Lukas Steinmann Mexico 10. June 2008

Lukas SteinmannMexico10. June 2008

To your health: diagnosing the state of healthcare and the global private medical insurance industry

Slide 2

Rest of World 23%

Spain 2%

Brazil 2%

China 3%

Canada 2%

UK 4%

Italy 3%

France 5%Germany 6%

J apan 7%

USA 43%

Introduction: USD 5 000 bn spent on healthcare (2007, estimated)

Note: Estimates based on WHO National Health Accounts 2004 and Swiss Re estimates of GDP 2007. Only the top 20 markets are shown here. Numbers refer to health spending funded by PMI (not PMI premiums). When compiling NHAs, researchers of different countries might use different methodologies.

Source: Swiss Re Economic Research & Consulting


Slide 3

Financing healthcare: expenditure is outpacing GDP growth


OECD countries that define the upper and lower spending band

Source: OECD

0

2

4

6

8

10

12

14

16

1960 1965 1970 1975 1980 1985 1990 1995 2000 2005

% H

ealt

h e

xpen

dit

ure

/GD

P

Canada Denmark South Korea Luxembourg Portugal

Spain Sw eden Turkey United States Mexico

Slide 4

Ever growing healthcare costs?

1. Strong preferences for health as wealth increases drives demand. The attitude towards health, lifestyle and demographic aging also influence demand for health.

2. On the supply side, advances in medical technology and infrastructure are the main cost drivers.

3. Healthcare delivery is a complex process that is prone to inefficiencies:

– a lack of coordination and standardisation drives costs and reduces quality

– asymmetric information allows medical service providers to induce demand

– price-quality competition is rare because information about prices and outcome-quality is scarceLukas Steinmann

Mexico10. June 2008

Slide 5

A healthcare financing system

Risk carriers, including

the governm

ent

Medical service

providers

Population

Services

Direct payment

Insurance premiums / tax

State funding / reimbursement



Slide 6

Source: World Health Organization

Private Medical Insurance:limited role in healthcare financing in Mexico

0% 20% 40% 60% 80% 100%

Colombia

USA

Chile

Argentina

Poland

Brazil

Honduras

Mexico

China

India

Out of pocket Private Insurance Government & Social Insurance Other


Slide 7

0 5 10 15 20 25 30 35

USAFrance

GermanyBrazil

CanadaNetherlandsSouth Africa

AustraliaSpain

SwitzerlandArgentina

United KingdomRussian Federation

AustriaChile

ChinaRepublic of Kore

ItalyBelgiumMexico

USD bn



Financing healthcare: largest global PMI markets


// 750

Slide 8

Financing healthcare: potential PMI markets


0 10 20 30 40 50 60 70 80 90 100

USA

China

J apan

Germany

India

Italy

Brazil

Mexico

United Kingdom

Spain

France

Russian Federation

Canada

Republic of Kore

Australia

Switzerland

Greece

Belgium

Iran

Turkey

USD bn

Out-of-pocket Prepaid



//

Slide 9


Evolution of medical insurance business


Slide 10

Running PMI profitably: a value chain approach

It is essential for PMI to acquire local know-how as well as a deep understanding of how each country’s health infrastructure works. Insurers must anticipate regulatory, market and medical changes.

Product design: insurers must strike a balance between providing cost-effective care and providing patients with adequate choices. This may be achieved through product design by offering a good blend of coverage, deductibles, co-payments and attractive premiums. Products need to promote incentives for policyholders to be cost-conscious.

Underwriting: actuarial rate making is a prerequisite for sustainable PMI. Guaranteed renewable coverage, together with premium adjustments on a collective basis, are a fair alternative to tight premium regulation.

Administration: PMI is a high frequency, low severity business. Small savings in the administration have a significant impact on profitability. IT and outsourcing may help to reduce unit costs.


Underwriting

Sales and marketing

Customer acquisition

Product / benefit design

Administration

Customer service / retention

Claims mgt (adjudication)

Payment processing

Medical management

Building provider network

Provider cost mgt

Pharma. cost mgt

Case / disease mgt

Slide 11

Running PMI profitably: medical management

A value proposition for PMI is to recover inefficiencies in healthcare delivery through medical management.

Medical management: 70 to 90 percent of premiums are used for medical treatment. While operational costs have been lowered, medical treatment steadily increases.

Medical management is about influencing clinical decisions and channel treatment into a network of cutting edge medical service providers. Medical management improves quality while reducing costs.


Slide 12

Conclusions: opportunities and challenges

Healthcare is a substantial and fast growing business.

Governments and social health insurance will be under financial pressure – cost containment may reduce costs, but will most likely fail to reverse cost trends or reduce demand for health.

The business volume for private medical insurance is thus set to grow.

Private medical insurance is a highly country specific business, which usually coexists with social health insurance, is highly regulated and prone to political influence. Market participants must know the “local rules”.


Slide 13

Questions?

Slide 13


Lukas Steinmann

[email protected]

+41 43 285 4687

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Lukas Steinmann Mexico 10. June 2008