Firms rush­ing to in­vest in a hot sec­tor

China Daily (USA) - - BUSINESS -

Gam­ing firms, real-es­tate com­pa­nies and drug mak­ers in China are chas­ing what they hope will be the coun­try’s next hot com­mod­ity: pri­vate health in­surance.

At least 29 pub­licly traded Chi­nese com­pa­nies have an­nounced plans to in­vest in com­mer­cial in­surance busi­nesses since 2015, ac­cord­ing to a re­port from re­searcher VC Beat and cor­po­rate state­ments. The new ven­tures are fo­cused partly, or en­tirely, on health in­surance, an area where af­flu­ent Chi­nese fam­i­lies are ramp­ing up spend­ing.

The China In­surance Reg­u­la­tory Com­mis­sion es­ti­mates that pre­mium in­come for pri­vate health in­sur­ers jumped by 94 per­cent in the first seven months this year. That topped the last year’s al­ready sub­stan­tial 52 per­cent surge, fu­eled by pol­icy in­cen­tives and China’s ris­ing preva­lence of chronic con­di­tions like heart disease.

“The growth is sus­tain­able be­cause all the driv­ers will con­tinue to be there, es­pe­cially the de­mand for health care ser­vices,” said Luo Ying, part­ner and man­ag­ing di­rec­tor at con­sul­tancy Boston Con­sult­ing Group.

In an Au­gust re­port, BCG and in­surer Mu­nich Re es­ti­mated that the mar­ket mea­sured by pre­mium in­come will more than quadru­ple from 240 bil­lion yuan ($36 bil­lion) last year to 1.1 tril­lion yuan by 2020.

Bur­dened by the ris­ing cost of its vast pub­lic health sys­tem, China has for years sought to en­cour­age pri­vate com­pany en­trants. Those ef­forts gained a sub­stan­tial boost re­cently from a 31-city trial pro­gram, which pro­vided an in­come tax ex­emp­tion on in­surance pre­mium pay­ments, al­beit for only up to 2,400 yuan a year.

The emer­gence of pri­vate health in­surance is a new trend and most peo­ple in China still rely on a govern­ment-backed scheme which doesn’t cover many costly drugs for dis­eases like can­cer. Pa­tients also face lengthy de­lays at pub­lic hos­pi­tals for care. Pri­vate health in­surance ac­counted for only about 7 per­cent of per­sonal health ex­pen­di­ture in China last year, ac­cord­ing to BCG.

Com­pa­nies ven­tur­ing into health in­surance range from drug man­u­fac­turer Kang­mei Phar­ma­ceu­ti­cal Co and phys­i­cal check-up chain Meinian One­health Health­care Hold­ings Co to even prop­erty de­vel­oper Sun­ing Universal Co and Dalian Zeus En­ter­tain­ment Group Co, which de­vel­ops on­line games.

Alibaba Health In­for­ma­tion Tech­nol­ogy Ltd. the health care arm of bil­lion­aire Jack Ma’s Alibaba Group Hold­ing Ltd, in

The growth is sus­tain­able be­cause all the driv­ers will con­tinue to be there.” Luo Ying, part­ner and man­ag­ing di­rec­tor, Boston Con­sult­ing Group

April an­nounced plans to form a joint ven­ture with part­ners in­clud­ing China Taip­ing In­surance Hold­ings Co for in­ter­net health in­surance-re­lated op­er­a­tions in China. Ow­ing to govern­ment re­stric­tions on for­eign in­vest­ments in health in­surance, multi­na­tion­als like Cigna Corp and Al­lianz SE often op­er­ate through joint ven­tures with lo­cal part­ners in China.

Health-re­lated com­pa­nies often in­vest in in­surance to pro­vide a more com­plete range of ser­vices, while other firms might be seek­ing to di­ver­sify into a high-growth busi­ness, said Zhao Heng, founder of a lo­cal health care con­sul­tancy called Lat­i­tude Health.

As China con­tin­ues to ur­ban­ize and age, com­mer­cial health in­surance has en­tered a state of rapid de­vel­op­ment and in­vest­ing in a health in­surer rep­re­sents a step in Sun­ing Universal’s tran­si­tion to­ward the finance sec­tor, the com­pany said in an Aug 25 state­ment.

Still, there are sev­eral chal­lenges. The health in­surance busi­ness re­quires scale and it can be chal­leng­ing for small com­pa­nies to make money, said BCG’s Luo. “There­fore, non-in­surer in­vestors need to be very care­ful when en­ter­ing this mar­ket.”

Get­ting an in­surance li­cense can also be dif­fi­cult for many com­pa­nies and an­other ma­jor risk is “a weak un­der­stand­ing of the mar­ket”, said Zhao. Un­like other in­sur­ers, health in­surance com­pa­nies often face high pay­ment ra­tios and may not al­ways be able to reap large prof­its even in de­vel­oped mar­kets, said Zhao.

China’s pub­lic hos­pi­tals re­main heav­ily de­pen­dent on medicine sales for rev­enue. So, doc­tors lack the in­cen­tive to con­trol costs, a headache for com­mer­cial health in­surance providers, ac­cord­ing to Zhao.

The so­lu­tion to the prob­lem, BCG says, will be the rise of pri­vate hos­pi­tals in China.

WU JUN / FOR CHINA DAILY

A branch of PICC Health In­surance Co Ltd in Shang­hai. As China con­tin­ues to ur­ban­ize and age, com­mer­cial health in­surance has en­tered a state of rapid de­vel­op­ment.

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