With Aetna's recent acquisition of InterGlobal, the CEO of Pacific Prime, Neil Raymond, shares his perspective on the news.
What is Pacific Prime's relationship with InterGlobal and Aetna, and what were your initial impressions of the acquisition?
Pacific Prime has worked with InterGlobal for about 15 years, since Pacific Prime first started, and they're now one of our largest insurers, particularly in our key markets – Hong Kong, Singapore, China, and Dubai. We've had an excellent relationship with them over the years as one of their top global brokers, so this news was of particular interest to us. We weren't particularly surprised by the purchase, as we knew that InterGlobal was looking to get bought out by a larger company, but we feel extremely positive about it.
As for Aetna, we've been working with them since they bought Goodhealth about 7 or 8 years ago. We were a fairly big supporter of Goodhealth, particularly in the Asia-Pacific region, and then when Aetna bought Goodhealth, naturally that relationship moved over to being with Aetna. At the time, Aetna had several large American corporates with overseas populations, and Aetna had developed a range of plans to deal with those American corporates outside of the states, but they never really have been in a position to capture new individual or corporate business outside the US. The development of Aetna's international business outside the US really came from the purchase of Goodhealth, and today, the belief is that the purchase of InterGlobal has been for a similar purpose.
What do you make of Aetna's previous purchase of the Goodhealth plan, and what does it say today regarding the acquisition of InterGlobal?
It was a good experiment. The portfolio was probably around $100 million US in premium, so that was a fairly small purchase for Aetna, but a relatively big purchase in the IPMI market. The good point of view for Goodhealth clients was that Aetna was incredibly large, very stable, and had proven to be fairly trustworthy in that time period.
The negative really was that Aetna didn't understand the servicing model that IPMI needs, and they tried to a certain extent to bring over servicing models over that they had from the states, which was a bit more of a cookie-cutter type model, and tried to bring that into Goodhealth (re-branded as Aetna) in the IPMI market. In the intervening 5 to 10 years, the Aetna portfolio has likely grown, but the reality is that the brand value of Aetna, which is incredibly large, had not been fully utilized in the purchase of Goodhealth. The purchase of InterGlobal actually seems to be a reaction to the Goodhealth portfolio over the last 5 or 10 years.
Why do you think that Aetna chose to buy InterGlobal specifically?
InterGlobal were primarily VC backed, and those venture capitalists were looking for a way to exit. So it's been known for quite some time in the industry that InterGlobal were looking for somebody new to help them grow and that they would probably get bought out by a bigger player.
For Aetna, on the other hand, I think that fundamentally it's a way to grow and increase the size of the portfolio, and there's definitely a point of view that scale matters in this industry. In terms of your provider network and your ability to manage claims and costs, scale is important because it gives you more negotiating power with clinics and hospitals. It also gives you better servicing capability from a global point of view. InterGlobal's footprint was also, to a certain extent, a bit different than Aetna's.
Most interestingly, the CEO of InterGlobal Steven Hartigan, who I've spoken to on this issue, and Aetna's CEO Richard di Benedetto have emphasized that this is primarily to help Aetna develop its understanding and servicing capabilities in the IPMI industry. Once again, if you come back again to the purchase of Goodhealth, while it was successful, I don't think Aetna got the most out of it because they hadn't really understood the servicing model that needs to be delivered, and they viewed InterGlobal as a good way to develop a servicing model in terms of how it should be done. So it gives Aetna scale, but they're also buying a set of skills and capabilities, principally around servicing – claims, policy administration, etc.
How do you see this affecting InterGlobal policyholders in the future?
I think it's a positive for InterGlobal clients because the practical reality was that InterGlobal was a relatively small insurance company in the big scale of things with turnover of somewhere between around 100 to 150 million US premium, and now, being owned by Aetna, it gives them tremendous stability.
Many insurers in the IPMI market who didn't know exactly what they were doing have got into trouble over the years, such as Aviva pulling out of Hong Kong and Singapore and Nordic pulling out of the industry entirely, so having the backing of a company like Aetna behind the book is probably very good for InterGlobal clients. Just look at the experience of Goodhealth clients over the last 5 to 10 years. The policies remained very stable. The premium increases have been very good. So, if InterGlobal policyholders have the same experience as the old Goodhealth policyholders, then that would be very fortunate.
Of course the other advantage is that Aetna has a bigger direct billing network, more servicing capabilities, etc. So basically in the global scale of health insurance, this is enormous. Aetna are one of the biggest players globally, so this is a big plus for InterGlobal policyholders.
Do you foresee there being any downsides for InterGlobal policyholders?
With any integration, there are challenges, and I'm sure this one will be no different. I think that the principal issue is really around the different servicing models of the policies, and over time, InterGlobal has had a better servicing model than Aetna, so the potential threat is that the servicing model doesn't improve for InterGlobal policyholders, but the CEO's of both companies have explicitly stated that they're aware of it, and that in many ways, that was the reason for the acquisition; it was basically to help Aetna grow, not to integrate the InterGlobal portfolio into Aetna's servicing model.
What about for Aetna policyholders? What does this mean for them?
I see it as a positive for Aetna's clients as well. Going all the way back to the original Goodhealth portfolio and any clients who have joined since, the challenge with Aetna has always been a servicing model issue, and Aetna have very clearly stated that they want to develop and evolve and that the purchase of InterGlobal is the realization of that statement. So I actually see this as very positive for Aetna policyholders in the sense that Aetna is investing heavily in developing that skill-set.
What does an acquisition like this say about the industry today?
It has been quite interesting in the sense that over the last 5 to 10 years, there's been a quite a few purchases by large corporates: Bupa bought IHI, Cigna bought Vanbreda, Aetna bought Goodhealth, However, it has been relatively quiet for the last couple years, which shows again that IPMI still has a positive area for growth and that the big international players are on the acquisition trail to grow.
To a certain extent, what it does say is that smaller independents like InterGlobal will find it increasingly hard to be global players and not just regional niche players. You could do it 10 or 20 years ago as a small independent, but today, to be a player in the IPMI industry on a global basis, effectively you have to come with a lot of muscle in terms of brand, resources, staff, financing, and regional compliance issues. This is increasingly a game for global players such as Bupa, Cigna, Allianz, etc. and this move just really reinforces where the industry is going.
What does this move mean for Pacific Prime?
Obviously there were some initial concerns, as with acquisitions there are always problems, but in many ways we're very positive because we see Aetna as one of the most underutilized brands in the IPMI industry; there's so much unleashed potential. It's a brand that could be much more powerful than it has been in the last 5-10 years, but they have to get their model right – products, servicing, etc. With the acquisition of InterGlobal, who we believe have gotten many of these things right, ultimately there will be another proposition in the market from a global player with a big brand, giving us more options.
Historically we've not focused on Aetna as a product provider for individuals and SME's, but it's clear that that's going to change in the next one or two years. It's clear that Aetna is changing and moving in the right direction from our point of view. So although the InterGlobal brand may disappear over time, we're confident that our existing clients will be well taken care of, and we're very positive that we'll have a new strong brand in the market with the right products and the right propositions, and ultimately that's good for Pacific Prime as well.