All industries and markets evolve and change over time and the international Private Medical Insurance market is no exception. The IPMI market is a niche segment of the health insurance industry which appeared in the 1970’s and 1980’s to meet the needs of individuals and Corporates when globalization started picking up pace. The insurance segment was focused around providing health insurance coverage without geographical boundaries, meaning expat employees posted to Africa, Asia or anywhere else in the World would have access to: the best local medical facilities, evacuation cover to nearby locations if local clinical care was not good enough, and coverage back home if they so required. The segment has attracted most of the major international insurers who have an interest in health: Bupa, Axa, Allianz, Cigna, Aetna, Aviva, DKV, etc. and has grown into a multibillion dollar market (in excess of USD 5bn) over the past 4 decades.
The business model of providing healthcare insurance to this segment has gone largely unchanged over the last 40 years, but it is all changing now. The drive for change has been created by one external force and by the shift in demand, each of equal importance.
The shift in demand has been subtle at first, but most insurers now recognize that the future growth of the segment is dependent on nurturing the demand of the local High Net Worth population, and a need for high end health insurance that grants them access to the best healthcare facilities around the world. The traditional expat population still exists and is still growing, but the segment has become more cost conscious and expats today are as likely to be hired locally as they are to be posted on a benefit rich package from their home country. What had not been anticipated was the attractiveness of iPMI policies to local High Net Worth (HNW) individuals. Typically, in most countries where IPMI has traditionally been sold, healthcare provision was either very poor or very expensive (and sometimes both). In countries where healthcare provision has been and remains poor, those who can afford it want access to healthcare treatment (perhaps by evacuation) and to a regional hub where high quality care can be accessed. Consider most of Africa; in the event of a medical emergency people would want to be evacuated to South Africa, Dubai or Europe. The IPMI plans have been built to accomplish this and thus have become a principal source of risk management for wealthy local individuals. It is unlikely that local healthcare will reach an acceptable standard for these individuals for many decades, and local insurers do not have the knowledge, skill, capacity or indeed appetite for such high risks, leaving room for the international health insurance sector to fill the gap. We can see evidence of the development of this local demand in the insurer production of documentation in local languages (Chinese), and most insurers are proud to tell you that their claims team can speak 15 or 20 language in preparation for future business (they have not built this capability because of their historical client base!). The rise in demand has not gone unnoticed by local intermediaries, and we have seen the development of local insurance brokers who focus on targeting their own HNW community’s health insurance needs, and predominantly selling IPMI plans. Today most developing countries have a vibrant group of local intermediaries who have made distributing IPMI the main focus of their business model.
Beyond the relatively simple changes in operational capabilities from insurers, many IPMI providers are now implementing significant structural changes to their organisations, decentralizing from their head office to regional hubs to localize knowledge, service and products while still retaining the levels of coverage and customer service that historically has come with IPMI plans. Personnel in insurance companies are also changing. A decade ago insurers were dominated by citizens from their home country, but here things have changed a lot too, to the extent that filling senior positions with native speaking, culturally attuned management is now considered central to the process of decentralization by many.
Products themselves are not immune to the changing market, with the development of regional and local solutions to reflect demand nuisances as well as to make the products feel more bespoke to a local HNW individual’s needs.
These demand changes are leading to more complex organizational structures for insurers and success or failure in the IPMI segment will depend to a degree on how well they can be implemented. Failure to execute to a high standard will almost certainly lead to high staff turnover and poor customer service standards, which ultimately will lead to poor sales. For the winners who can get close to markets successfully, there is the potential to establish a powerful brand position and from this long term profits.
External forces in the form of local governments (and their regulators) are also impacting the evolution of the IPMI segment. The growth of the overall segment, and specifically the growth in demand from local HNW individuals has presented a challenge and an opportunity for local governments. As their local citizens have started to buy iPMI in significant amounts, local regulators feel the need to bring the plans under more supervision to ensure local insurance compliance standards are met and their citizens have good recourse in the event of disputes or disagreements. The development of IPMI also presents an opportunity for local governments as well, by bringing plans onshore, (typically international insurers partner with a local insurer rather than getting their own license), expertise can be transferred and importantly revenue generated by local insurance partners and in the form of tax, by either VAT or profits tax. The patchwork or licensing solutions this is creating for many insurers is bringing additional complexity and headaches, not least of which is because they are also typically required to comply with regulations in their home country. Nevertheless, the movement towards the ‘onshoring’ of IPMI plans is picking up momentum as regulators around the world see the threats and opportunities that IPMI brings. Once again this external force is pushing IPMI insurers to decentralize and get closer to local markets and regulators where they can influence and protect their market position more effectively.
So who will be the winners in the changing market of IPMI? Increasingly it is becoming a big insurer’s game; it is not possible today to have a truly global presence in the IPMI segment without a big brand and significant amount of capital behind you. Probably, the last company to start that will try to do this will be Now Health. As such the global players are likely to be Bupa, Axa, Allianz, Cigna, Aetna but that does not mean there are not opportunities. The reality is there are good arguments to support just focusing on one or two key IPMI segments around the world, some of the markets today are so big that even having a small position in one of these can be a great business. But there are other ways to cut the market too, by just operating offshore to individuals, and by definition having much lower operating costs, a company can deliver a significant cost advantage – this is unlikely to be a strategy pursued by a big global insurer due to exposure to local regulators but it is a very viable model and there are quite a few smaller players operating in this niche. Finally, there already are and will increasingly be niche segments around specific product benefits, nationalities and languages and we are likely to see proliferation of these. The only thing which is pretty sure is the market is going to grow and it is going to get more complex, particularly for those who want a truly global footprint.