Key drivers of IPMI Inflation
In previous years, the IPMI inflation reports identified four key inflation drivers that impact inflation not only on a global level but also on a country level as well:
- New medical technology - The medical industry being among the top in terms of demand for new technology. Everything from the cost of new machines to the cost of pharmaceuticals and systems like Electronic Medical Records influences health insurance inflation.
- An imbalance of healthcare resources - Each of the ten locations included in this report have an aging population, increased demand for healthcare, and an increase in High Net Worth (HNW) individuals utilizing private care. Combine this with a shortage of health facilities, especially private clinics and hospitals, in many locations and this has resulted in increased costs of care and claims. This in turn has a direct impact on IPMI inflation.
- Increased compensation for healthcare professionals - Doctors, nurses, and other healthcare professionals are facing increased costs in education and licensing which has resulted in costs of care rising. This in turn also impacts insurance premiums.
- Health care overutilization - The locations included in this report have all seen increased overutilization of available medical treatments. This in turn has resulted in increased claims submitted to insurers. Insurers offset this by increasing premiums, and if the number of claims increase in a location you will see premiums adjust to reflect this increase.
These key drivers have continued to play a part in the inflation of IPMI in this report and we believe that they will continue to for the foreseeable future. To learn more about these drivers, please see the Inflation Drivers section of our last report.
Emerging trends to watch
In addition to the key drivers, Pacific Prime found three global trends that we believe have some bearing on the rate of inflation in the locations covered in this report. A changing population dynamic, the impact of a turbulent global economy, and the potential that both technology and big data hold for increased efficiency of insurance companies all point to pressure being put on IPMI inflation. In review, these trends have had mixed results across the globe - affecting inflation in some countries while having little to no effect on others.
All of these contending factors have contributed to this year’s IPMI inflation figure of 9.2%. While there are obviously more factors at play than these new trends impacting IPMI, we still believe that there’s enough potential in these trends to highlight them for consideration for this and future years.
Global economic uncertainty
Tough economic times often means a lot of belt-tightening and making decisions around what’s important to people. Many of our focus locations had their share of economic challenges in 2016, from both global, regional, and domestic pressures. In many ways, low economic growth affects IPMI through flow on effects; low commodity prices has seen a shrinking in job opportunities for expats in places like Indonesia, British expats whose income was paid in pounds found themselves worse off following the Brexit referendum result, and people in China have experienced a growing resistance to foreign workers as the country, like many others, focuses on employing more locals as its GDP slows.
It is highly likely that continued uncertainty will have an impact on IPMI inflation in some locations, especially those which are experiencing changing population dynamics.
Changing population dynamics
Economic uncertainty has also had an impact on population dynamics. For example, Asia in particular is facing a significant challenge in the "super aged" that are expected to become a bigger burden on economic resources. If economic conditions are weak, government’s will have fewer resources available to address the increased demand for healthcare which could drive up prices.
Beyond that, we are seeing a movement of expats in various regions. Expats are traditionally the main market for international medical products and their movements around the globe have told us much about where the international insurance market may be heading. However, it appears that the traditional expat is slowly disappearing in some countries with demand being taken up by local or regional HNW individuals.
When it comes to expat movement, a recent SCMP article highlighted how Hong Kong, long a popular destination for expats, has actually seen the number of expats, namely British, American, and Australian, drop by 10.64% in the last half of 2015 and throughout 2016. This is mirrored around the region with neighbouring Malaysia, Japan, Indonesia, and Singapore reported to have a smaller number of foreign residents. Likewise, the UAE with a higher cost of living and uncertainty in the local job market has the potential to have an impact on expat numbers in the region.
Expat dynamics are also changing in the type of people moving abroad for work. According to the ECA, the look of the typical expat has changed over the past few years with many now likely to be engaged on short-term or commuter assignments. These shorter contracts are said to be more appealing to both unaccompanied expats and those with families as it means commitment to trying a new experience. Millennials, most notably, have been found by the annual HSBC Expat Explorer report to be increasingly interested in working abroad to further their career ambitions, fast track progress towards financial goals, and to search for a sense of purpose. The concern here is that when on short-term placements millennials and unaccompanied expats likely will eschew expensive, long-term international coverage for more affordable, shorter term travel or local insurance products.
The question is, if expats are moving out of the major IPMI destinations of Hong Kong, Singapore, China, and possibly Dubai, why is inflation up in these countries, or why has IPMI inflation held steady globally? The primary reason here hinges on demand from HNW individuals living in or around these countries. In these locations, we have noticed increased demand from regional and local HNWs for high quality international health insurance plans.
Essentially, in many locations traditional expats are still present, however in some locations their numbers are dwindling. This is being counterbalanced and even surpassed by increasing demand from HNW individuals.
Potential increases to efficiency brought about via technology and big data
Across all industries the increasing adoption of technology and big data has enabled nearly unprecedented cost efficiencies.
The use of technology
The idea of increasing an organization's efficiency formed one of the key components of our 2016 medical insurance trends report with many insurers commenting that they are currently striving to improve the overall efficiency of their organization. One of the most effective ways to do so is through the introduction and implementation of technology.
Insurers have realized this and have started to implement technology at every stage of the client's relationship with the insurers. At the beginning stage, insurers and brokers alike have all implemented online systems that allow clients to quickly compare plans, premiums, coverage details, etc. which ensures they are generally better informed about their options and how to use plans before they even purchase one.
When it comes to existing clients, our previous medical trends report highlighted two major technology-driven systems that are increasingly being demanded and implemented:
- Online portals
- Mobile apps
At their core, systems like these make it drastically easier for customers to interact with the insurer and the plan they have purchased. For example, in some cases clients can now go online to view their plan details and book an appointment with an in-network doctor within a few clicks. From there, the insurer can submit the correct forms with the care center and process a guarantee of payment faster, often within a matter of minutes or before you even get to the doctor's office.
Mobile apps also have enabled increased ease of use through their ability to submit claims directly from a photo taken with your phone or to even connect doctors with patients via telehealth services.
There is also a variety of technical systems being implemented that have made it easier for doctors and insurers to share information. For example, with many electronic health record systems, doctors are now able to share a patient's records with insurers and insurers can digitally share relevant information with doctors.
Whats more, insurers are increasingly turning to online platforms like social media and messaging apps for ways to quickly communicate with clients and share information like never before. Some insurers have even started to work with doctors in other regions who can provide telehealth consultation services and more.
By implementing technology at all touchpoints, insurers have been able to decrease the time it takes to onboard new clients, provide claims service, share information, etc. This all equates to increased efficiency if it's implemented correctly.
The use of big data
For example, according to McKinsey & Company, a big-data revolution is under way in health care. Many health sector organizations and experts are beginning to use big data to gain insights to improve both their products and decision making processes in relation to care and costs. This allows companies to better manage and predict market movements and premiums. The concern here however is that while insurers are starting to use it, there has been little to no substantial impact on IPMI Inflation yet.
In our 2016 medical insurance trends report, Pacific Prime noted that many of our partners are analysing big data to better understand and predict risks. Everything from service standards, quality outcomes, health care costs, and the claim habits of consumers is seen as vital information that helps insurers combat low investment returns from unprofitable underwriting.
In particular, companies are becoming more intelligent with the way they assess potentially fraudulent claims, now being able to match new claims with the data of past fraudulent claims - in some cases the accuracy of big data indicates a potential for technology to be more effective than manual human assessment. Ideally, this will lead to an improvement in an insurer's management of premium cost inflation as the risk of fraud becomes lower.
Consumers themselves are also taking a more active role in providing the sort of data healthcare and insurance companies need to improve analytics. It’s estimated that around 100 million wearable fitness and activity trackers were sold in 2015, with that number to rise to as many as 245 million by 2019. With consumers now interested in monitoring their own health and exercise habits, the information these devices can provide to insurance companies will allow them to better tailor their policies to the individuals who purchase them.
While the use of big data in the health sector is still in its early stages, its growing importance is not lost on insurance companies who are finding that regulatory constraints are putting pressure on underwriting performance everywhere. The cost of healthcare continues to rise across the globe but with the help of technology, insurers should start to increasingly use big data to find new ways to keep costs contained and better manage premium inflation. While this has not impacted inflation in a major way yet, we anticipate that this will in the future, as more insurers start to adopt this technology.
Will these trends continue?
Predicting the future is not our aim with this report, however we are fairly confident that these new trends have a lot of potential to influence IPMI inflation in years to come. They are important enough for us to have considered now and, should conditions around the globe continue as they have for the past year, we don’t expect that they will disappear anytime soon.
What has been interesting to note, however, is that these trends have also posed a new question regarding the picture of the international medical insurance market our previous drivers were hinting at. The impact of HNWs individuals on IPMI inflation in locations like China, Hong Kong, Singapore, and Dubai suggest to us that a two-tier marketplace that divides high cost from lower cost countries is developing.
The inflation drivers discussed above will without a doubt continue to impact the locations in this report but how they impact inflation, especially the emerging drivers, will be different. Case in point: In the high cost countries (i.e., Singapore, Hong Kong, China, and Dubai) we can expect to see a drastic increase in demand from HNW individuals, to a point where demand will outpace expat demand by a near exponential factor. Combine this with the already high cost of medical care at private facilities in these countries and growing demand, it can be expected that IPMI inflation will increase.
Meanwhile, countries included in the second tier i.e., Thailand, Indonesia, Philippines, Kenya, etc. will certainly be more affected by global economic conditions. In many of these countries, we have seen demand for coverage decrease in certain sectors, especially those related to natural resources, but it is not readily being replaced by demand from local/regional HNW individuals.
It is a little too early for us to be confident that this is happening, but our suggestion is to keep your eye on these trends over the next year and any associated events that could strengthen or weaken their future influence on IPMI.