Asia has been experiencing a rapidly growing demand for health insurance, particularly in markets like China, driven by the increasing popularity of fixed-benefit products such as critical illness and personal accident insurance. Over the past decade, these trends have resulted in double-digit increases in health insurance premiums, significantly impacting the reinsurance support available in emerging markets with limited health insurance penetration and high out-of-pocket healthcare expenses. The rising premiums are largely attributed to the popularity of these products and escalating medical costs. A notable example is China, where a multi-year critical illness product has led to higher medical costs due to increased cancer screenings and medical inflation. Reinsurers like Hannover Re initially embraced these products but faced challenges that led to a reevaluation of their strategies.
Rising Premiums and Claims in China
In China, the rapid growth in health insurance premiums has been stark, driven by the increasing cost of medical services and the popularity of comprehensive products like critical illness insurance. Over the years, the medical costs associated with these products have surged, partly due to increased cancer screenings and general medical inflation. Consequently, reinsurers, tasked with supporting primary insurers financially, have had to navigate this evolving landscape with caution. Hannover Re, a significant player in the reinsurance market, initially ceased underwriting certain critical illness products in 2016 due to rising medical costs. However, they recently reported a material increase in reserves linked to these products and have since reduced their exposure to stabilize their operations.
The COVID-19 pandemic has further influenced the demand dynamics in China, causing a noticeable shift towards more comprehensive indemnity-type health products. Primary insurance carriers in China have responded by introducing new products targeting specific demographic groups such as seniors, youth, and women. This shift has been facilitated significantly by the Chinese government’s proactive measures, which include granting private insurers access to population health data and, in some cases, even supporting their operational capabilities. As insurers adapt to these changes, the collaboration between government initiatives and the private sector has become crucial in meeting the evolving healthcare needs of the population.
Limited Market Expansion for Reinsurers
Despite the high demand for reinsurance, the formation of new reinsurers in China remains restricted due to regulatory challenges and a general lack of interest from the capital markets. However, for existing players in the market, there lies a significant opportunity, with approximately 10% of health products’ reinsurance cessions indicating potential for substantial growth. Reinsurers continue to identify the Asian health insurance segment as a promising diversification opportunity, despite the hurdles in setting up new entities within the region.
In Southeast Asia, reinsurers play a crucial role in supporting the growth of health insurance amidst increased claims frequency and medical inflation. Primary insurance carriers, faced with rising medical costs, have been compelled to implement substantial rate hikes. This, in turn, has led to an increased need for reinsurance to provide capital relief and enable further product expansion. The interplay between primary insurers needing financial coverage and reinsurers eager to diversify their portfolios accentuates the mutually beneficial relationship driving the market dynamics in these regions.
Future Prospects and Challenges
Despite the high demand for reinsurance in China, the creation of new reinsurers is limited due to regulatory hurdles and a lack of interest from capital markets. This presents an opportunity for existing players, especially with around 10% of health products’ reinsurance cessions suggesting potential for significant growth. Reinsurers continue to view the Asian health insurance sector as a promising diversification avenue, despite the difficulties in establishing new entities in the region.
In Southeast Asia, reinsurers are essential in supporting the growth of health insurance amid rising claims frequency and medical inflation. Primary insurance carriers, grappling with escalating medical costs, have been forced to implement substantial rate hikes. Consequently, the need for reinsurance to provide capital relief and support product expansion has intensified. The interaction between primary insurers seeking financial coverage and reinsurers aiming to diversify their portfolios underscores the mutually beneficial relationship that shapes market dynamics in these regions.
