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Foreign Health Insurers Seek Clients in China MARKETPLACE By Bloomberg

Posted on: Thursday, 30 March 2006, 12:00 CST

By Le-Min Lim

Lu Yahu decided to buy health insurance from American International Group four years ago after his mother, a retired factory worker, caught a cold and spent half of her $124 monthly pension on a single hospital visit. "Medical charges in China are so ridiculously high these days, you really can't afford to get sick," said Lu, the founder of Shanghai Good Faith Translation & Consulting, who pays about 30 yuan, or $3.74, a month for his policy. "I buy health insurance from AIG so I can get treatment when I need it without worrying too much about costs." Foreign insurers, including AIG and Manulife Financial, are vying for customers in China, where 90 percent of citizens lack health care coverage. Medical bills are rising as changing lifestyles push up rates of diseases like cancer that are the costliest to treat. China's private health insurance market will swell 14-fold to $56 billion by 2020, estimates John Wong, Boston Consulting Group's Asia chairman. "Medical insurance should become very attractive to middle-class families in China because they really don't want to undertake that risk themselves," said Wong. New York-based AIG, the world's biggest insurer, is betting on China's undeveloped market. "We see double- digit growth in the China health business," said Barry Stowe, the head of AIG's global accident and health unit

. The health care burden on Chinese households is rising as the government dismantles its cradle-to-grave welfare system. The state began cutting hospital subsidies in the early 1980s, and by the mid-1990s it covered just 20 percent of urban state hospitals' costs, said Hana Brixi, an adviser to the United Nations' World Health Organization. In China, the majority of the uninsured most of them rural residents avoid going to hospitals for treatment because they cannot afford it, said Brixi. Most treat themselves with over-the-counter drugs, she said. About 130 million people in China have health insurance, leaving almost 90 percent of the population without coverage, said Guan Ling, an executive secretary at the China Insurance Regulatory Commission's health and life insurance department. About 16 percent of the U.S. population lacked coverage in 2004, according to U.S. census figures. Chinese patients paid an average of 56 percent of their own medical costs in 2003, up from 21 percent in 1980, according to the Health Ministry. In the five years through 2003, the average cost of a hospital stay climbed 67 percent to 4,123 yuan, a ministry survey shows. During the same period, per-capita disposable income in urban areas rose 45 percent to 8,472 yuan, according to the China Internet Information Center, a government Web site. AIG plans to expand its 23,000-member sales force in China and may start advertising on television and billboards, Stowe said. AIG is China's No. 2 foreign insurer by premiums after Assicurazioni Generali of Italy knocked it from the top spot in 2005. Unlike Generali and other rivals, AIG has no license to sell group policies in China, so it relies solely on individual customers. AIG's 1.5 million health insurance customers in China paid $100 million in premiums in 2004, about 1 percent of the company's global accident and health business, Stowe said. The unit has a profit margin of about 10 percent, matching the companywide average, he said. While foreign insurers charge less than $5 a month for some policies, they limit costs by offering capped payments rather than unlimited coverage. Manulife-Sinochem Life Insurance, a venture of Toronto's Manulife Financial and the Chinese government-controlled chemical trader Sinochem, charges 500 yuan a year for a standard policy. Hospitalized policyholders receive a one-time payment of 4,000 yuan, plus 150 yuan for each day in the hospital. Outpatient treatment is not covered. Health care costs in China are a fraction of those in developed markets, which also limits expenses for insurers, said Wong of Boston Consulting. A hip replacement costs about $400 in China, and more than $10,000 in the United States, he said. To succeed in China, overseas insurers must overcome entrenched domestic rivals. Local companies like China Life Insurance and Ping An Insurance Group, the two largest, control more than 90 percent of the overall market, according to the insurance regulator. China Life had 663,000 sales agents as of June 2005, while AIG has 23,000.

Source: International Herald Tribune

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