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September 2019

Medical insurance in the Greater Bay Area

01 Foreword02 Executive Summary03 Guangdong and the

Greater Bay Area06 Guangdong’s Social

Medical Insurance System

11 Private Medical Insurance in the GBA

13 Survey Results: GBA Consumers’ Preference Towards Private Medical Insurance

19 Pointers for Hong Kong Insurers Intending to Expand in the GBA

26 Conclusion

Swiss Re Institute Medical insurance in the Greater Bay Area 1

Foreword

As a newly-formulated strategic development plan, the Greater Bay Area (GBA) Initiative as set out by the Chinese government will further integrate the Hong Kong and Macao Special Administrative Regions, and nine mainland cities in the Guangdong province. With the establishment of cross-boundary transportation infrastructure, the “one-hour living circle” will embrace a huge market of 71 million people. Globally, bay areas have been a key driver of economic growth and development: the GBA in China has the same purpose.

“Healthy China 2030” is another priority on the Chinese government’s development agenda. To achieve this goal, a better-designed social security safety net and active private sector participation are key to lifting living standards, by improving the medical system and related service industries, including medical insurance. To this end, the GBA will build a level playing field for the development of innovative insurance offering to meet the needs of its residents, including cross-boundary private medical insurance.

To help further this objective, we have undertaken a consumer survey to better understand the medical and insurance needs of customers living in the GBA. This paper presents the key insights from the survey. We believe these takeaways will facilitate collaboration among different stakeholders to develop effective cross-boundary medical insurance products. We hope you find our study instructive.

Marianne Gilchrist Clarence WongHead L&H Globals and South Asia Chief Economist AsiaManaging Director Swiss Re Institute

2 Swiss Re Institute Medical insurance in the Greater Bay Area

Executive summary

The concept of the Greater Bay Area (GBA) was proposed by China’s central government to integrate and vitalise the largest economic cluster in the south of the country, encompassing the special administrative regions of Hong Kong and Macao, and nine cities in the Guangdong province. To date, the GBA is already well integrated in goods trade. Now, deeper integration in financial services is underway to develop an international financial hub as the next part of the GBA’s 2035 development plan.

Building on the national “Healthy China 2030” scheme, the Chinese government has stipulated the development of “innovative cross-boundary medical insurance products” as a key objective of the GBA development plan. These initiatives come as rising income levels and risk-awareness of health issues drive demand for private medical insurance in the face of stretched public-sector social security systems. Based on the current momentum, Swiss Re Institute (SRI) predicts that more GBA residents will participate in cross-boundary medical insurance schemes.

Visitors from mainland China make up about one-third of new premiums sold in Hong Kong’s life insurance market. However, the sale of medical insurance products represents only a fraction of the total market, which has traditionally been dominated by savings-type products. This highlights both the challenges and opportunities for Hong Kong-based insurers in penetrating Guangdong province’s medical insurance market as part of the GBA development plan.

To better understand the healthcare needs, preferences and attitudes of Guangdong residents, in the spring and summer of 2019, SRI conducted consumer focus groups and a quantitative survey of over 2 500 residents in the province. The aim was also to gauge preferences for private medical insurance products, and attitudes toward buying private insurance from Hong Kong insurers.

SRI found that although social protection offers an adequate basic safety net, most Guangdong residents do not have thorough knowledge about the medical cover provided. Concerns about costs and quality of care remain, and medical protection ranks as the top life and health (L&H) product GBA residents would like to buy as part of lifestyle planning. The credibility of insurance providers, reliability of claims payment and coverage of medical conditions stand out as the most important factors consumers consider when purchasing medical insurance.

With regards to cross-boundary transactions, consumers express concern about different interpretations of contracts in the three GBA jurisdictions, as well as currency transfer regulation during the purchasing journey from Hong Kong insurers. GBA residents also demonstrate interest in pure protection-type insurance products rather than as part of a bundle with a savings component. In this study we analyse the behaviours of different customer segments in more detail and offer insights for Hong Kong insurers to better target their clients in the GBA.

Based on our survey results, we recommend that Hong Kong insurers expand their footprint on the ground through physical services centres, while maintaining a strong digital presence. With further market liberalisation as advocated by the Chinese government, we expect that Hong Kong insurers will develop closer connectivity with the national health system and social insurance network for easier access by residents. To this end, the Hong Kong government’s proposed Insurance Connect programme, to allow mutual access to financial products between Hong Kong and other GBA cities, could be a step toward the integration of one insurance market for the entire region.

The “Greater Bay Area” (GBA) in China is moving to integrate cross-boundary financial services.

Cross-boundary medical insurance is a central government priority.

Hong Kong medical insurers see strong potential to increase sales to GBA residents.

SRI has surveyed Guangdong residents about their attitudes toward medical insurance.

Cost and quality of medical care top GBA residents’ concerns

Vagaries of cross-boundary transactions are citied as a barrier to buying Hong Kong insurance.

A stronger physical and digital presence will help Hong Kong insurers better integrate and realise the full potential of the GBA market.


Guangdong and the Greater Bay Area

The Greater Bay Area (GBA) encompasses the special administrative regions (SAR) of Hong Kong and Macao, and nine cities in the Guangdong province (see Figure 1). The GBA is the most important economic cluster in southern China. It accounts for 12% of China’s total output1 and together with the Jing-Jin-Ji economic zone (Beijing-Tianjin-Hebei) and the Yangtze River Delta region, forms part of the “two-horizontal and three-vertical” corridors that the central government envisages as the engine for the country’s economic growth. The GBA also plays a prominent role in the Belt and Road Initiative by connecting southern China with the countries in southeast Asia and beyond along the 21st Century Maritime Silk Road.2

The GBA is already well integrated in goods trade. Another key objective in the GBA development plan is to build an international financial hub through deeper regional integration in financial services. In February 2019, the central government and the State Council issued the “Outline Development Plan for the Guangdong-Hong Kong-Macao Greater Bay Area”, stating the objectives and development goals, as well as providing guidance for the GBA up to 2035.3 The outline promotes co-ordinated economic development by leveraging the comparative advantages of Guangdong, Hong Kong and Macao in the advanced manufacturing, innovation, finance, shipping, trade and leisure sectors.

1 Data from the National Bureau of Statistic of China.2 The GBA region, bordering China, the South China Sea, and facing Southeast Asia, has always been the

most important hub in southern China along the Maritime Silk Road. To the west, it is also adjacent to the North Bay area in Guangxi province, linking it to the ASEAN markets.

3 See Outline Development Plan for the Guangdong-Hong Kong-Macao Greater Bay Area.

The GBA, encompassing Guangdong province, Macao SAR and Hong Kong SAR, is an economic powerhouse and central to China’s Belt and Road strategy.

The central government is keen to further the integration of services, in particular financial services such as insurance, across the region.

Figure 1 Cities in the Greater Bay Area

ZhaoqingArea: 14 891 sq kmGDP: USD 33.3 billionPopulation: 4.15 M

FoshanArea: 3 798 sq kmGDP: USD 150.15 billionPopulation: 7.91 M

ZhongshanArea: 1 784 sq kmGDP: USD 54.9 billionPopulation: 3.31 M

JiangmenArea: 9 507 sq kmGDP: USD 43.83 billionPopulation: 4.6 M

ZhuhaiArea: 1 736 sq kmGDP: USD 44.1 billionPopulation: 1.89 M

MacaoArea: 33 sq kmGDP: USD 54.5 billionPopulation: 0.67 M

GuangzhouArea: 7 434 sq kmGDP: USD 345.44 billionPopulation: 14.9 M

HuizhouArea: 11 347 sq kmGDP: USD 62.0 billionPopulation: 4.83 M

DongguanArea: 2 460 sq kmGDP: USD 125.1 billionPopulation: 8.39 M

ShenzhenArea: 1 997 sq kmGDP: USD 366.0 billionPopulation: 13.03 MHong Kong

Area: 1 107 sq kmGDP: USD 362.66 billionPopulation: 7.48 M

Source: HKTDC, 2018 data

https://www.bayarea.gov.hk/en/home/index.html


Guangdong and the Greater Bay Area

Integrated financial services, including insurance as a central component, will be key to the successful development of the GBA, to help build overall resilience and improve risk management frameworks. The GBA is in one of the world’s most disaster-prone areas. Natural catastrophes are a main risk facing the region. The most significant perils are typhoons, followed by storms and floods.4 Guangdong’s government has made great efforts to address risks and protect against natural catastrophes, for example by purchasing parametric typhoon cover.5 However, the GBA also faces a significant health protection gap (HPG). SRI estimates the HPG in China to be USD 805 billion, and USD 23 billion in Hong Kong.6 For Guangdong, our rough estimate for the HPG is USD 50 billion, although this probably underestimates the HPG of the province given the large differences in income between tier-one cities and suburban regions.7

In the medium- to long-term, as China’s economy powers on, the proportion of middle- to high-income groups will expand, driving consumption and changing consumer demand. Health is an increasingly significant concern to both Chinese consumers and the government. As indicated in the government’s Healthy China 2030 Planning Outline, achieving a healthy China and boosting the development of the health industry are high priorities. With cooperation between Guangdong, Hong Kong and Macao, a market for cross-boundary medical insurance in the GBA can contribute towards the development of an integrated and high-quality medical sector in China.

The continual rise of living standards in mainland China has given rise to increasing demand for cross-border health and medical care. Cross-border medical care usually refers to domestic patients travelling overseas to consume more advanced medical services. The main countries that Chinese tourists visit for medical treatment are the US (49%) and Japan (21%).8 In 2017, for instance, the number of domestic patients who travelled abroad for medical services through Ctrip.com is estimated to be 600 000 – six times more than in 2015.9 The estimated figure for 2018 increases to 830 000. Patients who have travelled overseas for critical illness (CI) treatment and check-ups account for 68% of the total cross-border medical care. However, due to the regional differences in legal liability, medical regulations and norms, as well as language barriers, consumers seeking medical treatment overseas face higher risks. To a certain extent, cross-boundary insurance schemes can leverage the geographical and cultural proximity of Guangdong, Hong Kong and Macao to develop insurance products that are suitable for Chinese consumers and minimise the risks of cross-border medical treatment.

4 The risk landscape and insurance opportunities in the Greater Bay Area of China, Swiss Re Institute, April 2019.

5 Swiss Re has also partnered with a Chinese insurer to launch the country’s first mobile-enabled typhoon property parametric insurance solution in eight coastal provinces in Southeast China, including Guangdong, Zhejiang, Fujian, and Shanghai. It provides real-time tracking of typhoon paths and automated claims handling to different users including households and businesses, and thus helps accelerate economic recovery after natural disasters.

6 Asia’s health protection gap: insights for building greater resilience, Swiss Re Institute, October 2018.7 This estimation assumes an average HPG per household of USD 2 304, which is 1.33 times larger than

China’s average HPG of USD 1724. The difference is based on the difference in GDP per capita between China and Guangdong. Source: National Bureau of Statistics of China and Swiss Re Institute. Despite Guangdong’s population being 8-9 times as large as Hong Kong’s, the health protection gap (HPG) is only just about double. The reason for this is the difference in income and medical costs. The HPG per household in Hong Kong is USD 9,156.

8 “2018 Overseas medical intermediary services: An analysis of market scale and trends”, Forward -The Economist, January 2019.

9 Ibid.

Insurance services are crucial for the development of the GBA, protecting against natural disasters and closing Guangdong’s USD 50 billion HPG.

As China continues to grow, higher incomes will drive demand for high-quality medical care.

Many wealthy Chinese seek medical treatment abroad, pointing to strong demand for high-quality, integrated medical insurance across the GBA.

https://www.qianzhan.com/analyst/detail/220/190124-ceed23e8.html§

https://www.qianzhan.com/analyst/detail/220/190124-ceed23e8.html§


The large number of Chinese citizens buying insurance in Hong Kong demonstrates strong demand for L&H insurance from the mainland and Guangdong residents. New sales of life insurance in Hong Kong to mainland Chinese visitors (MCV) accounted for about one-third of total new premiums (HKD 47.6 billion) in 2018. CI and medical insurance sold to MCV in Hong Kong made up only 14% of total new premiums, but with a 23% increase from 2017 to 2018, it was the fastest growing line of business.10 The demand for medical treatment outside one’s home province primarily reflects ineffective resources, not a lack of resources. For example, there are more doctors and nurses per 1 000 citizens in Guangdong than in Hong Kong. However, health outcomes in Hong Kong are better and on average, Hong Kong citizens live six and a half years longer than their Guangdong compatriots (see Table 1 below).

For medical insurance in the GBA specifically, the central government stipulates the spread of “innovative cross-boundary medical insurance products” as a key objective of the 2035 development plan. The central government is keen for insurers in Hong Kong, Macao, and Guangdong to “provide facilitation services for cross-boundary policy holders” across the GBA, incrementally moving the region towards more open trade in services. SRI has partnered with market-research firm Ipsos to conduct a comprehensive study in the GBA to understand the needs of consumers. Conducted in two phases, including qualitative interviews and focus groups, and a quantitative survey with over 2 500 respondents, the study investigates residents’ attitudes towards buying medical and CI insurance products, and in particular how Hong Kong-based insurers would fare in an open GBA market place vis-à-vis their mainland competitors.

10 Data from the Hong Kong Insurance Authority.

The demand for Hong Kong insurance among consumers from mainland China is driven by better healthcare outcomes than at home.

Cross-border medical insurance is a key development aim of the government to help deal with the HPG and provide high-quality healthcare to GBA residents.


Guangdong’s social medical insurance system

Healthcare in Guangdong

Guangdong province has one of the more developed medical sectors in mainland China. A key indicator of the quality of healthcare is consumer demand, indicated by the inflow of patients from other provinces. In 2016, Guangdong took in 10.8% of all cross-province patients, coming just behind Shanghai, Beijing and Jiangsu.11

Statistics indicate, however, that Guangdong’s strength in healthcare is not owed to superior resources in materials and personnel. The ratio of healthcare personnel to population, as well as the number of hospital beds, are all comparable to the average statistics nationwide (see Table 1). The limited medical resources despite strong demand mean a heavier workload for healthcare personnel in Guangdong. On average, a Guangdong practitioner sees 11.2 cases per day, compared to 7.3 cases per day nationwide.12 To circumvent waiting times and pressures on services, residents may choose to go to Hong Kong for treatment instead.

Doctors per 1 000 residents,

2016

Nurses per 1 000 residents,

2016

Hospital beds per 1 000 residents,

2017–201913

Life expectancy,

2010

Guangdong 2.22 2.58 4.92 76.49Hong Kong 1.64 7.12 3.70 82.98China 2.31 2.54 5.72 74.83

Source: National Bureau of Statistics of China, Swiss Re Institute13

Patients in Guangdong, as in other parts of mainland China, are typically served by state-owned hospitals. These public hospitals are divided into three classes based on the number of beds: primary township hospitals (fewer than 100 beds); secondary district hospitals (100 to 500 beds); and tertiary city-level hospitals (more than 500 beds). Within each class there is a further sub-division based on medical, technical and management quality. These ratings are provided by the Ministry of Health, forming an official nationwide classification of hospital quality.14

11 An in-depth analysis of Guangdong’s healthcare human resources, July 2018, in Chinese only, see http://www.sohu.com/a/241753698_296660

12 Ibid.13 “It’s not just new homes, HK also needs more hospital beds”, ejinsight.com, 15 February 2019,

www.ejinsight.com/20190215-its-not-just-new-homes-hk-also-needs-more-hospital-beds/14 A detailed analysis of hospital ranking in China, July 2019, in Chinese only, see www.chachaba.com/

news/html/health/kaoshi/20150416_224785.html

Guangdong’s highly developed healthcare sector attracts patients from across the country.

However, the province is not better endowed with medical resources.

Table 1 Comparative statistics of healthcare in Guangdong, Hong Kong, and China

Public hospitals are categorised by size and ranked in terms of quality.

http://www.sohu.com/a/241753698_296660


Social security in Guangdong

China’s existing social healthcare system is a relatively recent development. With economic opening in the 1980s, the prior guarantees of lifelong employment, housing, healthcare and pension were discontinued, creating a need for a new system of social security. The dissolution of the rural commune also called for a replacement for the Cooperative Medical System based on collectivised organisation. In response, legislation enacted in the 1990s created a new social security system that made employers, rather than the state, responsible for social welfare contributions.15

Residents throughout Guangdong province are covered by their city governments for a variety of social security services including pensions, unemployment benefits, medical insurance and work-related accidents, amongst others. The eligibility varies depending on the residents’ hukou status,16 while contributions and pay-outs vary across cities (see Figure 2). SRI’s survey finds that residents in general perceive the social protection provided by the government in Guangdong as adequate as a basic safety net. However, when asked about the details of the social protection, our survey revealed that most citizens do not have detailed knowledge about the cover provided, especially for medical treatments.1718

15 China’s social security system, China Labour Bulletin, see clb.org.hk/content/china’s-social-security-syst and “Does China have universal health care? A long and better answer”, Inkstone News, 10 October 2018, https://www.inkstonenews.com/health/china-translated-does-china-have-universal-health-care/article/2167579

16 This refers to the person’s official identity as a resident of an area or a city, often linked to eligibility for social security benefits.

17 If there is a range of contribution specified by local governments, the upper limit of said contribution percentage is displayed in the table.

18 Housing accumulation fund refers to the fund contribution for employees to purchase mortgage on a preferential basis compared to personal housing loans, such as lower down payment ratio, lower interest rate and being withdrawable.

The current social security system was adopted in the 1990s.

Social medical insurance offers an adequate basic safety net.

Figure 2 Contribution of average annual income to social security by city17, 2019

Guangzhou Shenzhen Zhongshan

Employer Individual Employer Individual Employer Individual

Medical insurance 6.3% 2% 6.2% 2% 8.8% 3.7%Endowment insurance 14% 8% 14% 8% 13% 8%Work-related injury insurance 1.4% ‒ 1.1% ‒ 0.8% ‒Unemployment insurance 0.8% 0.2% 0.7% 0.3% 0.8% 0.2%Maternity insurance 0.9% ‒ 0.5% ‒ 0.8% ‒Housing accumulation funds18 12% 12% 12% 12% 12% 12%

Source: Local government websites, Ipsos, Swiss Re Institute

http://clb.org.hk/content/china’s-social-security-syst

https://www.inkstonenews.com/health/china-translated-does-china-have-universal-health-care/article/2167579


The current healthcare system in China consists of three nationwide schemes, with regional variations at the city and county level. Established in 1997, the Urban Employee Basic Medical Insurance scheme (UEBMI) is its most comprehensive plan, covering urban employees through a premium shared between employees and employers. The New Rural Cooperative Medical Scheme (NRCMS) was launched in 2003 to cover rural residents on a subsidised, voluntary basis. In 2007, the Urban Resident Basic Medical Insurance scheme (URBMI) was added to cover the non-employed urban population, also through subsidised, voluntary premium contributions.19 98% of Guangdong’s population is covered by social medical insurance as of 2018 (see Figure 3).20

Medical benefits under the social security system vary between towns and cities, between residents based on the patient’s Guangdong hukou and non-hukou status, between type of care received (outpatient or hospitalisation), and in some cities according to age and occupational status. The economic tiering of towns and cities in the GBA is also reflected in the degree of contribution and reimbursement. The lack of a one-size-fits-all system contributes to the lack of understanding and confusion about the level of medical cover provided by the public system.

19 C Süssmuth-Dyckerhoff and J Wang, “China’s health care reforms” in Health International, no. 10. McKinsey, 2010, see https://www.mckinsey.com/~/media/mckinsey/dotcom/client_service/healthcare%20systems%20and%20services/health%20international/hi10_china_healthcare_reform.ashx

20 Social medical insurance coverage reached 98% in Guangdong province, March 2019, see (in Chinese only) http://www.gd.gov.cn/gdywdt/bmdt/content/post_2211364.html

Almost all Guangdong citizens are covered under one of three social medical insurance schemes.

Figure 3 Overview of healthcare in Guangdong, 2018

New Rural Cooperative Medical System (NRCMS)5 million Voluntary basic medical insurance for rural residents Funded by government and individuals

Uninsured population2 million

Urban Resident Basic Medical Insurance (URBMI)64 million Voluntary basic health insurance for urban residents not eligible for UEBMI (eg seniors, unemployed, children, students, disabled) Funded by government and individuals

Urban Employees Basic Medical Insurance (UEBMI)42 million Mandatoty basic health insurance for urban employees of state-owned or private enterprises Funded by employers and employees

Source: National Bureau of Statistics of China

Social security contributions and benefits vary greatly.



The urban medical insurance system differs in terms of eligibility, contribution and reimbursement rate. The basic framework for contributions in UEBMI and URBMI is as follows:

UEBMI: The contributions of employers and employees are calculated based on the contribution base, which is an average of the employee’s monthly income in the previous year.21

URBMI: Residents pay a monthly fee which is then subsidised by the government to make up the total contribution.

Reimbursement rates also vary across cities and depend on the amount of medical costs, type of treatment (eg, imported or domestic medical supplies), and the tier of hospital. Importantly, at some hospitals there are also restrictions on the drugs and procedures provided. For many people, this means drugs of choice are not included within the social security system, resulting in out-of-pocket medical expenditure. This is a significant contributor to the HPG in China. For a more detailed breakdown of the social healthcare system across different tiers of cities in the GBA, please see Appendix I.

Citizens of Hong Kong SAR who reside in Guangdong are officially eligible for social security protection as long as they apply for their residency permit. For those who have lived in Guangdong for five years or longer, it is an important milestone to certify one’s residence rights and benefits. In most cases they seek not only medical benefits, but also a pension and funds for property purchase. These are attractive benefits that can help them plan long-term residency there.

Additionally, as part of a pilot project for GBA integration, residents from Macao will soon be able to participate in social health insurance schemes in the pilot zones of Zhuhai and Hengqin. This initiative is expected to expand to cover Macao residents in the whole of GBA.22

21 Social security contribution base = Previous year’s total income/12, max caps apply.22 “Macau residents in Zhuhai health pilot”, Insurance Asia News, April 2019, https://insuranceasianews.

com/macau-residents-in-zhuhai-insurance-pilot/

Contributions are subsidised by employers or the government.

Out-of-pocket spending is a significant contributor to the HPG in China.

Hong Kong citizens are eligible for social security in Guangdong…

…soon to be followed by Macao citizens.



Rising medical costs

Despite the high degree of coverage of social insurance schemes, healthcare remains a significant expense for most of the Chinese population. We highlight three key areas of concerns: (1) funding difficulties at the macro level; (2) lower service quality in state hospitals; and (3) significant out-of-pocket expenses.

First, healthcare costs in China have been rising at a rate that is 5 to 10 percentage points (ppt) higher than the rate of GDP growth in the past decade.23 Slowing economic growth, an ageing population and an increase in non-communicable diseases have contributed to an average cost increase of 8.4% per year over this time period. Local governments have begun to outsource some forms of social insurance to commercial insurers, in order to encourage alternative financing channels for medical treatment.

Second, the challenge of providing healthcare coverage to the majority of China’s large population means that medical resources are often overstretched, and that service quality will not be the same as in private institutions. Under the current system, medical personnel and equipment are concentrated in large, city-level hospitals, where patients visit for both major illnesses and minor ailments. This leads to long queues and short consultation times that decrease consumer satisfaction. Our consumer study respondents reflected that in some cases, doctors give little explanation due to time constraints and that they over-prescribe drugs. While Guangdong’s social security system works well as a basic safety net, more affluent residents may wish to purchase private medical insurance in order to access healthcare with better services (eg. at facilities in Hong Kong).

Third, despite near-universal health coverage, co-payments and deductibles in the social insurance schemes remain high. Out-of-pocket expenses make up 35% of all health expenditure in China, compared to an average of 14% in high income countries.24 Social medical coverage suffices for minor illnesses where the self-payable partition is minimal, but costs represent a significant burden in the case of major health expenditures. Our consumer survey study also shows high demand for CI protection through private insurance plans, indicating that higher coverage of major health risks is still needed. The government has drawn up plans to counter major health risks. For example, in 2015 the Shenzhen city government implemented a plan for supplementary medical insurance covering CI.25 Additionally, survey respondents express a desire for increased coverage of medical-related costs, such as appointment booking fees, imported drugs, check-ups, dental care and vaccinations. Due to the budgetary limitations of social security systems, we believe that needs beyond basic coverage will be better served through private insurance schemes.

23 Healthy China: Deepening Health Reform in China, World Bank, 2016.24 World Bank data, “Out-of-pocket expenditure (% of current health expenditure)”, 2016.25 Implementation measures for supplemental medical insurance scheme for critical illness in Shenzhen

city, Shenzhen social security fund management bureau, May 2018, see http://szsi.sz.gov.cn/sbjxxgk/zcfggfxwj/zcfg/ylbx1/201511/t20151102_3337436.htm

Despite broad uptake of social medical insurance, concerns remain.

Healthcare costs are rising at a faster rate than GDP growth.

Lower level of service at state hospitals increases demand for private healthcare.

Out-of-pocket expenses remain high.

http://szsi.sz.gov.cn/sbjxxgk/zcfggfxwj/zcfg/ylbx1/201511/t20151102_3337436.htm

http://szsi.sz.gov.cn/sbjxxgk/zcfggfxwj/zcfg/ylbx1/201511/t20151102_3337436.htm


Private medical insurance in the GBA

Private medical insurance accounts for only a small portion of total health expenditure (2%) in China.26 While traditional life insurance dominates premium income, health insurance is the fastest growing line of business, with a compound annual growth rate (CAGR) of 47% between 2012 to 2016. As Figure 4 shows, more than 70% of health insurance premiums come from CI products. Nearly 99% of these CI premiums come from individual products, sold mainly through life insurers’ agency channels. With respect to private medical reimbursement insurance premiums, more than 80% come from group channel, and less than 20% from individual sales. In recent years, there has been strong premium growth in individual sub-sections, such as mid-end medical products.

26 This is in contrast to 10% in Germany, 13% in Australia and 35% in the US (source: WHO).

Private insurance makes up a small part of China’s health spending.

Figure 4 Breakdown of private medical insurance premiums

0

50

100

150

200

250

300

201520142013201220112010

CI Medical reimbursement

RMB bn

19.2%

80.8%

98.9%

1.1%

Medical(reimbursement)

(72 bn RMB)

CI (lump sum)(169 bn RMB)Health insurance premiums

Group Individual

Source: National Bureau of Statistics of China and Swiss Re estimates


The development of the private medical insurance market in China can be categorised into four phases:

1. In the years prior to 2010, low-end medical products targeting the mass population within the social medical insurance (SMI) scope dominated the market. These products’ sum insured was around RMB 10 000 to 50 000, with main contribution from group business.

2. From 2010 to 2014, a niche market for high-end medical products emerged, targeting expatriates and domestic senior management. Comprehensive covers with access to both public and private hospitals were offered, with sum insured up to tens of millions RMB and annual premium in the range of RMB 10 000–100 000.

3. Since 2014, the first generation of mid-end medical products drew wide attention among the middle-class population, with coverage beyond the SMI scope but still limited to public hospital networks. Their sum insured is around RMB 200 000 and annual premiums around RMB 1 000 or above.

4. Finally, since 2016 the market has seen rising popularity of a new-generation of mid-end medical products among the lower middle-income class, alternatively called “Million Dollar Medical” products. The new feature of these products is a high deductible, a high sum insured (more than RMB 1 million) at an affordable premium rate as low as RMB 500 for the middle-aged. Altogether, mid-end products account for about 10% of the overall medical insurance market so far, highlighting that there is substantial room for growth and penetration into the mass affluent population.

Currently, no specific medical insurance products covering medical services in both the mainland and in Hong Kong/Macao are available to GBA residents. However, a number of cross-border medical products do exist, in the form of either high-end or mid-end products with varying protection scope. These are offered by insurers in both mainland China and Hong Kong. In recent years, mainland residents have developed a strong interest in medical treatment overseas. This is reflected in the large amount of new premiums sales in Hong Kong to visitors from the mainland, and also the fast growth of the CI and medical insurance markets.

To extend the reach of private insurance among GBA citizens still living in a system dominated by public insurance and out-of-pocket payments, we propose two approaches.

1. Local governments looking to improve services could establish partnerships with private insurers with specialised industry knowledge. Through public-private partnerships, insurers can offer supplementary coverage that smooths some of the imbalances in the coverage provided by the public system.

2. Three local government entities in the jurisdictions of Guangdong, Hong Kong and Macao should work together to facilitate the development of cross-boundary products, by offering supplementary medical coverage beyond the domestic public system’s service scope and annual caps.

The findings of our consumer survey in Guangdong province provides some useful insights here.

The private medical insurance market is still in nascent stage of development in China.

Some cross-boundary medical insurance products achieved fast growth in recent years, but not specifically targeting GBA residents.

Public-private partnerships could improve the public system. So would cooperation between the three GBA government entities.

Private medical insurance in the GBA


Consumer survey set-up

In the first half of 2019, SRI and Ipsos conducted a consumer survey in Guangdong province. The aim was to explore perceptions among residents about buying medical and CI insurance products in the GBA region. The survey consisted of two stages, qualitative interviews and a quantitative online questionnaire. The respondents range from 20 to 54 years in age, and included residents with local hukou status, immigrants from other provinces, and Hong Kong citizens living in Guangdong province. For more details of the survey methodology, please refer to the Survey Outline in Appendix II.

Consistent with national statistics data, 98% of respondents in our survey sample report that they currently enjoy all or part of the social security coverage, including medical insurance (96% of total sample), endowment insurance (88%), work-related injury insurance (72%), unemployment insurance (70%), maternity insurance (59%) and housing accumulation funds (74%). The penetration of social medical insurance reaches 96% among the working population but decreases slightly to 93% for the non-working population. In addition, the coverage rate of social medical insurance is slightly lower at 93% in tier-three cities.

Our study includes both qualitative and quantitative surveys.

Figure 5 Demographic distribution of online sample (sample size = 2 550)

20 to 24: 21%25 to 34: 34%35 to 44: 29%45 to 54: 16%

Tier 1: 31%Tier 2: 49%Tier 3: 20%

Single: 24%Married without children: 6%Married with children: 67%Others: 3%

Male: 53%Female: 47%

Age City of residence* Family status Gender

* We categorise Guangzhou and Shenzhen as Tier 1 cities; Dongguan, Foshan, Huizhou, Zhongshan and Zhuhai as Tier 2; and Jiangmen and Zhaoqing as Tier 3.

Source: Ipsos, Swiss Re Institute

Around 98% of survey respondents enjoy all or part of the social security coverage.

Survey results: GBA consumers’ preference towards private medical insurance


High popularity of CI and medical insurance

Despite the high coverage ratio of social medical insurance, respondents showed a strong desire for CI and medical reimbursement products when choosing amongst the different L&H insurance products offered by the market. CI and medical reimbursement rank as the top two products both in terms of current ownership and intent to purchase in the next 12 months (see Figure 6). Additionally, our survey data shows that consumers tend to buy the same medical/CI products for their family members, including children, partners and parents, given they have already purchased the product for themselves.27 This shows us, that GBA consumers prioritise medical expense protection above their retirement and old-age needs when it comes to choosing private insurance solutions to supplement their social security benefits.

0% 10% 20% 30% 40% 50% 60%

Consider for next 12 monthsPurchased

Long-term care

Disability

Annuity

Short-term saving

Long-term saving

Life / Mortality

Accident

Medicalreimbursement

Critical illness


In both the qualitative and quantitative phases of the survey, people showed great concern over how medical expenses and the rising cost of treatment might impact their lifestyle planning. Some interviewees during the qualitative phase also said that buying extra medical cover would provide income security during hospitalisation without burdening their family. Furthermore, our analysis of medical needs across different income groups reveals that such concerns are near universal, with variations between different sub-groups mainly reflecting increasing demand for quality services as incomes increase (see Figure 7). The low-income group is mainly concerned about medical coverage and expense, while the middle-income group would like to have better medical services and access to drugs not available in public hospitals. Top earners are more concerned about quality of care, including professionalism in services provided by doctors. Along the income spectrum, people have an increasing willingness to pay for medical insurance as their personal/household income increases.

27 Survey results show that 36% of respondents have both purchased and intend to purchase medical and CI insurance in the next 12 months, for the purpose of topping up the level of coverage provided by the public social security system.

CI and medical insurance are the two most popular life and health products.

Figure 6 Incidence of life and health products purchased, and intention to purchase, for self

Different income groups show concerns on medical costs.



The ownership rates of CI and medical reimbursement products, as reported by survey respondents, also vary by age group. As Figure 8 illustrates, people between the age of 20 and 34 are more likely to buy medical than CI insurance. Demand for CI insurance increases as people get older. This pattern holds within different tiers of cities, and is particularly prominent in tier-one and tier-two locations, highlighting the market potential among the younger population for improved take-up rate of CI insurance.

40

45

50

55

60

65

70

Aged 45–54Aged 35–44Aged 25–34Aged 20–24

Critical Illness Insurance Medical Insurance

53%

48%

55%

55%

60%

48%

62%

47%


Figure 7 Top concerns about medical care by monthly personal income groups (RMB)

Below 7k 7–9k 9–10k 10–15k 15–20k 20–30k Above 30k

Expense incurred with serious or chronic diseases are not fully covered

Services I need (e.g. dental care, vaccination) are not covered

Prescribed drugs are over-priced

Need to pay in advance of consultation

Unaffordable medical service at private medical providers

Lack of privacy during consultation

Upgrade from Tier 2 to Tier 3 hospitals is not possible


Long waiting time for diagnosis

Upgrade from Tier 2 to Tier 3 hospitals is not possible


Appointment booking is non-claimable

Long waiting time for diagnosis

Appointment booking is non-claimable

Expense incurred for mild conditions are not fully covered

Hard to reserve an appointment

Poor doctor service

Unprofessional diagnosis

Escalation of insurance premium

Lack of a consistent doctor to follow through my case

Expense incurred for mild conditions are not fully covered

Hard to reserve an appointment

Price versus coverage

Waiting to be reimbursed

Private medical services and privacy

Better hospital and Privacy Waiting times and appointments

Quality of Care

Coverage of expenses Privacy/private services Upgrade of hospital Waiting times and appointments Quality of care Others


Self-reported ownership rate varies across age subgroups.

Figure 8 Ownership of CI and medical insurance by age group



Consumer preferences during the purchase journey

In the quantitative survey, we asked respondents about their attitudes toward choosing an insurance provider and deciding between different types of medical insurance products. Brand reputation, financial strength of the insurer and professionalism of the agent stand out as the top three factors when selecting an insurer. For medical insurance products specifically, the quality of claims payment including the speed of claims reimbursement, and the breadth of medical coverage are key factors (Figure 9). While the reliability of claims processes and speed of pay-outs are consistent with consumers’ focus on the credibility of an insurance company, the coverage level for CI and inpatient expense reimbursements highlight the importance of thoughtful product design. Digital applications and customer service such as online access to medical services or being able to make digital payments, are perceived as less important.

0% 10% 20% 30% 40% 50%

Types ofhospitals covered

Quality of medicalcare provided

Percentage of inpatientexpenses covered

Reliability of claims

Speed of pay-outs 43%

42%

39%

33%

33%


In response to the rise of the digital economy in mainland China, we also investigated tech-savvy Chinese consumers’ attitudes towards online versus offline channels in initiating their purchase journey (see Figure 10). Not surprisingly, some consumers use online channels to shortlist insurers, but input from family and friends also plays a crucial role in their purchasing process. More importantly, our survey showed that agents are still indispensable during the application process, in particular for high sum-insured medical plans.28 For instance, among the respondents who indicate an interest in subscribing to products offered by Hong Kong insurers, 26% said they would still prefer Chinese insurers before agents from Hong Kong insurers become locally available in the GBA region.

28 Other traditional communication channels include television, newspaper, and direct mail.

Claims handling and breadth of medical coverage are determining factors when choosing an insurer.

Figure 9 Top 5 factors considered when purchasing medical insurance

Tech-savvy Chinese consumers use online channels for research, but agents remain indispensable during the application process.


Testing product concepts

Currently, there is no integrated medical insurance product specifically targeting GBA residents available in the market. For existing cross-boundary products, many differences exist in terms of medical definition, terms and conditions, and regulation. Considering these differences, Swiss Re Institute tested two product design concepts in our survey to explore the business opportunity of medical insurance in the GBA.

Pure-protection CI insurance product as a preferential featureFirst, the survey found that GBA residents prefer standalone CI cover over bundling CI insurance with a savings component. According to the question on factors considered when purchasing CI insurance (see Figure 11), only 16% of respondents indicated that the total or guaranteed returns of savings imbedded in a CI policy are important factors for them. Probing further, we asked respondents to choose between “CI only” and “CI + savings” products. Figure 11 shows that a higher percentage of respondents reject the idea of combining CI insurance with a savings feature. In terms of willingness to pay, most respondents are willing to pay similar amounts for CI products, irrespective of product design structures. Having a savings component does not pique their interest: they would not pay extra for a savings component.

52% 54%

9%

16%

0

10

20

30

40

50

60

CI + savingsCI onlyCI + savingsCI only

% people who may buy* % people who may not buy**

* denotes the respondents indicating they would definitely or probably buy

** denotes the respondents indicating they would definitely or probably not buy


Figure 10 Top 5 channels for insurance subscription

*Note: Figures for LHS chart add up to more than 100% due to multiple answers to the question of information search.

Source: Ipsos, Swiss Re Institute0

1020 30 40 50 60

Social Media

Search engine

Websites of HK insurers

From family,friends or colleague

From insurance agents

Websites of CN insurers 59%

46%

45%

41%

38%

22%

19%

18%

14%

13%

36%

Information search Application channel

0510

15 20 25 30

Visitation to insurancecompany office

Insurance company app

Broker

Face-to-faceservice with agent

Insurance companywebsite

Given the lack of specific products for GBA residents, SRI tested two design concepts during our survey to explore the business opportunities of medical insurance in the GBA

Consumers show interest in pure protection-type insurance products ...

Figure 11 Product bundling of CI and savings


There are two exceptions. First, pockets of consumers consider return of premiums attractive. Among the factors considered when choosing CI insurance, a slightly higher percentage of respondents (19%) who also express comparatively stronger interest for insurance from Hong Kong providers, regard the return of premiums as an attractive feature.29 Also, among the current owners of CI insurance, respondents demonstrate a strong preference in increasing the CI protection for their children and to add the long-term savings component in the policy.

Cross-boundary medical coverage in high demandSecond, we tested customers’ preference regarding coverage of medical reimbursement insurance. When presented with different coverage choices for cross-boundary medical treatment, a higher percentage of respondents hold the view that comprehensive medical expense coverage in both mainland China and Hong Kong hospitals is more appealing. These statistics indicate a large market potential in the GBA for developing cross-boundary medical insurance products, once other concerns and barriers have been removed.

29 This result is consistent with the prevalence of “CI + savings” product on Hong Kong market, which is deemed as a competitive advantage.

... with some exceptions.

Fuller coverage of medical expenses is preferred.



Strategic positioning of Hong Kong insurers

According to our survey results, the majority of residents living in Guangdong province buy private medical insurance from mainland insurers. Only 14% of respondents have ever purchased from insurers in Hong Kong, in spite of the latter’s geographic proximity. While 14% is higher than the national average, it is nonetheless indicative of the low penetration of Hong Kong insurance products, in particular CI and medical insurance, in the GBA region. Our statistics show that Guangdong residents tend to buy savings and annuity products for their family members from Hong Kong insurers. Leveraging on this trend to promote protection-type medical products could be a viable strategical option for private insurers.

Overall, the results of our survey show there is much room for Hong Kong insurers to catch up with mainland insurers, and to demonstrate the competitiveness of their medical insurance products. In this chapter, we investigate the driving forces of Hong Kong insurers to service different types of customers, and offer some insights for better positioning of Hong Kong insurers in the GBA.

Drivers, barriers and value-added services from Hong Kong insurersWe investigated what the key drivers and barriers to insurance purchases are for GBA consumers considering insurance products from Hong Kong-bassed insurers. As illustrated in Figure 12, the wider scope of medical coverage available, alongside insurers’ credibility and ability to handle claims efficiently are seen as the key comparative advantages of Hong Kong insurers. The rate of investment returns on the savings element of a policy and the ability to use a digital application pre- and post-sales are of less importance in influencing buyers’ decision-making.

010

20 30 40 50 60

Flexibility to acceptdigital payments

Guaranteed returnof the savings

Total return of savings

Financial stability ofthe insurance provider

Access to “further”overseas treatment

Speed of pay-outs

Access to “nearer”overseas treatment

Reliability of claims

Better hospitals

Better or widerchoice of drugs

Fuller coverage inbroader types of illness

Medical coverageInsurer credibility

Investment returnDigital

58%

46%

42%

42%

37%

35%

33%

24%

17%

16%

12%


Questions about legal and financial issues involved in cross-boundary transactions are a major hurdle for those shopping for insurance. Figure 13 highlights that cross-boundary jurisdictional issues concerning contract interpretation, claims procedure and capital flow controls are the main barriers to purchasing from Hong Kong insurers. These concerns are mentioned across different types of residents, including Hong Kong citizens living and seeking medical treatment in Guangdong province.

Currently, insurers from mainland China are dominant in the GBA.

There’s plenty of catch-up potential for Hong Kong insurers.

Efficient claims handling and broader scope of coverage are top drivers of purchases of cover from Hong Kong insurers.

Figure 12 Drivers for Hong Kong insurers

However, legal and financial hurdles currently put people off purchasing insurance from Hong Kong insurers.

Pointers for Hong Kong insurers intending to expand in the GBA


Some say they lack a sense of security, fearing that the rights of mainland purchasers vis-à-vis Hong Kong insurers cannot be guaranteed. Different approaches to enforcement of consumer rights in the region are also an issue, as well as the design of policies and mode of payments, which respondents believe to be for the benefit of Hong Kong residents, rather than those living in mainland GBA. Discrepancies in medical language also have an impact on product relevancy. Whether these concerns are legitimate or a matter of perception, SRI believes that the governments in the three jurisdictions and private insurers should collaborate to resolve these issues to ease consumer concerns throughout the purchasing journey.

05 10

15 20 25 30 35 40

Lack of acceptanceof digital payments

Currency regulation

Difference in medicalterms and definition

Premium is higher thanMainland CN insurers

Risk of change of CN government policy

Difficulties in openinga bank account in HK

More complicatedapplication procedures

Different jurisdiction/T&Cof the policy

More complicatedclaims procedures

Difference incovered conditions

Different jurisdictionCross-border currency regulation

PriceDigital

38%

37%

36%

35%

30%

29%

27%

24%

20%

10%


Lastly, we tried to identify a number of new value-added services that do not currently exist in products offered by Hong Kong insurers in mainland China, but could potentially improve Hong Kong insurers’ competitive edge in selling to GBA residents. Consistent with the results of our previous product design testing, 48% of respondents voted for hospital service in Hong Kong as the top value-added service they expect from Hong Kong insurers. Following that, 42% of respondents advocate linking insurance policy records with the social security system in mainland China. The acceptance of RMB for premiums payment and claims pay-outs was mentioned by 37% or respondents. There is already widespread debate that when more concrete regulation is enacted on the Hong Kong government’s proposed Insurance Connect plan, Hong Kong insurance companies will set up physical and virtual service centres in the mainland China part of GBA, addressing some of the macro concerns among insurance shoppers.30

30 The Insurance Connect initiative is part of the plan to allow mutual access to financial products between Hong Kong and other GBA cities. The initiative may include medical and motor insurance products during the inception stage. However, there is no timetable for it yet.

Mainland GBA citizens are particularly concerned about their rights vis-à-vis Hong Kong insurers in Hong Kong, as well as discrepancies in language and the design of policies.

Figure 13 Barriers for Hong Kong insurers

Value-added services could give Hong Kong insurers more edge.



Customer segmentation for Hong Kong insurersOur comprehensive survey on customer behaviour and medical insurance provides a golden opportunity to study the unique preferences of different sub-groups across age groups, income level and city tiers. We outline the corresponding business strategies for Hong Kong insurers to target these potential customer segments.

For people aged 34 and under, we recommend using social media to target young people with messages conveying the lower cost of CI insurance for young consumers. As Figure 8 above indicated, the penetration rate of CI insurance is relatively low among those aged 34 and under, particularly in tier-one and -two cities where there are more young and healthy immigrants who lack awareness with respect to risk of serious illness. However, amongst those who currently do not have CI insurance, many feel that their level of protection under the social security system is inadequate, but few have taken action to add cover. At the same time, we observe that they are willing to pay premiums on par with people in the 35–55 age group, indicating their acknowledgement of the comparative advantage of purchasing CI protection at an earlier stage of life. The impact of social media (eg, Weibo, WeChat, etc) plays a more important role in triggering information search and intent to purchase. Encouragingly, those aged 25–34 are more likely to consider insurance from Hong Kong insurers than other age segments (Figure 14), which reveals additional opportunity.

To court the segment of consumers aged 35-55 who generally fear complicated contracts and claims processes, we recommend streamlining claims submission and simplifying the language of the policy’s terms and conditions. In addition, to gain traction with this age group, insurers should use opportunities to cross-sell to other family members. This group is more financially robust and seems less worried about the fluctuation of a foreign currency or the difficulty of opening a bank account in an offshore market. Stability is their top priority, evidenced by their emphasis on an insurance provider’s financial soundness and ability to resolve claims quickly. Nonetheless, this segment remains highly loyal to the mainland China insurers they are familiar with, and state explicitly that they consider mainland insurers to be more trustworthy.

Our survey provides insights for business strategy.

For customers aged 34 and under, affordability is a key selling point.

Figure 14 Consideration towards Hong Kong insurers by age group and city tier

29%

39%42%

32%28%

42%

33%

39%

29%

49%

41%39%

Tier 1 city Tier 2 city Tier 3 city

0

10

20

30

40

50

60

Aged45–55

Aged35–44

Aged25–34

Aged 20–24

Aged45–55

Aged35–44

Aged25–34

Aged20–24

Aged45–55

Aged35–44

Aged25–34

Aged20–24


Simple policy language and an easy claims process appeal to older customers.



For the lower- to middle-income population, broader coverage of drugs, medical conditions and medication services at competitive prices are key selling points. The social medical insurance coverage of this sub-group is limited, but at the same time the sub-group is sensitive to the cost of private medical insurance. Nonetheless, this least penetrated market segment represents a huge opportunity for Hong Kong insurers. As Figure 15 shows, residents of tier-three cities are more polarized, with medical insurance in particular less owned by lower-income households. On the other hand, residents from tier-three cities express stronger interest in Hong Kong insurers than other segments, and are more likely to be attracted by service features such as access to cross-boundary treatment and reimbursement for outpatient expenses.

*MPI: monthly personal income


Providing high-quality international customer service will be a key differentiator for Hong Kong insurers targeting affluent customers in mainland China. Our survey found that high net worth (HNW) individuals are more likely to own medical insurance, and are willing to pay high premiums for it. In exchange, they expect high-quality customer service. This group already demonstrates a preference for Hong Kong insurance providers. Coverage for treatment outside Guangdong, ability to access hospital services in Hong Kong, and less waiting time for diagnoses (eg, a green channel31) would make Hong Kong insurance more appealing. Another selling point – in addition to brand reputation and the financial strength of an insurer – is the professionalism of agents. Once a reliable relationship is established between HNW customers and their agent, they tend to purchase additional medical protection in the future.

31 This is the priority channel for “VIPs”.

Low- and middle-income customers want high-value products.

Figure 15 Ownership of medical insurance by income level and city tier

50%

60%

50%

60%

46%

64%

0

10

20

30

40

50

60

MPIRMB 15k+

MPI belowRMB 15k

MPIRMB 15k+

MPI belowRMB 15k

MPIRMB 15k+

MPI belowRMB 15k

Tier 1 city Tier 2 city Tier 3 city

Gap: 10% Gap: 10% Gap: 18%

Affluent customers value quality care and customer service


Realising the potential of health and medical insurance in GBA

Understanding customer preferences is crucial to setting the strategy direction for Hong Kong insurers. Our study provides insights for insurers in the region to consider while regulations and policy for closer collaboration are taking shape. A few areas with important implications for insurers include:

Speed and reliability of claims paymentsWith respect to medical and CI insurance, speed and reliability of claims payments are top concerns. Allowing insurers in Hong Kong to establish service centres in Guangdong province would help to expedite claims payments and provide an additional channel for customers to communicate their concerns. Over time, we believe, this will boost GBA citizens’ confidence in Hong Kong insurers’ ability to handle claims.

Product designMedical reimbursement: Most respondents in the study were well aware that social security covers their medical needs, essentially providing a safety net. However, demand for better-quality and supplementary medical care is growing. As illustrated in Figure 7 above, when they become more affluent, customers care more about privacy, waiting time, ease of making appointments and quality of care. This trend will continue as income levels in the region continues to increase.

The study also reveals that customers in the Guangdong province have a positive perception of medical care in Hong Kong, citing better quality of care and a wider range of drugs. However, Hong Kong insurers should be aware of the significant difference in the ecosystem and customer expectations of medical insurance between Hong Kong and Guangdong. For example:

1. Differences in premium expectations. The mid-end medical product is one of the individual medical plans that have become very popular in mainland China. The annual premium of such products can be as low as CNY 300. In Hong Kong, on the other hand, medical insurance products are typically much more expensive. For example, a basic plan of Voluntary Health Insurance Scheme (VHIS) offered by insurers in Hong Kong could be 8-9 times more expensive than similar products from mainland insurers.32

2. Differences in product design. Many medical plans in Hong Kong have benefit caps (eg, a daily limit for room and board reimbursement) that are calibrated to reflect the prices charged by local healthcare providers. As such, Hong Kong insurers could have difficulties in adjusting the reimbursement rates based on prices charged by medical practitioners in Guangdong. In addition, customers from the mainland may need time to familiarise themselves with the benefit caps design, which is not part of the mid-end medical product commonly available in mainland China.

3. Challenges in servicing and infrastructure. Insurers and medical providers in Hong Kong may need to consider the reality of capacity limits while promoting medical coverage in Hong Kong. Finding suitable product features or a mechanism to drive an appropriate level of usage of facilities in Hong Kong will be critical for the development of such products over the long run.

We believe that with careful consideration and planning, there is significant opportunity for insurers in Hong Kong to develop products suitable for residents in the Guangdong region.

32 VHIS refers to Voluntary Health Insurance Scheme, which covers standard medical reimbursement products that are qualified for tax benefits offered by the Hong Kong Government.

In anticipation of greater integration, insurers should focus on:

1. Maintaining Hong Kong’s good reputation in handling claims.

2. Offering tailored medical insurance products for different GBA client segments.

3. Working to bridge the differences in the Guangdong and Hong Kong medical insurance ecosystems.



Critical illness: The study further verified that customers value protection against major illnesses. We believe that pure protection products against major illnesses is an area for further development for insurers operating in the GBA region. Our research suggests that customers in the area perceive coverage offered by Hong Kong to be more comprehensive, and this is a major selling point for Hong Kong insurers. At the same time, consumers are concerned about differences in covered illnesses, and policy terms and conditions. With CI insurance in Hong Kong continuing to become more comprehensive and more complex, being able to explain the offering to consumers in clear, simple language is becoming more important than ever. Since a company’s website is one of the key information sources for customers, insurers may need to employ techniques like behavioural economics in delivering information and promotion in this area.

Use of data and technology The current industry-wide trend in mainland China is to develop digital platforms that use technology and data to optimise the whole insurance value chain. For instance, the availability of non-traditional data on health check-ups and behavioural aspects from third-party platforms enables the creation of predictive models that automate decision-making. To implement a holistic end-to-end process that complies with data privacy legislation, Hong Kong insurers can set up technology platforms to link data from third-party health management services with their underwriting rule engine, enabling better understanding of risks and faster decision-making.

Another potential area for use of non-traditional data is in risk scoring. Alternative data such as credit scores are being used as a proxy to assess risk as part of underwriting. The Sesame credit score,33 which was launched in 2015, is based on five dimensions – Identity, Compliance, History, Networking and Behaviour – and is now used to provide personalized access to financial services and non-financial transactions. The score can be a supplementary tool for underwriting, as long as data privacy is ensured, an example of leveraging external data instead of traditional evidence.

Lastly, digital technologies such as facial and voice recognition is already employed in identifying and detecting fraud. Although the use of this type of technology in underwriting is still in the inception stage, we believe there is a large potential for sophisticated digital solutions to be developed in the near future.

33 Sesame credit score is a private credit scoring and loyalty program developed by Ant Financial Services Group, part of Alibaba Group. For details, please refer to www.xin.xin

4. Consumer concerns about CI insurance in Hong Kong being too complex and difficult to understand

Leveraging mainland digital platforms is a viable option.

Non-traditional data sources can be used to improve risk scoring.

There is plenty of scope to increase the use of digital technologies in underwriting.


Connecting with mainland social security schemes Medical products in Hong Kong are not integrated with the national health insurance of mainland China, which could be one reason why products in Hong Kong are significantly more expensive. Hong Kong insurers are trying to better understand the medical system in the GBA, from the classes of hospitals (in terms of their charges and quality) to the national health insurance system, from coverage design and logistics (and how these vary within GBA) to the interpretation of medical records and bills. SRI believes that a systematic approach to understanding the medical and other social insurance systems of the GBA could help insurers in Hong Kong design products that better cater to the needs of GBA residents.

This could be important for Hong Kong citizens residing in GBA as well. Current medical plans offered by insurers in mainland China have not gained much traction among Hong Kong citizens living in the GBA. The main reason is that medical plans in China (especially mid-end medical) are very heavily integrated with China’s National Health Insurance system, which is not accessible to Hong Kong citizens (whom do not hold resident status). In addition, Hong Kong citizens residing in GBA may still prefer obtaining medical treatment in Hong Kong (made easy by frequent trips and family in Hong Kong). With China’s National Health Insurance schemes expanding to cover more Hong Kong/Macao citizens living in the mainland, the attractiveness of medical plans that are linked to the social security framework will increase over time.

Outlook for health insurance in the GBA

The integration of services across the GBA will take time. Progress will not be linear but will happen in phases, and will require the coordinated effort of multiple stakeholders. In the short-term and without a licence to distribute insurance directly in Guangdong, Hong Kong insurers may consider expanding their value-added services through additional services centres across the region. Building up their infrastructure will require considerable operational changes, but will help to strengthen their brand presence and facilitate claims payments, a key concern for local residents. Hong Kong insurers should also focus on expanding their digital footprint in Guangdong.

In the medium term, we expect access to the GBA insurance market to be further liberalised. However, some restrictions may continue to apply. Also, issues such as providing for the free flow of capital and premiums across borders, data privacy considerations and legal arbitration need to be resolved before the GBA can become one insurance market. To gain a foothold in the market, Hong Kong insurers could consider working with Hong Kong-based hospital groups, for example, to provide medical services in Guangdong comparable with those available in Hong Kong. In individual cases, for major illnesses or where drugs are only available in Hong Kong, the hospital could consider referring patients to their Hong Kong facility for treatment.

The longer-term outlook of the GBA medical insurance market will hinge heavily on government efforts to streamline regulations and reduce legal barriers, as well as to facilitate innovation while preserving sufficient protection of consumer privacy. Facilitating consumer exchange among the three jurisdictions would be a positive development, however, data privacy and data security will always need to be ensured.

Connecting medical insurance with mainland social security schemes will improve product attractiveness…

…and could benefit Hong Kong citizens living in the GBA as well.

Progress towards integrating services in the GBA will require coordinated efforts of all stakeholders

Many barriers need to be cleared to fully realise the potential of GBA insurance market…

…and this will depend heavily on resolving regulatory and legal issues.


Conclusion

Expanding cross-boundary medical insurance is a key objective of China’s central government’s 2035 development plan for the GBA. We estimate that Guangdong province faces a health protection gap of more than USD 50 billion annually. In this study, we highlight the significant opportunities for Hong Kong insurers, as long as data privacy and data security are assured, to offer competitive products and help to close the health protection gap, once cross-boundary legal hurdles are removed and consumer perception issues are addressed.

Closing the health protection gap requires the collaboration of government and insurers to design more customised solutions to address the medical care and insurance needs of GBA residents. We believe the optimal solution would be a market that offers customers a broad range of private medical insurance products. This is achievable, in our view, by combining the capacity of service infrastructure and leveraging insurance providers’ reputation and a record of professional service. This outcome would also ease the burden on public coffers to fund health services.

SRI foresees that once the proposed Insurance Connect programme is enacted within the GBA, it will be easier for Hong Kong-based insurers to serve the needs of the GBA residents, particularly if they prepare for this by planning to set up physical and virtual service centres in Guangdong. In the medium- to long-term, as economic and cultural integration takes hold across the region, the GBA will benefit from better medical safety, moving closer to fulfilling the promise of Healthy China 2030 and helping to close the substantial health protection gap that exists across all three jurisdictions of the GBA.

Expanding cross-boundary services is a key objective of the central government’s 2035 GBA development plan.

Allowing Hong Kong insurers to operate in Guangdong (and vice versa) will help close China’s health protection gap.

The Insurance Connect programme should result in a better insurance offering for GBA citizens and help China fulfil its Healthy China 2030 target.


Appendix

Appendix I: Breakdown of the social healthcare system across different tiers of cities in the GBA

Guangzhou Tier 1

Shenzhen Tier 1

Dongguan Tier 2

Huizhou Tier 2

Zhaoqing Tier 3

2017 urban resident disposable income

55,400 52,938 46,739 36,608 28,276

Employer – employee contribution rate

7%–2% 6.2%–2% 1.6%–0.5% 6.5%–2% 5.5%–2%

Inpatient Claim rate

80%/50%/ 45% for I/II/III hospitals

90% Low cost: 85–95% Medium cost: 75–85% High cost: 65-75%

95%/85%/ 75% for I/II/III hospitals

91%/85%/80% for I/II/III hospitals

Outpatient Claim rate

Pooled account 30% Personal account 70%

50% Capped 150

Source: Local government websites, Swiss Re Institute.

Appendix II: Survey outline

Phase one was a qualitative exploration consisting of five focus groups in tier-one cities and three individual interviews in tier-three cities throughout the Guangdong province. The qualitative interview results informed the hypothesis and research design of the following quantitative survey. The focus groups involved Guangdong residents who had purchased insurance in Hong Kong in the last 12 months, those who intended to purchase and had undertaken some initial research, as well as citizens of Hong Kong SAR who had been living in Guangdong for more than five years (and are therefore eligible for social security), and those for less. There were additional criteria based on age, income, and other factors, as shown below.

Selection criteria: Mix of female and male, aged 25–50 years Own at least one insurance product, eg, life, medical, health, CI, personal accident Monthly household income of at least RMB 10 000 (Tier 1 city) or RMB 6 000

(Tier 3 city) Mainlanders, as well as citizens of Hong Kong living in Guangdong: Mix of local

hukou and non-local hukou from Guangzhou and ZhongshanPhase two involved a quantitative evaluation of online questionnaire results. The questionnaire was designed to be mobile-compatible and take approximately 15 minutes to complete, covering key topics identified during Phase 1.

The Swiss Re Institute survey was conducted in two phases.

Key topics covered by the questionnaire:

Who Target & decision maker Financial products spending Profiling Lifestyle, attitude Income Profession

What Protection gap Current insurance provision Types of insurance Attitudes to insurers Triggers and barriers to Hong Kong

insurers

How Satisfaction with existing

insurance providers Switching and source of volume

analysis Channel and media usage Perceptions of digital insurance

Respondents had to be men and women aged 20 to 54 who were involved in the decision making of the insurance purchase. The total sample size was 2 550 respondents from the following cities: Tier 1 (n=400 per city): Guangzhou, Shenzhen Tier 2 (n=250 per city): Dongguan, Foshan, Huizhou, Zhongshan, Zhuhai Tier 3 (n=250 per city): Zhaoqing, Jiangmen

Published by

Swiss Re Management LtdSwiss Re InstituteMythenquai 50/60P.O. Box8022 ZurichSwitzerland

Telephone +41 43 285 2551Email [email protected] Swiss Re Institute has a global presence with offices in New York, London, Bangalore, Beijing, Hong Kong and Singapore.

AuthorsJessie GuoEconomist, Swiss Re Institute

Finn KruegerSenior Economist, Swiss Re Institute

Stephen KwanHealth & Medical Solutions Manager

We thank Vivien Cai and Stephanie Manfor their support in researching, writing,and translating for this publication.

EditorPaul Ronke

Managing editorsDan RyanHead Insurance Risk Research, Swiss Re Institute

Marianne GilchristHead L&H Globals and South Asia

Clarence WongChief Economist Asia, Swiss Re Institute

The editorial deadline for this study was 25 August 2019.

The internet version may contain slightly updated information.

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Order no: 1507630_19_EN

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