HONG KONG--(BUSINESS WIRE)--High out-of-pocket payments by patients at private hospitals and overwhelming demand for public health care underscores the need for further development of Hong Kong’s health insurance sector, according to a new AM Best market segment report. With the recently launched Voluntary Health Insurance Scheme (VHIS), which encourages individuals to utilize insurance protection, and the subsequent regulatory approval for more than two dozen insurers to launch VHIS insurance products, the uptake of health insurance in Hong Kong should grow significantly.
In the new Best’s Market Segment Report, titled, “Growth Opportunities Abound in Hong Kong’s Health Insurance Market,” AM Best notes that while insurers are cognizant of and keen to leverage the growth potential, they must also be mindful of challenges affecting profitability and sustainability of the health insurance business. Total non-life gross premiums from direct medical insurance expanded robustly, with year-over-year growth rates rising to 11% from 4% in a five-year span (2013-2017). As direct medical products account for approximately three-quarters of the accident and health (A&H) line, A&H business now represents the largest share of domestic non-life gross premiums written, at 33% as of 2017. Despite the strong growth momentum, the A&H line of business has shown declining profitability. A&H underwriting performance has remained close to breakeven and the underwriting margin has declined sharply. Additionally, the expense ratio on direct medical insurance has continued to edge upward, to 21.3% in 2017 from 18.9% in 2013.
Intense competition on A&H business, along with rising demands for greater transparency and standardized product designs, will continue to exert pressure on underwriting profitability. AM Best considers it important for the industry to embrace a lean structure and adjust marketing and distribution strategies to lower acquisition and operational costs. At the same time, the VHIS plans present market players with an opportunity to strengthen their customer base, while gradually paving the way to upsell more profitable products.
AM Best believes that insurers will pay close attention to consumer sentiment toward VHIS, and adjust their strategies accordingly. In addition, smaller market players that can find sustainable ways to refine cost structures and enhance operational efficiency while maintaining disciplined underwriting strategies likely would experience better-than-average profitability in the A&H line. Insurtech also can play an increasingly influential role in insurance companies’ customer acquisition, sales and cost management strategies.
“The need to raise public insurance awareness remains critical in addressing social and economic issues stemming from Hong Kong’s fast-aging society,” said James Chan, AM Best senior financial analyst. “In turn, companies that adopt a corporate culture that promotes innovation are more likely to reap tangible benefits—such as lower expense ratios, greater brand recognition and stronger customer loyalty—and maintain a competitive edge over the long term.”
To access the full copy of this special report, please visit http://www3.ambest.com/bestweek/purchase.asp?record_code=285572.
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