Predicament of Health Insurance

【摘要】The size determines the least prominent place of the health insurance among all kinds of insurances. According to the data of the China Insurance Regulatory Commission ...

The commercial health insurance in China is haunted by a predicament of its unbalanced development.

The development of commercial health insurance in China pales in front of the drastic development of the whole insurance industry. Without any obvious progress and even occasional falls, some professional health insurance companies are struggling hard to survive.

Notable is the unbalanced development happening to the Chinese health insurance companies. The health insurance which used to be quite popular now became something unworthy. However, the medical system reform and the aging of the Chinese society are on the other hand thought to be a great opportunity for the health insurance.

Moreover, when the Chinese health insurance companies are depressed, their foreign peers are eager to get their shares of this market.

Breakthrough Wanted for Health Insurance

The size determines the least prominent place of the health insurance among all kinds of insurances. According to the data of the China Insurance Regulatory Commission (CIRC), the premium income of health insurance in China was 57.398 billion yuan (USD 8.406 billion) in 2009, taking 5.15% of the original premium income and 6.95% of the life insurance premium income. From this January to April, the health insurance premium income was 23.607 billion yuan (USD 3.457 billion) and the two proportions were 4.17% and 5.47%.

With lower premium income, the health insurance is also haunted by higher compensation expenses. In the first four months of 2010, the compensation expenses of health insurance was 8.12 billion yuan (USD 1.19 billion), taking 16.92% of the life insurance compensation expenses.

The low premium cost and high compensation expense tell the most protruding problem for the profits of health insurance.

He Yansu, Dean of Insurance School of Central University of Finance and Economics, said that the retarded development of domestic health insurance is attributed to the lack of professional policies. According to an insider from an insurance company, nearly all the insurance companies can get engaged in the health insurance in China, while in the other countries only the professional health insurance companies are allowed to sell health insurance products. Presently, China’s health insurance is run by life insurance companies, assets insurance companies and professional health insurance companies. The insiders said that many life insurance companies use the low expense rate for health insurance and offset this field with the profits from the other kinds of insurances. That results in the failure to reflect the cost, which prevents the health insurance from seeing profits.

Fewer Professional Health

Insurance Companies Left

In March 2010, Zhongrong Life Insurance Co., Ltd. was founded, telling there were only four professional health insurance companies left among the first group approved in 2004.

Zhongrong Life Insurance Co., Ltd. is built on Zhenghua Health Insurance Co., Ltd., a professional health insurance company approved by the CIRC in 2004 and then changed the name to EverGreen Health Insurance. However, it was never open to the public in these years and finally turned into a life insurance company. This choice may demonstrate the truth that life insurance market in China is more profitable than the health insurance.

Another health insurance company Reward Health Insurance Co., Ltd. went through ownership change, restructuring and renaming. In 2009 the company was accused of providing false reports and financial results and changing corporate rules and board room without being approved. Then Anbang Insurance Corporation was appointed to conduct the restructuring to Reward Reward Health Insurance Co., Ltd., which was then changed into Hexie Health Insurance Co., Ltd. According to the data from the CIRC, its premium income from 2004 to 2009 was respectively 53 million yuan (USD 7.76 million), 16 million yuan (USD 2.34 million), 242 million yuan (USD 35.4 million) and 27 million yuan (USD 3.95 million).

In truth, the professional health insurance companies used to shoulder great outlook. At the end of 2002, the CRIC issued the “Guiding Opinions about Promoting the Development of Health Insurance Industry” to encourage the insurance companies to professionalize the operation of health insurance. In 2004 the CIRC approved the PICC Health Insurance Company Limited, Pingan Health Insurance Co., Ltd., Kunlun Health Insurance Co., Ltd. and Sunshine Health Insurance Co., Ltd. (then Reward Health Insurance Co., Ltd.) and Zhenghua Health Insurance Co., Ltd. On April 8, 2005, PICC Health Insurance Company Limited was open to the public as the first professional health insurance company in China.

But the insiders pointed out that the professional health insurance companies in China are not really “professional” due to limited time for development. Prof. Zhong Ming from Shanghai University of Finance and Economics, said that the professional insurance companies must entail three elements: product development, calculating base for sales cost management and expense rate formulation as well as management of medical service suppliers. However, the Chinese insurance companies are quite inexperienced in these matters.

In addition, the consumption habit of policyholders is also an obstacle for the development of professional health insurance. An insider specialized in health insurance marketing said that the health insurance is usually sold as insurance against additional risks. With the consideration of maintaining cost, the policyholders usually prefer the refundable insurance to consumption insurance. Compared with the other insurance companies, professional insurance companies have no advantages in products and channels.

Fortunately, not all the health insurance companies are lamenting over their doom. PICC Health Insurance Company Limited and Pingan Health Insurance Co., Ltd. are living a much better life with their parent companies’ support. According to the data, the four professional health insurance companies had the premium income of 4.26 billion yuan (USD 623.67 million) in the first four months of 2010. PICC Health Insurance Company Limited had got 4.16 billion yuan (USD 609.03 million), taking 97.68%. Pingan Health Insurance Co., Ltd. is not discouraged by its pale performance. Last year it began to cooperate with Discovery the largest health insurance supplier in South Africa and is going to stir up the Chinese health insurance company.

Foreign Companies Looking for Proper Opportunities

The depressed Chinese health insurance companies don’t make their foreign peers cringe at the difficulties. Instead, the foreign health insurance companies are still longing to get into this market.

Presently, the foreign insurance companies getting into the Chinese market include DKV from Germany, BUPA from Great Britain, Discovery from South Africa and WellPoint from the USA. Hereinto, DKV has already started the cooperation with PICC Health Insurance Company Limited and Discovery with Pingan Health Insurance Co., Ltd.

BUPA and WellPoint are reported to be looking for Chinese partners too. According to the regulations of the CIRC, the foreign companies must have set up the representative offices in China for two years before they submitted the application for the license of health insurance companies to the regulatory department for approval. Presently, BUPA and WellPoint have already got through the two years’ waiting period.

The optimism of the foreign health insurance companies comes from the potential of the Chinese health insurance market. In the foreign markets, the health insurance’s premium can take 30% of the whole insurance industry. The CIRC’s data showed that the proportion in China was only 6.94% in 2009, much lower than the international standards. The “medical reform” launched in 2009 established the function and positioning of the commercial health insurance. This has been emanating great appeal for the foreign insurance companies.