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

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

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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

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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

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April 26, 2004

  • Dr. Chen Tao, School of Insurance, SWUFE

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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
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April 26, 2004

  • Dr. Chen Tao, School of Insurance, SWUFE

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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

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April 26, 2004

  • Dr. Chen Tao, School of Insurance, SWUFE

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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

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April 26, 2004

  • Dr. Chen Tao, School of Insurance, SWUFE

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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

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April 26, 2004

  • Dr. Chen Tao, School of Insurance, SWUFE

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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

  • n the above external data in the near future
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April 26, 2004

  • Dr. Chen Tao, School of Insurance, SWUFE

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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
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April 26, 2004

  • Dr. Chen Tao, School of Insurance, SWUFE

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Hospitalization rate in China (‰)

60.69 22.78 16.75 24.33 31.24 40.79 67.67 111 51.96 26.73 12.96 79.55 50.18 49.68 77.93 64.8 51.4 20.99 17.26 20.24 26.04 30.61 38.43 50.31 33.97 12.39 11.52 47.48 35.04 36.67 48.05 42.37

20 40 60 80 100 120 0- 5- 10- 20- 30- 40- 50- 60- Urban resident Men Urban resident women rural resident man rural resident women

Morbidity table

42.37 50.31 64.8 111 60- 48.05 38.43 77.93 67.67 50- 36.67 30.61 49.68 40.79 40- 35.04 26.04 50.18 31.24 30- 47.48 20.24 79.55 24.33 20- 11.52 17.26 12.96 16.75 10- 12.39 20.99 26.73 22.78 5- 33.97 51.4 51.96 60.69 0- women man women Men rural resident Urban resident Age

Table 2.1: Hospitalization rate in China (‰)

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April 26, 2004

  • Dr. Chen Tao, School of Insurance, SWUFE

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Average hospital stay of inpatient in China (days)

12.38 17.26 18.37 20.48 33.49 34.08 35.51 43.4 7.42 12.44 12.75 14.32 16.3 18.92 17.27 15.93

5 10 15 20 25 30 35 40 45 50 0- 5- 10- 20- 30- 40- 50- 60- Urban inpatient Rural inpatient

Continuance table

15.93 43.4 60- 17.27 35.51 50- 18.92 34.08 40- 16.3 33.49 30- 14.32 20.48 20- 12.75 18.37 10- 12.44 17.26 5- 7.42 12.38 0- Rural inpatient Urban inpatient Age

Table 2.2: Average hospital stay of inpatient in China (days)

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April 26, 2004

  • Dr. Chen Tao, School of Insurance, SWUFE

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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%

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April 26, 2004

  • Dr. Chen Tao, School of Insurance, SWUFE

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The t r end of hospi t al i zat i on r at e i n Chi na ( % )

  • 4. 71
  • 4. 94
  • 2. 79
  • 3. 44
  • 4. 62
  • 5. 45
  • 2. 87
  • 3. 25

1 2 3 4 5 6 Ur ban/ m en Urban/ wom en Rur al / m en Rural / women

1998 1993

hospitalization rates are relatively steady

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April 26, 2004

  • Dr. Chen Tao, School of Insurance, SWUFE

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Aver age days per hospi t al St ay

1 3 . 3 1 2 . 8 1 2 . 3 1 1 . 7

  • 11. 4

1 1 . 0 1 0 . 7 1 0 . 1

2 4 6 8 10 12 14 1995 1996 1997 1998 1999 2000 2001 2002

Average days of hospital stay is decreasing

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April 26, 2004

  • Dr. Chen Tao, School of Insurance, SWUFE

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Average expense per hospi t al St ay ( Yuan RMB)

1668

  • 2189. 6
  • 2384. 3
  • 2596. 8
  • 2891. 1

3083.7

  • 3245. 5
  • 3597. 7

500 1000 1500 2000 2500 3000 3500 4000 1995 1996 1997 1998 1999 2000 2001 2002

Hospitalization expense is rising

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April 26, 2004

  • Dr. Chen Tao, School of Insurance, SWUFE

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Average expense per out pat i ent v i s i t ( Yuan RMB)

3 9 . 9 5 2 . 5 6 1 . 6 6 8 . 8 79 8 5 . 8 9 3 . 6

  • 99. 6

20 40 60 80 100 120 1995 1996 1997 1998 1999 2000 2001 2002

Outpatient expense is rising

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April 26, 2004

  • Dr. Chen Tao, School of Insurance, SWUFE

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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

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April 26, 2004

  • Dr. Chen Tao, School of Insurance, SWUFE

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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

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April 26, 2004

  • Dr. Chen Tao, School of Insurance, SWUFE

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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

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April 26, 2004

  • Dr. Chen Tao, School of Insurance, SWUFE

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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

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April 26, 2004

  • Dr. Chen Tao, School of Insurance, SWUFE

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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
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April 26, 2004

  • Dr. Chen Tao, School of Insurance, SWUFE

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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
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April 26, 2004

  • Dr. Chen Tao, School of Insurance, SWUFE

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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

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April 26, 2004

  • Dr. Chen Tao, School of Insurance, SWUFE

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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

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April 26, 2004

  • Dr. Chen Tao, School of Insurance, SWUFE

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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

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April 26, 2004

  • Dr. Chen Tao, School of Insurance, SWUFE

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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