In-depth: Ageing Asia
- Over the past 50 years, life expectancy at birth across OECD countries is more than 10 years higher than it was in 1970.
- In China the almost 1 billion strong working age population is set to contract by almost 25% by 2055, while other nations working age populations are growing
- Japan has had an ageing population longer than most, and can be used as an informative case study for insurance and healthcare
- An insurance based solution would seem to be the sensible option for the challenges China faces in caring for an ageing population
- In China the government has introduced the huiminbao program, a supplementary insurance for major and critical diseases, such as cancer. It operates as a high-deductible, high-limit medical benefit and has been designed to provide additional insurance coverage
- InsurTech case studies: Intellisures, MeiMei Care
The world has experienced a once in a century event with the COVID-19 pandemic over the last two years. Medical science has been a major part of our defence against the global crisis. It has also been responsible for a new wonder, extending human life to deliver the greatest longevity in history, affecting the insurance and healthcare industries dramatically.
Over the past 50 years, life expectancy at birth has now reached 81 years on average across OECD countries – more than 10 years higher than it was in 1970.
Health systems have delivered this improvement, and are today stronger, offering more accessible and higher quality care. Increased incomes, better education and improved living standards all contribute to the improvement.
Progress has slowed over the last decade, though, despite the wider adoption of healthier lifestyles. This is partly due to the law of diminishing returns reducing the impact of medicine on cancer and heart disease. But there is also a huge onslaught from the impact of chronic lifestyle related illnesses such as type 2 diabetes, as a result of the growing obesity problem from the wider adoption of a Western diet in Asia.
The demographic timebomb
Ultimately, this means that the world’s population is living longer, but with long term chronic illnesses and greater need for long term care in their final days.
On average, almost 11% of citizens of OECD countries receive long term care in a range of settings, from their own home, through to dedicated institutions. But as this section of the population grows, this creates a huge potential liability for that aged population, the state institutions that support them and potential opportunities for the insurance industry.
In China, the next generation has a heavy burden to bear.
The almost 1 billion strong working age population is set to contract by almost 25% by 2055. It’s not alone, as many countries, particularly in western Europe will experience a similar contraction without increased immigration.
But its economic competitor – though, perhaps, nemesis is more apposite – the USA will see its working population grow by more than 12%.
The wisdom of strangers
The problem is not new, as Japan has had an ageing population longer than most.
Care of the elderly was traditionally the legal and moral responsibility of the eldest son, who was the sole benefactor on the death of his father.
That changed after the World War II, though remained a social norm.
This is where insurance began to take the burden of care, particularly long term care.
Free healthcare was introduced for the elderly and disabled in the early 1970s. The number using it increased dramatically so that new insurance backed structures were introduced by the government.
However, it was apparent at the end of the last century that costs needed to be controlled to avoid the cost more than doubling to 10 trillion yen by 2010. This spending level was reached only in 2018, though largely due to a lack of inflation
The cost to the individual is high. Those aged 40 to 64 enrolled in the largest social insurance plan saw their contribution rate double to 1.73% of salary in 2019.
As costs have continued to increase, benefits have been reduced and eligibility thresholds raised to provide care for those who need it most. If the Japanese were to design it all over again, they would develop something very different.
The UK market used to offer a number of policies that covered health including long-term care. They were generally considered too expensive and by the early 2000s, there was little demand for them.
The intervening years have demonstrated how expensive elderly health and residential care is both for government, which covers universal healthcare and residential care for those without means. The private sector takes up the slack, but there is limited choice and the expense of residential care is eye watering.
This has led to a cultural and existential crisis within policymaking as to whether it is right for government to encourage or compel citizens to save for the future only to consume any potential legacy at the point care is required.
An insurance based solution would seem to be the sensible option for the challenges China face in caring for an ageing population.
The private sector has had success in establishing demand for healthcare products across different social strata, but it cannot support a universal system.
The government has introduced the new huiminbao program, a supplementary insurance for major and critical diseases, such as cancer. It operates as a high-deductible, high-limit medical benefit and has been designed to provide additional insurance coverage.
Huiminbao can be purchased by anyone regardless of pre-existing conditions or age, though there may be limitations placed on the extent of cover.
It simply can’t go on
Unlike the digital or agent channels used by the private sector to distribute its products, huiminbao relies on government controlled channels such as the metro system.
The purchase is made more complex in China, as the customer/policyholder is not necessarily the beneficiary of the cover. It is quite common for individuals to be insured by their children, rather than the insured themselves.
This further negates some of the benefits that digital insurance has developed in recent years, as interaction with customers simply isn’t possible.
As of 31 May 2021, 140 products had been launched across 26 provinces. Private insurers such as Ping An, Manulife, and AIA are encouraged to insure the risk, even if it represents a loss-making exercise for otherwise profitable companies.
This is a structural problem for huiminbao. Most – but not all – critical illnesses are covered, for policyholders who do not require medical exams for the purpose of underwriting and who receive generous benefits for relatively low premiums.
In its current form, huiminbao hardly looks sustainable, with high expense and loss ratios leaving little over to develop a more efficient model.
This is where public/private partnerships offer InsurTechs an opportunity to shine.
Centaurus is one that is working with the Chinese government to this end [See InsurTech Analysis here]. It has identified that 70% of all costs of huiminbao arising from the complications of chronic diseases, and is developing advanced analytics from access to half a billion patient cases to quantify risk and minimise waste and abuses in China’s public hospitals.
So far, others have failed in this regard, but controlling costs and removing waste will not only improve huiminbao’s loss ratio, but show how products in this space could be built as sustainable and profitable.
Leading lights in China’s healthcare InsurTech sector
Intellisures is developing novel health insurance products for the elderly.
By designing a rider product that works as a subscription instead of insurance, Intellisures has resolved two problems; first, that insurance for the elderly will need to be sold not bought, and second, that insurance for retirees is an unprofitable pursuit for insurers.
The subscription allows the elderly policy holder to attend a doctor practising within the pre-approved hospital Intellisures network.
Additionally, the product includes insurance for extreme cases where surgery is needed – for example hip replacement, transplants, or brain surgery.
The strength of Intellisures stems from the fact that insurers have traditionally avoided this sector, while the target buyer is the working age children of retirees – most of whom will contribute to the financial costs on caring for their parents.
Meimei Care is approaching senior care with a range of hardware devices that cater to everything from stroke detection, Alzheimers patient monitoring, and co-ordination of analytics for nursing homes.
We’re all in it together
The challenges facing China are replicated in all developed economies. Costs need to be controlled and both the industry and the government is looking to InsurTech to provide the means to make the healthcare model work.
In the end, a more sustainable structure will also improve outcomes for the growing numbers of policyholders enrolled in these products.
Japan – and Singapore – are seeking to drive up health insurance cover among the population to reduce the burden on the state, but it should not be seen merely as a cost cutting exercise.
The fact that populations are ageing needs to be addressed holistically. It is not a single point in time to react to, but the shape of a nation’s future for a prolonged period, potentially of many years, even decades, if the trend is ever reversed.
This affects not only societal relationships, but the interaction of every aspect of the economy and therefore must be tackled as a whole.
Nations must take a whole-of-government approach, not tinker with elements if the problems are to be addressed and risks mitigated.
More and deeper partnerships with the insurance industry are likely to be needed, changing the scope of the industry, perhaps, but providing opportunities for those who can make a difference to the ticking timebomb that extended human longevity has created.