumers POS
is the principal cover. It is
common for companies
wishing to attract and retain
talent to offer additional
healthcare covers for their
workers.
Magistrates, armed forces
the police, Ecopetrol,
universities.
State healthcare is
available to those who
contribute to the social
security system. Also to the
old aged and pensioners.

Mostly low income and


rural households which
access healthcare via
Peoples Health Centers
and Peoples Clinics.
Services are provided in
parallel with the public
health system.
Generally covers middleand high-income
households. The
deterioration of facilities
and service in public
hospitals in recent years
has led to increasing
demand. The government
mandates uniform policy
wording and tariffs apply.

Publicly funded from


general taxes.
Central government
funded, general taxes.
Specific projects receive
additional funds from the
World Bank and the
IADB. As part of a
Sino-Venezuela
agreement in 2011,
China supplied 13500
health centres with
medical equipment.
Oil-for-health
arrangement with Cuba,
including around 30000
Cuban health-sector
professionals.

Direct payments, only


rarely matched by
contributions from
public-sector and private
employers.

Central and Eastern Europe


Market

Overview

Type of system

Coverage and benefits

Financing

Russia

In 1993, a mandatory health


insurance (MHI) scheme was
adopted. MHI is financed
through payroll taxes with
supplementary funding from
general taxes. MHI funds are
administered by insurance
companies, which bear no
risk. Everyone can access
public-sector healthcare but
even so, voluntary health
insurance has grown strongly,
and is often offered as an
employee benefit.
Post communism Poland
moved from a free and
universal state-provided
healthcare system to a
compulsory social insurance
health system. Initially several
sickness funds, these were
later merged into one national
health fund (NFZ). Today the
NFZ covers about 98% of the
population. Private sector and
employer-provided PHI
schemes are available.

1. Government-funded
healthcare.

Emergency, specialized and


tertiary care and medication
for certain vulnerable groups
and conditions.
Covers almost all outpatient
and inpatient services.
VHI offers supplementary
cover to state system
benefits.

General tax revenues.

Mainly through payroll taxes.


Informal payments are common as
a means to get faster access to
healthcare from state institutions.

Compulsory SHI system


administered through seven
quasi-public health insurance
funds covering the whole
population with high-quality
healthcare. All permanent
residents are covered.

1. Social health
insurance.

Comprehensive cover for


in- and out-patient care at
state hospital and institutions.
Income replacement (loss of
income in case of sickness)
is no longer covered.
Not very popular as
supplementary cover is not
effectively possible under
current legislation. There are
a wide range of group and
individual covers, offered as
riders to life policies or as
standalone non-life cover.
Encompasses cover for all
healthcare services provided
by private and public
institutions. A recent proposal
to limit the state system to
basic services has not
materialised.
Medical assistance services,
cash plans due to illness and
critical illness (cancer) cover.

Poland

Czech
Republic

2. Mandatory Health
Insurance (MHI).
3. Voluntary Health
Insurance (VHI).

1. Compulsory social
health insurance.

2. Private health
insurance.

2. Private health
insurance.

Payroll taxes, administered by


insurance companies.
Employers and individuals.

Employers and individuals.

Payroll tax split between employers


(9% of gross income) and employees
(4.5%); self-employed contribute
a fixed percentage of their profits
(13.5% of 50% of their profits);
general taxes public-sector
employees and the unemployed.
Employers and individuals.

Swiss Re sigma No 1/2015 37

Appendix

Sub-Saharan Africa
Market

Overview

Type of system

South
Africa

There is no national health insurance


scheme in South Africa, although
the government remains committed
to the development of one as a
means to reduce inequities in access
to healthcare. Medical schemes
(not-for-profit mutual funds)
reimburse scheme members for
medical expenses. Both individuals
and companies can join the
schemes. PHI is available but is
typically restricted to fixed-benefit
cover.

Medical schemes must


provide prescribed
minimum benefits (PMBs).
The PMBs are diagnosisdriven, meaning that it is
irrelevant how a
beneficiary acquires a
condition. The PMBs
cover the diagnosis and
treatment of roughly 300
of the most serious and
most expensive health
conditions, including
emergency conditions,
25 chronic conditions, and
diseases such as cancer
and tuberculosis. The
medical schemes must
pay for PMB conditions in
full. They cannot use
members personal
medical savings accounts.
Private health insurance
Fixed-benefit cover
policies are regulated by the
according to policy
Financial Services Board (FSB). features.
1. National Health Insurance
Employees in the formal
Scheme.
sector (both public and
private sector employees).
2. Private health insurance.
Not common, mostly
administrated funds.

Nigeria

Kenya

The National Health Insurance


Scheme was established in 2005.
It was launched as a pilot initially
targeting federal employees, the
army and police force. By law, firms
with more than 10 employees must
enrol but overall uptake had been
limited so far. The target is to cover
30% of the population by 2015.
There are additional schemes for
rural and self-employed individuals.
Most private healthcare is from
administered funds schemes, not
insurers.
There are state-run hospital and
healthcare providers, and private
ones. Most are in Nairobi. Access to
state hospitals is not free, but the
cost has been lowered recently.
About 35% of the population have
access to healthcare though the
National Hospital Insurance Fund.
Many people benefit from group
medical schemes offered by their
employers and the self-employed
can take out voluntary cover. Micro
health insurance schemes are
becoming increasingly popular in
rural areas.

38 Swiss Re sigma No 1/2015

Coverage and benefits

Medical schemes are


regulated by the Medical
Schemes Act of 1998, under
the Council of Medical
Schemes (CMS). At the end of
2013, there were 87
registered medical schemes.
Despite consolidation among
schemes, the number of
beneficiaries increased to 8.78
million (6.2% of total
population) in 2013 from 6.66
million (4.6%) in 2004. This
represents an increase of
31.7% over the course of a
decade, although it still means
that a large proportion of the
South African population is not
covered.

1. National Hospital Insurance


Fund (NHIF).

2. Private health insurance.

Compulsory insurance for


all formal sector
employees; available on a
voluntary basis for the
self-employed, informal
sector workers, retirees
and the unemployed.
Comprehensive medex
cover for inpatient care
with annual limits for
non-state hospitals.
Wide cover of inpatient
medical expenses,
typically with different
limits on the annual cover.

Financing

Members contribute to the


schemes fund. Each year
the CMS analyses key
economic indicators that
have a bearing on private
healthcare costs in order to
determine reasonable
assumptions the schemes
can use to calculate annual
increases in member
contributions. Scheme
contributions increased by
10.4% in 2013.

Private policy premiums


are paid by individuals.
Funded by employer (10%
of payroll) and employee
(5% contribution).
Mostly employers, but
some plans are open to
individuals.

Funded by general taxes


and employer
contributions.

Companies that run their


own self-funded and
self-administered medical
schemes; companies that
provide a management
service for self-funded
schemes; and schemes run
by the insurance sector.

Middle East
Market

Overview

Saudi
Arabia

1. Ministry of Health:
Healthcare services mostly
free service for all Saudi
public-sector provided through
nationals.
the Ministry of Health. Other
public agencies such as the
2. Public agencies provide free
national oil company ARAMCO,
healthcare to employees
armed forces, securities forces,
and their families.
national guard etc provide
healthcare to employees and
their dependants. In 1999 the
Council of Health Insurance was
established to introduce and
supervise PHI to the country.

Turkey

The Universal Health Insurance


System was established in
2008, providing healthcare
services for all. Total healthcare
spending is between 6% and
7% of GDP. There is a small PHI
sector in Turkey.

Type of system

3. Cooperative Health
Insurance: compulsory for
expats and Saudi nationals
working in the private
sector.
1. Universal Health Insurance
System.

2. Private health insurance.

Coverage and benefits

Financing

Employees in the formal sector


(both public and private sector
employees).
Healthcare treatment at all
levels.

Funded by employer (10%


of payroll) and employee
(5% contribution).
Public-sector
organisations.

Majority of the outpatient and


inpatient services.

Employers and individuals.

In principle, all Turkish citizens


are covered. Expatriates
employed under a contract of
service are covered by the
system, provided that they
make contributions.
3.8% of the population is
covered by PHI. Of those, 64%
are insured on an individual and
36% on a group basis.

Mostly funded by general


taxes to the federal
budget. Co-funding from
employers, employees.

Individuals and employers.

Swiss Re sigma No 1/2015 39

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2013





No 1 Partnering for food security in emerging markets


No 2 Natural catastrophes and man-made disasters in 2012:
A year of extreme weather events in the US
No 3 World insurance 2012: Progressing on the long and winding road to recovery
No 4 Navigating recent developments in marine and airline insurance
No 5 Urbanisation in emerging markets: boon and bane for insurers
No 6 Life insurance: focusing on the consumer

2012





No 1 Understanding profitability in life insurance


No 2 Natural catastrophes and man-made disasters in 2011:
historic losses surface from record earthquakes and floods
No 3 World insurance in 2011: non-life ready for take-off
No 4 Facing the interest rate challenge
No 5 Insuring ever-evolving commercial risks
No 6 Insurance accounting reform: a glass half empty or half full?

2011




No 1 Natural catastrophes and man-made disasters in 2010:


a year of devastating and costly events
No 2 World insurance in 2010
No 3 State involvement in insurance markets
No 4 Product innovation in non-life insurance markets: where little i meets big I
No 5 Insurance in emerging markets: growth drivers and profitability

2010

No 1 Natural catastrophes and man-made disasters in 2009:


catastrophes claim fewer victims, insured losses fall
No 2 World insurance in 2009: premiums dipped, but industry capital improved
No 3 Regulatory issues in insurance
No 4 The impact of inflation on insurers
No 5 Insurance investment in a challenging global environment
No 6 Microinsurance risk protection for 4 billion people

2009

2008



40 Swiss Re sigma No 1/2015

Keeping healthy in emerging markets: insurance can help

No 1 Scenario analysis in insurance


No 2 Natural catastrophes and man-made disasters in 2008:
North America and Asia suffer heavy losses
No 3 World insurance in 2008: life premiums fall in the industrialised countries strong
growth in the emerging economies
No 4 The role of indices in transferring insurance risks to the capital markets
No 5 Commercial liability: a challenge for businesses and their insurers
No 1
No 2
No 3
No 4
No 5

Natural catastrophes and man-made disasters in 2007: high losses in Europe


Non-life claims reserving: improving on a strategic challenge
World insurance in 2007: emerging markets leading the way
Innovative ways of financing retirement
Insurance in the emerging markets: overview and prospects for Islamic insurance

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2015 Swiss Re. All rights reserved.
The editorial deadline for this study was 31 November 2014.
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