IPMI predictions 2020: trends and challenges in healthcare insurance
23 December 2019
With 2019 fast becoming a distant memory, we recap on some of the major events in the international private medical insurance (IPMI) industry, and how these are shaping the playing field for 2020.
2019 was a steady year for the IPMI sector and although no major events rocked the ship, many underlying trends continued that will shape the market over the coming years. In this piece, we look at a number of important trends and developments, giving our view on how the landscape might be affected in 2020 and beyond.
1. Premium rates continue to rise in line with expectations
Aon, Pacific Prime, Willis Towers Watson, Mercer Marsh and other brokers produce indicative data annually for medical inflation and international private medical insurance rates.
Aon projected a 7.8% increase in 2019 global medical inflation, a decrease from 8.4% in 2018. Willis Towers Watson aligned to this view, projecting a 2019 trend of 7.6%, but as an increase from 2018 (7.1%) – an important variation that demonstrates the sensitivity of accumulating data at a global level.
On a regional basis, Willis Towers Watson sees neutral year on year medical inflation for Europe in 2010 due to “the existence of socialized medicine and integration of treatment with private plans”. In contrast, the Middle East and Africa will experience large increases due to a combination of major costs and utilisation, government initiatives and reduced competition – trends the IPMI industry will be keeping a close eye on.
All predictions agree, however, that medical inflation is significantly outpacing general inflation globally, at double or even triple the rate, according to Mercer Marsh.
2. The complexity of contemporary healthcare
Medical trend inflation is affected by a wide variety of complex factors.
Populations in many countries are ageing and driving healthcare demand, and poor dietary and exercise habits are adding to the pressure. Advancements in medical technologies mean higher prices and medical providers themselves are often looking to increase profits. Oversubscription and higher adoption by medical providers and insureds combine to raise usage unnecessarily, with regulatory changes having a significant impact.
Treatment costs in the US continue to be highest, with Hong Kong next in line. The UAE is the most expensive country for medical costs in the Middle East, borne from a rising incidence of chronic disease.
Demand for private health insurance generally is increasing. In China, for example, public medical facility usage is steadily decreasing. This change is attributed to a rise in middle-income families and greater general health awareness which is seeing more families opting for one of the growing numbers of private medical facilities.
Regulation continues to fundamentally impact international health insurance costs. Last year, France introduced ‘100% medical reform’ requiring product coverage for all-optical, dental and audio prosthesis treatment within medical plans.
In addition, 2020 is likely to see inflationary pressures continuing in abundance: populations will not get younger and lifestyle habits are not improving. Mental health is emerging as a significant demand driver, and the factors discussed above will not dissipate over the coming years.
Insurers will continue to employ strategies to mitigate inflationary pressures on premiums, an example is given by wellness and supporting technologies becoming mainstream, the enhancement of provider network management, plan design and other tactics which will all play their part. The sector, however, continues to swim against a strong tide.
3. Mental health has taken centre stage
The profile of mental health has risen significantly over the last few years in many parts of the world. This trend continued in 2019 and it looks set to be just as prevalent in 2020.
The World Health Organisation (WHO) estimates that 264 million people across the world of all ages suffer from some form of depression. Such is depression’s effect that it is thought to be a leading contributor to global disease and suicide. However, many sufferers do not have access to treatment, despite there being effective psychological and pharmacological treatments for moderate and severe depression.
Yet the commercial cost is significant: mental health disorders, including depression, have the potential to cost the global economy up to $16 trillion between 2010 and 2030. I f the world fails to respond sufficiently to the issue, The Lancet’s research suggests that whilst some costs are from healthcare, medicines and therapies, most are indirect such as productivity loss and extra spending for social welfare, education and law and order.
Moreover, the World Health Organisation further estimates that for every US$ 1 invested in scaling up treatment for depression and anxiety there is a US$ 4 benefit in better health and ability to work, picturing a clear commercial case for intervention.
The data definitely suggests there will be a continued focus on mental health and all its associated conditions over the coming years.
4. The regulation will continue to shape the world’s insurance markets
Regulators will remain central to healthcare provision and health insurance across the world. Regulations can have a dramatic effect yet are essential for a robustly governed and commercially viable business environment.
The 2019 launch of Hong Kong’s Voluntary Health Insurance Scheme (VHIS) illustrates how regulations can influence and shape a market. VHIS features a semi-mandatory health insurance plan with specific limits and a competitive tariff. The effect is a shift in the burden of healthcare provision from the public to the private sector, significantly impacting the region’s health insurance landscape.
While VHIS is a significant event, there are many less striking but ongoing changes happening in the background that affect markets across the world.
Solvency II has been a major focus in Europe over many years. Best known for its focus on solvency and reserving, this key regulation is a wide-ranging programme of regulatory requirements for insurers, covering authorisation, supervisory reporting, corporate governance, public disclosure and risk assessment and management.
And while Solvency II has not been universally adopted across the world, many markets are taking parallel paths. In the Middle East, for example, stricter capital requirements for foreign branches were very much a focus in 2019 and this will continue throughout 2020. A similar trend can be seen in countries such as Bermuda, where markets don’t apply Solvency II but have similar fundamental requirements.
In the Middle East, the alignment to IFRS17 is another important regulatory change. This is a ground-breaking set of guidelines affecting reporting and the production of financial statements. The Emirates has embraced these guidelines more quickly and more robustly than some European countries.
Diagnosis Related Group (DRG) implementation has been another central 2019 theme in the Middle East. DRG groups together costs associated with inpatient hospital benefits – such as surgery, the theatre, the physician, pre/post examinations. This means that separate treatment costs are no longer considered in isolation and all will be reimbursed under a single code. Seeing claims as a consolidated view allows insurers a consistent representation of claims experience and pricing, helping to enforce transparent financial statements and promoting a stable and long-term market.
Like VHIS in Hong Kong, the continued development of mandatory health insurance in the UAE has changed the face of the market. Now anyone who wants to live and work in the Emirates must have a basic health plan, which includes the 10m expatriates that makeup 80% of the population. Many workers now rely purely on the basic plan, but more affluent employees are topping-up their cover – often with international private medical insurance where this is not being provided by their employers.
5. Demographic and social trends to match products
Commercial organisations attuned and reactive to their markets’ demographic and social trends will be better able to match the product with shifting tastes and demands. The same is true for the international private medical insurance market, and we are seeing several fundamental shifts across markets.
In China, for example, the high incidence of smokers heavily impacts the healthcare provision in the country. However, an increase in smoking awareness and cessation campaigns are beginning to shift behaviour, which will lead to a dramatic change in longevity and wellness into later years. These trends have led to the emergence of hybrid products including an element of health insurance and long-term care, and there’s no doubt we’ll see increasing innovation going forward.
The Middle East expatriate populations have had a large number of western expatriates from Europe, the US and Australia over the last few decades. This group has a largely standardised professional and demographic profiling, allowing the health insurance market to benefit from similar pricing requirements across the board.
However, the last few years have seen a shift, with a higher percentage of regional expats coming from Asia – in particular, the Indian sub-continent and China. These changing demographics have changed how products and benefits are provided within health insurance as a higher proportion of mid, rather than senior, managers look for regional PMI plans over fully international solutions offering truly global cover.
6. Health insurance needs are shifting in line with the new lifestyle
Continuing the demographic and social change theme, we are seeing traditional domestic and international medical insurers in Asia meeting the demand for regional private medical insurance as people cross Asian boundaries, whilst remaining within the wider Asian territory. Patients want the ability to access the best healthcare facilities in Asia but don’t necessarily want to pay the additional premium for world-wide healthcare access.
In China international PMI plans - which provide a degree of overseas healthcare access - are more typically seen as high-end medical plans. Pricing remains important for this type of plan, but service is critical. The more comprehensive the product, the more important flexibility becomes. Pricing takes a backseat, with clients prepared to pay more to ensure a flawless service throughout their medical treatment.
In the Middle East, SMEs are increasingly interested in adding local managers to their health insurance plans that have typically been reserved for expatriate workers, an important and promising sign for insurers.
There’s also strong growth in the retail/individual plan sector, supported by local IFAs and brokers in the Emirates. Employers are increasingly switching from providing group plans—where the employer selects their employees’ cover—to giving staff individual spending allowances and the freedom to choose what best suits their individual circumstances. In addition, recent regulatory changes have made life plans more challenging for IFAs to sell, leading to a greater focus on selling health insurance.
7. The exploit of technology advances
Technology will hugely impact the healthcare and health insurance sectors globally. The median penetration number of smartphone usage for the most advanced countries in 2018 was 76%, with usage in a number—notably South Korea, Israel, Sweden, Netherlands, Australia and the USA—well above that figure.
2019 has brought us numerous interesting developments in personal fitness and health apps and wearables. insurance companies have taken a keen interest, driving the launch of online health solutions, often tailored to their members. As we start 2020, faster Wi-Fi, 5G (and even 6G), more advanced devices and more capable apps will only encourage greater individual usage.
In addition, advancements in the technology that sits behind app and website front ends will hugely influence the speed and complexity of future developments:
- Blockchain technology – Blockchain offers undoubted advantages for the transfer and access in areas such as patient data, clinical trial data and doctor verification. In reality, we are only just beginning to witness the practical implementation of this technology, but 2020 could be the year of greater adoption
- Artificial intelligence – with its huge potential is developing every year, AI in the healthcare sector is predicted to grow to over $6.6 Billion by 2021 and in 2020 we will witness a plethora of new innovations and improvements to existing apps, such as WebMD and BablyonHealth.
- Cloud technology – the ease to which data can be accessed, stored and shared defines how quickly innovations can be implemented. As this technology improves further, app developers can create ever-more ambitious solutions for the healthcare sector
- Mobile payments – is central to many technological innovations in healthcare and across the insurance industry. As global adoption and costs reduce the process will become smoother and more secure, payments will be easier to track and monitor, and app integration more widespread
- Big Data – the key to many tech developments, it is already helping reduce mistakes and improve predictions in healthcare, lower treatment waiting times and develop more personalised treatment options. As data collection, mining and learnings improve, so will technologies such as apps for personal healthcare and other uses.
8. A continuing upward trend in global chronic disease
Despite the many medical advances chronic disease trends remain on an upward trend, with diet and nutrition a key driver for conditions such as obesity, diabetes, cardiovascular diseases and cancer. Indeed, a World Health Organisation report suggests that 46% of deaths in 2001 were attributable to non-communicable diseases, a figure that is predicted to rise to 57% in 2020.
Cardiovascular disease is the main cause of death but obesity and diabetes are both on the rise and appearing more frequently in younger age groups. In fact, the IDF estimates that someone dies from diabetes or its complications every seven seconds, with half of those deaths—four million a year—occurring under the age of 60 years. Further, 2017 saw an 8.8% diabetes prevalence across the world (426 million people), a figure that is expected to rise to 9.9% by 2045 (628 million people).
Regionality plays an important part and the diabetes problem in the Middle East is well documented. Saudi Arabia, Egypt and the UAE are all above a 17% prevalence rate with Qatar, Bahrain and Kuwait not far behind. This compares to rates of 4.3% in the UK, 8% in Germany and almost 11% in the USA.
On a more positive note for the future, countries are understating the commercial and societal costs of diseases like diabetes and taking action. Saudi Arabia’s ‘Quality of Life Program 2020’ aims to enhance the quality of life in the Kingdom through increasing participation in entertainment, sport and cultural activities. Student participation in sports is to be boosted by 25 per cent, and the number of fitness coaches will rise to 4,500. Other measures include taxing sugary drinks and a greater focusing on preventative care.
To conclude, the international health insurance market continues to expand globally, as it has done for many years. Yet the pressures on the market are substantial. Medical costs are increasing, demands are changing, technology is rapidly evolving, regulation is ever tighter and social trends are shifting. These factors and many more will shape the sector into 2020 and beyond.
Those insurers, service providers and intermediaries who are able to adapt most effectively will be the ones to succeed.
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