If the senior care industry in China is going to develop beyond a niche solution for the ultra-wealthy, it will be necessary for the country’s insurance companies to successfully go to market with long term care insurance (LTC) products that provide adequate coverage as well as the financial justification for the sort of senior care infrastructure built out in Western countries to be similarly constructed in China. I have previously written about the role China’s insurance companies are going to play as important sources of capital for the senior housing industry, but beyond their influence in this way, insurance providers are also eager to design LTC products for the Chinese consumer.
China’s insurance companies already have a pool of capital ready to invest into the country’s infant senior living space. Thursday’s announcement that Ping An Insurance, China Life Insurance, China Taiping Insurance Group and China Pacific Insurance Company have all obtained the necessary government approvals to make what Xinhua called “equity and real-estate” investments means more capital from the country’s insurance companies will begin to flow into senior housing. This is a major step towards the senior housing industry’s evolution, but it will be incomplete unless many of these same companies evolve LTC products in tandem with the build out of housing.
Last week, I had the pleasure to speak at length with Chris Kaye, a partner and manager director in The Boston Consulting Group’s (BCG) Hong Kong Office. Chris leads BCG’s insurance practice in Greater China. BCG and SwissRe’s recent report, offers a comprehensive and very important analysis of how the insurance market in China is developing, with an eye on LTC products in particular. The report notes, “… there is no long-term care (LTC) component in China’s current healthcare system. As the size of the silver segment increases in China, so too will the demand and costs for health care. This demand will add to the government’s financial burden and in turn reduce the funding available for seniors and affect the quality of healthcare services.”
Chris noted that while the interest in designing LTC products for the Chinese consumer is a high priority for the country’s insurance companies, “while everyone is thinking hard about it, when I look at what they are selling, it is still a long way from having any materiality to long term care. We have done work with one large reinsurance provider in China [on LTC products], and they are getting excited, they are working with insurers to develop new products, but right now there is not really anything in the market because of the lack of infrastructure.” The BCG report notes that, “Unless LTC is rolled out in the near future, Chinese people will need to rely on commercial insurance to provide them with protection. And most LTC products currently sold in China offer a fixed sum rather than the coupling of commercial insurance with caring services and do not eliminate the risk of potential price increases in LTC services.” If you read this and are struck at how the senior care housing infrastructure is moving at a speed out of sync with the other components that have been proven to be necessary for the industry’s overall sustainability and health, then you are not alone.
Chris has a bird’s eye view on what the insurance companies are doing, both in terms of the LTC products they are developing as well as the communities they are building. He spent time recently with New China Life in their Beijing senior housing development, which is roughly ¾ completed and will ultimately offer up to 5,000 beds when completed. Chris shared, “all of the big insurers are doing something similar. There is a lot of spur for the government to find private sector players to jump in, but thus far [what is planned] is a drop in the ocean. They don’t know how to run a facility, they just don’t have the skills and capabilities yet. One of the ideas on how to work with insurance companies is to bring this operating expertise to bear, obviously through the management of the facility itself; that is a big gap a western company can fill. The management of the care facility – training, talent development, retention of staff, how you encourage doctors and healthcare professionals to service the care facility – those are massive gaps the locals are struggling with.”
adds some additional detail to Chris’ comments: “… developing LTC in China will be hindered by infrastructure challenges such as the lack of well-qualified nurses or aides trained to provide professional care, and the lack of proper facilities … the current supply of nursing-home beds can support an estimated 0.84 percent of China’s elderly population, while demand stands at 5 percent. The Ministry of Civil Affairs has indicated that China would need to invest at least USD $200 billion in order to increase capacity to 3 percent, which would still fall short of demand.” (emphasis mine)
One last point of discussion between Chris and I was how the size of China’s demographic burden and the speed with which it will become problematic should shape market entry strategies for companies. Early into , they write “China’s aging dynamics will place major pressures on the country’s social security system. In the pension system, the mandatory social insurance scheme’s benefits will not keep pace with the rising cost of living, yet the market for voluntary pensions is still underdeveloped. In health care, the system is stymied by limited coverage and a lack of adequate resources, particularly regarding long-term care which will become increasingly important as the population ages.” While we can all remain optimistic about China’s economic future, a dose of realism about how the challenges BCG identifies should govern which products you develop, and what your market access strategy needs to be, is worth taking into account.
As I reflect on this, I would say that regardless of whether you are a senior housing operator, a private equity investor, or a service provider, make sure what you take to China is tightly focused on need versus want. While some early entrants will likely find success servicing the highest end of the domestic market, this is a small segment. The industry’s ultimate success will be in crafting solutions that address needs the middle class has which they can afford to pay for. I have written this before, but it bears repeating: successful healthcare models in China embrace the idea that healthcare decisions here are highly rationalized. If you understand that and build products reflecting it, you will be in for a wildly successful ride in China; if not, you will throw good money after bad, bewildered at why the market does not respond to what worked for you elsewhere.
By: Benjamin Shobert, ,
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There’s a lot of wealthy families in China and for sure, most of them would be purchasing LTCI coverage for their loved ones. While the industry is gearing up to target this market, hopefully, there would also be plans that can be more affordable. A big portion of the population is not ultra rich but those who would need future health care would also come from them. Hopefully, those who would check out would not easily be discouraged to purchase a plan because of skyrocketing costs.