Eureka moment: Health insurers need help

China's private insurance industry is seeing unprecedented development opportunities as well as huge challenges and insurers need advanced technologies to mitigate operation risks.

Xing Jing, born in Beijing in 1985, is helping reshape China’s health and other insurance plans with entrepreneurship that started with a single calculation.

Back in 2014, at the request of senior fellow apprentice, she made a rough estimate of China’s coverage ratio of per-capita health insurance and was surprised to find the number stood between 0.2 and 0.3.

This was much lower than in developed countries like US, where about six of seven Americans have basic health insurance protection.

Learning of this result, Xing’s elder sister, who worked in an investment bank and was busy trying to introduce a miracle drug for liver cancer to China, decided to give up that project because she reckoned the lack of insurance coverage would price ordinary patients out of access to such a medicine.

Xing said she was shocked by the decision and that was her eureka moment.

She concluded that personal health insurance gives people who have fallen ill more opportunities and treatment options. The more people covered by such insurance, the more willing pharmaceutical companies will be to introduce new and effective drugs here.

Despite majoring in the field of insurance, Xing said she really didn’t understand its true nature until 2011, when she bought her first apartment and her grandmother was in poor health. She came to realize that she would have to bear some burden of medical costs for family members and insurance was the ideal instrument to transfer such risk.

“People must be at a certain age before they see the need for insurance," she said she realized.

So she set about trying to figure out how she could help effect change in the insurance sector. First, she set up an insurance technology company called Shanghai Renascence Insurtech Ltd, hoping to embolden the traditional industry with technology, especially in the areas of life insurance and health insurance.

Thanks to the booming Internet economy, more Chinese are choosing to buy insurance online, and their awareness about the industry is giving them a greater say in what vendors sell.

Last year, Internet life insurance premium income rose to 138.3 billion yuan (US$20.14 billion), according to the Insurance Association of China. That’s a small figure compared with the industry as a whole, signaling untapped potential, as data from the top industry watchdog showed that 2017 saw a total of 2.14 trillion yuan of original life insurance premium income.

In July 2015, the China Insurance Regulatory Commission eased the rules governing the booming Internet insurance sector to allow insurers to expand their business into personal accident injury insurance, term life insurance and ordinary whole life insurance.

To ride on this wave, Pramerica Fosun Life Insurance Company launched a term life product last December which became popular due to its strong protection element and lower premiums.

Players old and new have been jostling to win a bigger market share by appealing to the “Internet generation.” However, many underwriters still stick to old-fashioned ways of selling insurance -- asking potential policyholders to fill out questionnaires.

That is “too simple,” Xing said. The more people who are not very eligible and pass into the pool, the more compensation will be incurred.

It is very hard for traditional players to change their business operation model, she said. In health insurance, they often lack strong risk control capabilities to sift out policy-seekers hiding pre-existing medical conditions, and it isn’t easy to define the level of risk in the context of insurance, Xing said.

“When people know how insurance works, they will make it work for themselves,” said Xing.

As such, insurers are being forced to resort to big data and artificial intelligence in a bid to mitigate growing risks to their operations. Xing said that is why she chose to set up a company dedicated to risk pricing for insurers.

Xing’s firm seeks to get more people covered and create more reasonable pricing for everyone. It wants more choices for people who want to hedge their risks via insurance. They are trying to pair insurance firms and technology companies.

Theoretically, the pricing of insurance policies is based on the core element of “being fair enough,” Xing explained.

People who are super healthy should enjoy more preferential prices and be able to buy plans with higher coverage, while those who have health problems should be required to take physical examinations or do smart online underwriting to further confirm their conditions.

With a population nearing 1.4 billion, China now has nearly universal basic state health insurance coverage. Although around 90 percent of the people are covered under the program, the coverage is limited and some medical fees have to be paid out-of-pocket.

For example, the reimbursement rate for chronic diseases like diabetes tends to be quite low, and cutting-edge innovative drugs are usually excluded from the state insurance plan.

Thus, ever-growing medical costs and public demand for high-quality medical services can no longer be fully addressed by the stressed-out healthcare sector.

To bridge the coverage gap and woo more citizens to get private insurance, China’s Ministry of Finance, the State Administration of Taxation and the then-China Insurance Regulatory Commission announced at the end of 2015 that the country would roll out a pilot program of preferential personal income tax policies in 31 core cities. The program was expanded nationwide in July 2017.

Huang Ruizhi, assistant to the sectary of the Insurance Association of China, said at a recent event that the policies are an “historic opportunity” to develop the insurance industry.

Citing the aging population, the association predicts that personal health insurance will top 1 trillion yuan by 2020.

Insurance companies are vying for a piece of this big cake. Alibaba’s financial affiliate Ant Financial Services Group launched a new product called Xiang Hu Bao jointly with Trustmutual Life Insurance Company this October. It went viral online quickly, attracting 20 million users in a month.

Unlike conventional insurance plans, Xiang Hu Bao allows its members to enjoy protection “for free” as long as they meet certain credit requirements. When a policy-holder falls ill, other fellow members then “lend a helping hand” by sharing the medical expenses. A member may also receive assurance cash.

Under the regulatory pressure, the product has been renamed as a mutual aid plan on November 27, 2018 and it will no longer be an insurance plan, according to a latest announcement from the Ant Financial Services and Trustmutual Life.

Still in an early stage

However, compared with other developed markets, China’s health insurance market is still in its infancy and plays a limited role in satisfying the public’s medical and health needs, a report from the Insurance Association of China said.

 For example, per-capita health expenditure covered by commercial health insurance is less than 6 percent in China, while more than 35 percent in the US and more than 10 percent in France and Canada.

On the wider issue of insurance technology, Xing said insurance will inevitably develop a close relationship with technological advances. Insurance companies have to cope with long-term and unpredictable risks while serving the whole life cycle of their customers.

Xing and her team are now focusing on developing business related to critical diseases and medical insurance. And they are now teaming up with overseas medical research institutes to bring in more frontier clinical technology like Proteomics data analysis.

Compared with genes that show who you are, Proteomics technology helps indicate what kind of person you are. Your lifestyle leaves marks on the proteins, and that can help make more precise predictions on the changes your body may undergo in the next three to five years, Xing explained to Shanghai Daily.

For example, customers who have thyroid or breast nodules would be largely excluded from the current health insurance underwriting. If these groups of people want to be covered, they will need to apply for a more precise protein test to further clarify their conditions.

Thanks to its strong ability in data analysis, Renascence Insurtech can help reduce the cost of such test from US$1,000 to a more affordable US$100, Xing said.

“We aim to quantify what exact benefits technology will bring to each insurance plan, to the underwriters and to the whole society,” Xing said. “It is a worthwhile profession.”

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