Pricing Private Health Insurance Products in China
by Dr. Chen Taofrom Southwestern University of Finance and Economics,
Chengdu, P. R. China
Dresden, April 26, 2004
April 26, 2004 Dr. Chen Tao, School of Insurance, SWUFE 2
Content
n Products and market of private health insurance in China
n Data resource and actuarial assumptions of pricing
n Actuarial model and pricing process in practice
n Actuarial regulation of pricing private health insurance business
in China
n Future of private health insurance and health actuary in China
April 26, 2004 Dr. Chen Tao, School of Insurance, SWUFE 3
Introduction of Chinese Urban Worker’s Basic Medical Insurance System (UBMS)
n 100 million urban workers covered in 2002-CMLSS
n Contribution rate: 6% and 2% of wages
n Risk pooled fund/medical saving account
n Personal saving account for out-patient service fee
n Mutual fund reimburse for hospital service expense
n deductible of 500-1000 Yuan RMB and coinsurance 20%-30%
n yearly reimbursement maximum: 40000-70000 Yuan RMB
April 26, 2004 Dr. Chen Tao, School of Insurance, SWUFE 4
The role and potential market of private health insurance in China
n The role in Chinese national health insurance system
n Supplementary to the limitation and maximum of UBMS
n A good replacement for whom not covered by UBMS
n The potential/actual market
n 300 billion Yuan RMB /22.27 billion Yuan RMB
n The challenges in market developing
n Lack of professional and experience
n No effective regulations in health service market
April 26, 2004 Dr. Chen Tao, School of Insurance, SWUFE 5
The actual market: providers and products
n 29 life and 8 property insurance companies provide over 300 health insurance products in 2002
n Most are medical insurance products, no really long-term care and disability income products
n Three predominant products
n Critical illness insurance/cancer insurance
n Hospital indemnity insurance/hospital daily allowance
n Supplemental major medical insurance
April 26, 2004 Dr. Chen Tao, School of Insurance, SWUFE 6
Data resource
n The internal data is very limited due to short history
n Health actuaries have to rely on external data
n Twice National Investigation of Health Service (1993,1998)
n 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 7
Actuarial assumptions in pricing yearly renewed products
n Morbidity
n Using external data to form the morbidity and continuance table
n contingency Margin
n 30% to 200% of the risk premium
n Expense
n Can not divided expense into every health insurance product
n 35% in individual business and 25% of group business
n Profit and tax
April 26, 2004 Dr. Chen Tao, School of Insurance, SWUFE 8
Hospi ta l i za t ion ra te in China (‰)
60.69
22.7816.75
24.3331.24
40.79
67.67
111
51.96
26.73
12.96
79.55
50.18 49.68
77.93
64.8
51.4
20.9917.26 20.24
26.0430.61
38.43
50.31
33.97
12.39 11.52
47.48
35.04 36.67
48.0542.37
0
20
40
60
80
100
120
0- 5 - 10- 20- 30- 40- 50- 60-
Urban resident MenUrban resident womenrural resident manrural resident women
Morbidity table
42.3750.3164.811160-
48.0538.4377.9367.6750-
36.6730.6149.6840.7940-
35.0426.0450.1831.2430-
47.4820.2479.5524.3320-
11.5217.2612.9616.7510-
12.3920.9926.7322.785-
33.9751.451.9660.690-
womenmanwomenMen
rural residentUrban residentAge
Table 2.1: Hospitalization rate in China (‰)
April 26, 2004 Dr. Chen Tao, School of Insurance, SWUFE 9
Average hospital stay of inpatient in China (days)
12.38
17.26 18.3720.48
33.49 34.08 35.51
43.4
7.42
12.44 12.7514.32
16.318.92
17.27 15.93
0
5101520
2530
354045
50
0- 5- 10- 20- 30- 40- 50- 6 0 -
Urban inpat ient
Rura l inpa t ien t
Continuance table
15.9343.460-
17.2735.5150-
18.9234.0840-
16.333.4930-
14.3220.4820-
12.7518.3710-
12.4417.265-
7.4212.380-
Rural inpatientUrban inpatientAge
Table 2.2: Average hospital stay ofinpatient in China (days)
April 26, 2004 Dr. Chen Tao, School of Insurance, SWUFE 10
Additional actuarial assumptions in long term or life long products
n Mortality
n The three annuity table, CL4-CL6 (1990-1993)
n Interest
n Technical rate of interest not exceed 2.5%
n Lapses rate
n Usually can not get enough experience data to make it
n Trend factor
n Yearly rising rate of medical expense is 10-15%
April 26, 2004 Dr. Chen Tao, School of Insurance, SWUFE 11
The t r end of hospi t al i zat i on r at e i n Chi na( %)
4. 71 4. 94
2. 793. 44
4. 62
5. 45
2. 873. 25
0
1
2
3
4
5
6
Ur ban/ men Urban/ women Rur al / men Rura l / women
19981993
hospitalization rates are relatively steady
April 26, 2004 Dr. Chen Tao, School of Insurance, SWUFE 12
Aver age days per hospi t al St ay
1 3 . 31 2 . 8
1 2 . 31 1 . 7 1 1 . 4
1 1 . 0 1 0 . 71 0 . 1
0
2
4
6
8
10
12
14
1995 1996 1997 1998 1999 2000 2001 2002
Average days of hospital stay is decreasing
April 26, 2004 Dr. Chen Tao, School of Insurance, SWUFE 13
Average expense per hospi t al St ay ( Yuan RMB)
1668
2189. 62384. 3
2596. 8
2891. 13 0 8 3 . 7
3245. 5
3597. 7
0
500
1000
1500
2000
2500
3000
3500
4000
1995 1996 1997 1998 1999 2000 2001 2002
Hospitalization expense is rising
April 26, 2004 Dr. Chen Tao, School of Insurance, SWUFE 14
Average expense per out pat i ent v i s i t ( Yuan RMB)
3 9 . 9
5 2 . 5
6 1 . 66 8 . 8
798 5 . 8
9 3 . 699. 6
0
20
40
60
80
100
120
1995 1996 1997 1998 1999 2000 2001 2002
Outpatient expense is rising
April 26, 2004 Dr. Chen Tao, School of Insurance, SWUFE 15
The principles of pricing
n Adequacy
n A very conservative premium rate
n Reasonableness
n Health actuary gives less attention to this
n Competitiveness
n Not higher than that from other insurers
n Equity
n Get the help from the health underwriter
April 26, 2004 Dr. Chen Tao, School of Insurance, SWUFE 16
Pricing process of individual products
n Yearly renewable products
n Annual claim cost=the risk premium
n Net premium = risk premium + safety loading
n Gross premium = expense + net premium
n Long-term products
n Pricing critical illness insurance is similar with life insurance
n Few opportunity to calculate level premium
n Pacific-Anta Life Insurance Company/life long hospital daily allowance product in Shanghai
April 26, 2004 Dr. Chen Tao, School of Insurance, SWUFE 17
Pricing process of group products
n most are yearly renewable medical expense insurance
n three kinds of models: manual rating, experience rating and
blended rating
n At the beginning, only manual rating methods were used due
to regulation reasons
n 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 18
re-rating
n Initial rate guaranteed for 12 months in current market
n Monitor the development of the claims and identify significant
changes
n 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 19
Actuarial regulation of pricing
n The Insurance Law of 1996 and the 2002 revised version
n Contract/premium table/calculating process must submit to
regulator for review and approval
n Actuarial Regulation of Health Insurance -CIRC,1999
n Pricing process is regulated strictly but not professionally
April 26, 2004 Dr. Chen Tao, School of Insurance, SWUFE 20
Other aspects involved with pricing
n The management of anti-selection and moral hazard
n Uncertainty and risk aversion
n The demand for health insurance
n Marketing channel
n Regulation restrict
April 26, 2004 Dr. Chen Tao, School of Insurance, SWUFE 21
Future of private health insurance in China
n The chance to make money
n Industry is changing dramatically
n The ability to handle the risk of operation, the ability to make
profit
April 26, 2004 Dr. Chen Tao, School of Insurance, SWUFE 22
health actuaries in China: today
n Less than 30 in Mainland China, employed by life insurance company
n Work part-timer in health business and responsible for price process
n Pricing health insurance is the most difficult among all insurance business
n In China it is impossible because of insufficient data, unsound regulation and changing environment
April 26, 2004 Dr. Chen Tao, School of Insurance, SWUFE 23
health actuaries in China: future
n 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 24
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: [email protected]