Alternative Risk Transfer For Health Benefits In Asia

Transcription

1 Alternative Risk Transfer For Health Benefits In Asia Rob Leonardi, Head of Regional Markets, APAC Munich Health Alternative Risk Transfer Methods Risk Self retention in balance sheet / Internal risk sharing Constitution of Legal Body/ Engagement with third party Regional / Global pro2it- sharing of MNCs Regional / Global Approach Domestic Approach Self Insurance Local Company/ Branch Of2ices Head Of2ice Allocation / Budgeting Captive / Fronting Insurer Risk Retention Group Occupational Groups Smaller companies in same industry Purchasing Group Regional / International Risk Pooling Stop Loss Arrangement / Risk Pooling 1

2 Self Insurance Determination of Retention limit and SI Fund Limit Set aside SI Fund which will be re2lected in balance sheet Arrange Stop Loss Insurance if required Claims handled internally or via TPA, allocation adjusted annually Lower premium and service expenditures Unsophisticated structure, no/limited involvement of external parties Control of low level risks Increased internal awareness and opportunity to share responsibility Vulnerable against high- claim lowincidence risks (without ESL) Extra efforts devoted to claims handling non core activities Weak negotiation power with providers (except geographically concentrated) Projection risk in annual budgeting Potential Tax issues with expense deductibility /service taxes Common across Asian markets Popular with some large employers (Unilever India, Malaysia Airlines, Li & Fung, China SOE s) Often for OP bene2its only Direct contracting with physicians/clinics/ TPA s Operate inhouse TPA s Not always less expensive than insurance No veri2iable market statistics Risk Retention Group and Purchasing Group (1/2) A risk retention group (RRG) is a member owned mutual insurance company constituted by occupational groups or smaller employers usually from the same industry. (e.g. Evergreen RRG [U.S.], KFCCC* [KR]) A purchasing group (PG) is made up of insurance buyers who band together, typically on a national basis to purchase liability insurance from an insurance company (e.g. American Equestrian Alliance** [U.S.]) Traditionally RRG/PG covers only liability risk in Asia, innovative RRG/PG is now venturing into Employee Bene2its sector as well. Small employers in same industry can join force for higher risk capacity, better risk spread and stronger negotiation power Lower expenditure against commercial insurer, higher transparency in operations Tailor made bene2its Legislation issue may arise in most Asian markets as RRG/PG is a new concept as an insurance entity Vulnerable against high- claim lowincidence risks Disclosure of information, loss sharing with others, credit risk Lack of experience/ expertise Often requires close broker relationships A new concept in most of the emerging Asian markets Some established examples in developed Asian markets. * Evergreen RRG offers insurance to private owned campgrounds, KFCCC provides insurance for its community credit coopera=ves members ** AEA organizes and purchase insurance for its members, which include horse owners, stables, ranches and equestrian venues & businesses operators 2

3 Risk Retention Group and Purchasing Group (2/2) An example of Japanese RRG implementation - Kenbo Society Japanese Health Insurance System Toyo Securities Industry Health Insurance Society with insured population in millions Kyokai Kenbo, 35 Kenbo Society, 30 National Health Insuranc e, 39 Mutual Fund, 9 Elderly Medical Aid, 14 Established: 1950 Number of insured persons: 45,000 Average Age 41.5 Average Monthly remuneration 554,000 Yen Insurance Premium 4.5% salary by employer 2.7% salary by employee Management of the society: by Society Committee consisting of members from both employer and employees. Advantages of a Kenbo Society (RRG) setup Kenbo (Health Insurance) Society A Kenbo Society is a RRG concept in Japan. It can be established by a corporation with more than 700 employees, or by several corporations in the same industry with altogether more than 3,000 employees Able to implement insurance measures tailored to suit the age structure, ratio of males and females, illness trends Able to actively implement health management and contracting health resort facilities Able to be 2lexible on premium rates within the legal permitted range, in accordance with company s 2inancial status. Flexible individual premium based on salary, not risk characteristics Captives (1/2) Captive insurance companies are established with the objective of insuring risks emanating from their parent group or groups, sometimes also the risks of the group's customers. The operating entity, either individual company, branch of2ices or head of2ice of MNCs, insures all or part of its risks with its captive company Individual Company No need to capitalize own captive or go through the trouble of setting one up and still enjoy tax deductions Subsidiary Company/ Branch Individual Individual Company Individual Company Head Of2ice Company of MNC Fronting Party Usually large insurance provider Issues policies and provides claims handling services Insures some or all of its risk of the captives RentA Captive Own Captive Retains residual risk to a desired level or cede to reinsurer Could engage a TPA for policy and claim management if no fronting arrangement is in place Reinsurer Reinsures the excess risk from captives mainly through excess of loss (Stop Loss) arrangements Reinsurer can also assume the role of fronting party if desired. 3

4 Captives (2/2) Customizable bene2its Higher control over claims Improved negotiation power Easier access to Reinsurance Markets Tax ef2icient Creation of Pro2it Centre by writing business for de2ined third parties Corporate Cash Flow Advantages and better investment yield Capitalization and reporting requirements in setting up captive Lack of experiences / expertise in operation or screening for suitable TPAs Longterm commitment required Potential complication of tax issues Operating Costs Exposure to underwriting losses Risk of Adverse Results There has been growing interest in setting up captives in Asian region, although the take up rate by top companies is still low at 27% (2010) as compared to 77% in the U.S.*, partially due to lack of expertise and absence of domestically based and substantial global corporations until recently. Singapore is the largest and most established captive domicile in the Asia Paci2ic region with 62 captives registered (2010) and an annual growth rate of around 23% since year There is speci2ic legislation governing captive activities since 2006 The majority of captive s parent companies are based in Australia, others are from Japan, China and Singapore. It is estimated that the health related premium income of all captives in Singapore will amount to US$25 million p.a. Retention rate is estimated at around 50%. * Source: Aon Global 500 Report, 2011 ** Source: JLT consultancy reports, Monetary Authority Singapore sta=s=cs 2011 International Risk Pooling Arrangement (1/3) A mechanism used by MNC to coordinate their various employee bene2it plans worldwide; accomplished through a network of international insurance partners, coordinated by the International Pooling Coordinator (IPC) Local of2ices can contract their respective local insurer (policy and claim management), who have an af2iliation with the IPC The pro2it/loss of local of2ices will be pooled by IPC and eventually shared among all units. IPC is usually an insurer. Reinsurers can also assume some level of risk through the insurer. Home OfOice Subsidiary Stop Loss Risk Taking Local Unit A Local Unit B Local Unit C Contract Pooling Arrangement Reinsurance premium Local Insurer in Country A Local Insurer in Country B Local Insurer in Country C Charges service / network fee Network Partnership International Pooling Coordinator 4

5 International Risk Pooling Arrangement (2/3) Key Multinational Pooling Operators and their affiliated local insurers in Asia International Pooling Operator Total Number of countries with presence All Net Generali IGP ING Insurope Maxis Swiss Life Zurich China Allianz China Life Mondial Assistance Taiping Life CPIC Group Ping An (L,A,D,M) Korea Allianz Life Kyobo Samsung Life Kyobo Kyobo Life AXA Minmetals Kyobo Life Insurance Ping An Life, China Life Korea Life AIA Taiwan Mercuries Life Fubon Life Shin Kong Life Nan Shan China Life Nan Shan Life Kuo Hua Life AIA Local Hong af2iliated Kong insurer with medical Singapore Allianz / HSBC Great Eastern Aviva (L,D,M) coverage Malaysia Indonesia HSBC Generali AXA China ING Life Manulife AXA China Sun Life Hong AIA/Zurich Allianz Life Malaysia Allianz Life Indonesia HSBC Insurance HSBC Insurance TM Asia Life Prudential AIA/Zurich Great Eastern ING Insurance ING Insurance HSBC Amanah Hong Leong AIA Generali Manulife Thailand Allianz Life Generali Muang Thai Commonwealt h Life The Southeast Life Jiwasraya New York Life Aviva Indonesia Tokio Marine Life Bangkok Life AIA AIA Source: Towers Watson 2012 reports International Risk Pooling Arrangement (3/3) Customizable bene2it package, consistent global group bene2it policy Better risk spread and stronger negotiation power For small subsidiary of2ices it means access to better offers from local insurers in the network Experience rating mechanism Tax ef2icient Prerequisites are size, global spread and long- term commitment Coordination of local units interests might be challenging Potential tax issues Important global players in this 2ield are e.g. Generali, AllNet and Insurope, Swiss Life, IGP, generally all based in North America and Europe, less focus on Asian based customer Very little data on Asian Pooling business. Route favored by MNC s that operate on a decentralized basis. Some 6bn of the 20bn worldwide EB market is captured by an IPC or captive arrangement. 5

6 In Summary The ART market in Asia for Employee bene2it exists but is not well developed. Main concerns include local tax and regulatory treatment, a lack of risk management expertise from third parties, the small size of EB for MNC s in Asia relative to the world. Very likely to grow as insurers charge risk appropriate premiums for EB. Questions? 6