Pricing Private Health I nsurance Products in China by Dr. Chen Tao - PowerPoint PPT Presentation

Pricing Private Health I nsurance Products in China by Dr. Chen Tao from Southwestern University of Finance and Economics, Chengdu, P. R. China Dresden, April 26, 2004

Content Products and market of private health insurance in China � Data resource and actuarial assumptions of pricing � Actuarial model and pricing process in practice � Actuarial regulation of pricing private health insurance business � in China Future of private health insurance and health actuary in China � April 26, 2004 Dr. Chen Tao, School of Insurance, SWUFE 2

I ntroduction of Chinese Urban Worker ’ s Basic Medical I nsurance System (UBMS) 100 million urban workers covered in 2002-CMLSS � Contribution rate: 6% and 2% of wages � Risk pooled fund/medical saving account � Personal saving account for out-patient service fee � Mutual fund reimburse for hospital service expense � � deductible of 500-1000 Yuan RMB and coinsurance 20% -30% � yearly reimbursement maximum: 40000-70000 Yuan RMB April 26, 2004 Dr. Chen Tao, School of Insurance, SWUFE 3

The role and potential market of private health insurance in China The role in Chinese national health insurance system � � Supplementary to the limitation and maximum of UBMS � A good replacement for whom not covered by UBMS The potential/actual market � � 300 billion Yuan RMB /22.27 billion Yuan RMB The challenges in market developing � � Lack of professional and experience � No effective regulations in health service market April 26, 2004 Dr. Chen Tao, School of Insurance, SWUFE 4

The actual market: providers and products 29 life and 8 property insurance companies provide over 300 � health insurance products in 2002 Most are medical insurance products, no really long-term care � and disability income products Three predominant products � � Critical illness insurance/cancer insurance � Hospital indemnity insurance/hospital daily allowance � Supplemental major medical insurance April 26, 2004 Dr. Chen Tao, School of Insurance, SWUFE 5

Data resource The internal data is very limited due to short history � Health actuaries have to rely on external data � � Twice National Investigation of Health Service (1993,1998) Lacking of professionals and IT system to accumulate and � analyze the real claim record, health actuaries have to relying on the above external data in the near future April 26, 2004 Dr. Chen Tao, School of Insurance, SWUFE 6

Actuarial assumptions in pricing yearly renewed products Morbidity � � Using external data to form the morbidity and continuance table contingency Margin � � 30% to 200% of the risk premium Expense � � Can not divided expense into every health insurance product � 35% in individual business and 25% of group business Profit and tax � April 26, 2004 Dr. Chen Tao, School of Insurance, SWUFE 7

Morbidity table Table 2.1: Hospitalization rate in China ( ‰ ) Hospitalization rate in China (‰) Urban resident rural resident Age Men women man women 120 111 0- 60.69 51.96 51.4 33.97 Urban resident Men 100 Urban resident women 5- 22.78 26.73 20.99 12.39 rural resident man 80 79.55 77.93 10- 16.75 12.96 17.26 11.52 rural resident women 67.67 64.8 60.69 60 20- 24.33 79.55 20.24 47.48 51.96 51.4 50.18 50.31 49.68 48.05 47.48 42.37 40.79 30- 31.24 50.18 26.04 35.04 40 38.43 36.67 33.97 35.04 31.24 30.61 26.73 26.04 40- 40.79 49.68 30.61 36.67 24.33 22.78 20.99 20.24 20 17.26 16.75 12.96 12.39 11.52 50- 67.67 77.93 38.43 48.05 0 60- 111 64.8 50.31 42.37 0- 5- 10- 20- 30- 40- 50- 60- April 26, 2004 Dr. Chen Tao, School of Insurance, SWUFE 8

Continuance table Table 2.2: Average hospital stay of Average hospital stay of inpatient in China (days) inpatient in China (days) 50 Age Urban inpatient Rural inpatient 45 43.4 Urban inpatient 40 0- 12.38 7.42 35 35.51 34.08 Rural inpatient 33.49 5- 17.26 12.44 30 25 10- 18.37 12.75 20 20.48 18.92 20- 20.48 14.32 18.37 17.26 17.27 16.3 15.93 15 14.32 12.38 12.44 12.75 30- 33.49 16.3 10 7.42 40- 34.08 18.92 5 0 50- 35.51 17.27 0- 5- 10- 20- 30- 40- 50- 60- 60- 43.4 15.93 April 26, 2004 Dr. Chen Tao, School of Insurance, SWUFE 9

Additional actuarial assumptions in long term or life long products Mortality � � The three annuity table, CL4-CL6 (1990-1993) Interest � � Technical rate of interest not exceed 2.5% Lapses rate � � Usually can not get enough experience data to make it Trend factor � � Yearly rising rate of medical expense is 10-15% April 26, 2004 Dr. Chen Tao, School of Insurance, SWUFE 10

hospitalization rates are relatively steady The t r end of hospi t al i zat i on r at e i n Chi na ( % ) 6 5. 45 4. 94 4. 71 4. 62 1998 5 1993 4 3. 44 3. 25 2. 79 2. 87 3 2 1 0 Ur ban/ m en Urban/ wom en Rur al / m en Rural / women April 26, 2004 Dr. Chen Tao, School of Insurance, SWUFE 11

Average days of hospital stay is decreasing Aver age days per hospi t al St ay 14 1 3 . 3 1 2 . 8 1 2 . 3 12 1 1 . 7 11. 4 1 1 . 0 1 0 . 7 10 1 0 . 1 8 6 4 2 0 1995 1996 1997 1998 1999 2000 2001 2002 April 26, 2004 Dr. Chen Tao, School of Insurance, SWUFE 12

Hospitalization expense is rising Average expense per hospi t al St ay ( Yuan RMB) 4000 3597. 7 3500 3245. 5 3083.7 3000 2891. 1 2596. 8 2500 2384. 3 2189. 6 2000 1668 1500 1000 500 0 1995 1996 1997 1998 1999 2000 2001 2002 April 26, 2004 Dr. Chen Tao, School of Insurance, SWUFE 13

Outpatient expense is rising Average expense per out pat i ent v i s i t ( Yuan RMB) 120 100 99. 6 9 3 . 6 8 5 . 8 80 79 6 8 . 8 6 1 . 6 60 5 2 . 5 40 3 9 . 9 20 0 1995 1996 1997 1998 1999 2000 2001 2002 April 26, 2004 Dr. Chen Tao, School of Insurance, SWUFE 14

The principles of pricing Adequacy � � A very conservative premium rate Reasonableness � � Health actuary gives less attention to this Competitiveness � � Not higher than that from other insurers Equity � � Get the help from the health underwriter April 26, 2004 Dr. Chen Tao, School of Insurance, SWUFE 15

Pricing process of individual products Yearly renewable products � � Annual claim cost= the risk premium � Net premium = risk premium + safety loading � Gross premium = expense + net premium Long-term products � � Pricing critical illness insurance is similar with life insurance � Few opportunity to calculate level premium � Pacific-Anta Life Insurance Company/life long hospital daily allowance product in Shanghai April 26, 2004 Dr. Chen Tao, School of Insurance, SWUFE 16

Pricing process of group products most are yearly renewable medical expense insurance � three kinds of models: manual rating, experience rating and � blended rating At the beginning, only manual rating methods were used due � to regulation reasons In 1998, experience and blended rating methods were used to � group supplemental major medical insurance April 26, 2004 Dr. Chen Tao, School of Insurance, SWUFE 17

re-rating Initial rate guaranteed for 12 months in current market � Monitor the development of the claims and identify significant � changes Insurer in China stop sell the old products need a rate � increase and replace it with a new one April 26, 2004 Dr. Chen Tao, School of Insurance, SWUFE 18

Actuarial regulation of pricing The Insurance Law of 1996 and the 2002 revised version � Contract/premium table/calculating process must submit to � regulator for review and approval Actuarial Regulation of Health Insurance -CIRC,1999 � Pricing process is regulated strictly but not professionally � April 26, 2004 Dr. Chen Tao, School of Insurance, SWUFE 19

Other aspects involved with pricing The management of anti-selection and moral hazard � Uncertainty and risk aversion � The demand for health insurance � Marketing channel � Regulation restrict � April 26, 2004 Dr. Chen Tao, School of Insurance, SWUFE 20

Future of private health insurance in China The chance to make money � Industry is changing dramatically � The ability to handle the risk of operation, the ability to make � profit April 26, 2004 Dr. Chen Tao, School of Insurance, SWUFE 21

health actuaries in China: today Less than 30 in Mainland China, employed by life insurance � company Work part-timer in health business and responsible for price � process Pricing health insurance is the most difficult among all � insurance business In China it is impossible because of insufficient data, unsound � regulation and changing environment April 26, 2004 Dr. Chen Tao, School of Insurance, SWUFE 22

health actuaries in China: future The Chinese health actuaries are still young, just like the � private health insurance industry in China, but the emerging market also offers many natural experiments to aid of the progress of these young health actuaries April 26, 2004 Dr. Chen Tao, School of Insurance, SWUFE 23

For further information you can contact me with the following address Dr. Chen Tao School of Insurance Southwestern University of Finances and Economics No 55, Guan Hua Cun Street, Cheng du, 610074, P. R. China Tel: 86-28-87356220(H), Fax: 86-28-87352029 E-mail: dr_chentao@hotmail.com April 26, 2004 Dr. Chen Tao, School of Insurance, SWUFE 24