Digital Transformation and Industry Inflection: Health Insurance at a Turning Point
Since 2020, amid the impact of the pandemic, public health awareness has significantly increased, with greater attention paid to health risks. Where there are risks, there is insurance. In terms of market size, the health insurance industry has demonstrated robust growth momentum in recent years. Data from the China Banking and Insurance Regulatory Commission (CBIRC) shows that in the first quarter of 2020, the health insurance business generated RMB 264.1 billion in gross written premiums, a year-on-year increase of 21.6%. Moreover, looking at statistical data over the past five years, the compound annual growth rate (CAGR) of health insurance has been approximately 30%.
As the health insurance market surges, insurers need to further enhance their coverage capacity and tap into new sources of market growth.Due to the mismatch between consumer demand and market supply, it has been difficult to meet consumers’ long-term protection needs in terms of products and operations. In light of the policy orientation toward developing protection-oriented insurance business and the profound impact of the digital technology revolution, health insurance has begun to seek opportunities for innovation and may reach a turning point in 2020.
According to data released by the China Banking and Insurance Regulatory Commission (CBIRC), while the insurance industry as a whole saw sluggish growth in the first quarter, with original insurance premium income reaching RMB 1.6695 trillion, a year-on-year increase of only 2.29%, health insurance bucked the trend during the pandemic. However, the structure of domestic health insurance premiums is dominated by critical illness insurance, with medical insurance playing a supplementary role. In 2019, premiums for medical insurance amounted to RMB 244.2 billion, accounting for only 24.6% of total health insurance premiums, indicating that the sector remains at a stage of low penetration and fails to meet market demand.
Wang Jian, Chief Financial Industry Analyst at Guosen Securities, pointed out in his analysis of the development of health insurance in 2020 that current issues in the sector include: 1. The premium structure of health insurance is dominated by critical illness insurance, with medical insurance playing a supplementary role. Long-term medical insurance products are scarce, making it difficult to meet consumers’ needs for long-term coverage; 2. Due to a lack of foundational data, product design capabilities need improvement, pricing carries hidden risks, and insurers’ risk control capabilities are constrained; 3. Product homogenization is severe, and existing health management services bundled with insurance products are primarily positioned as sales incentives, failing to adequately address customers’ genuine needs for health management services.
Specifically, short-term medical insurance policies with terms of less than one year dominate the market in terms of product variety. Most of these products do not guarantee renewability and are typically low-priced. In contrast, long-term insurance products face an imbalance between supply and demand. For insurers, these products carry higher claims risk, and their risk control capabilities are constrained by a lack of foundational risk data.
At the risk management level, health insurance premium rate setting, product design, and risk control all rely on data support. Currently, the primary data sources for insurance companies include internal operational data, personal information provided by customers, and resources from hospital integrations. These data are relatively fragmented and lack effective, sustained support. Although some insurance companies can integrate payment data to process claims, they are unable to access medical data, making it difficult to conduct actuarial analysis and risk control for their products.
To enhance customer stickiness and reduce claims risk, insurance companies have begun offering health management services as value-added benefits in the pre-diagnosis and treatment phase. By managing customers’ health and empowering them to take responsibility for their own well-being, insurers aim to achieve cost containment. However, simple health incentives, such as step-count-based rewards, represent only the initial stage of health insurance reform; truly systematic and customized health services have yet to become deeply integrated into the lives of policyholders.
The future of the health insurance market will involve not only competition over coverage scope and premium rates, but also a contest in customized products and in leveraging health management services. Against this backdrop, an increasing number of insurance institutions are strategically positioning themselves around service delivery.
In the face of ever-evolving demands, health insurance will gradually shift toward a customer-centric model that focuses on meeting individual medical needs and establishes a closed-loop service system based on the family unit. The operation of health insurance will break away from traditional property and life insurance business models, transitioning toward ecosystem-based, specialized, and intelligent operations. Indeed, by observing industry dynamics over the past two years, we can also trace the footsteps of insurance innovation through the explorations of foreign insurance enterprises.
In a 2019 survey of 47,000 consumers conducted by Accenture Global Financial Services, nearly two-thirds of respondents expressed confidence in new technologies and online services; 31% hoped that banks or insurance companies would integrate technological solutions into their products to create new insurance experiences, such as leveraging novel channels like wearable devices or robots to collect health data, thereby providing foundational support for insurance services.
In November 2018, John Hancock, a U.S. traditional life insurance giant with a 156-year history, announced that it would cease selling traditional insurance policies and shift its focus to interactive policies supported by wearable devices. This move by the established industry leader sent shockwaves through the global insurance sector, representing a truly disruptive model for the insurance industry.
In fact, since 2015, Hengkang Insurance has launched the “Vitality Health Insurance Plan,” leveraging health behavior data and health management to transform traditional life insurance into innovative health insurance. Data shows that policyholders participating in the “Vitality Health Insurance Plan” take nearly twice as many steps as the average American. Policyholders interact with the company an average of 576 times per year, a significant increase compared to the one or two interactions typical of traditional insurance annually.
When mentioning Hengkang Insurance’s “Vitality Health Insurance Plan,” it is impossible not to mention its partner—Discovery, a South African multi-line insurance group. Discovery is an insurer with a strong technological edge. With a global footprint, the company has partnered with many well-known international insurance enterprises, including Prudential UK and Ping An of China.
Integrating intelligence and data analytics into health insurance products, Discovery Limited of South Africa envisions expanding its Vitality “Vitality Health Insurance Plan” globally. Under the Vitality program, members who maintain an active lifestyle and complete health-related tasks are eligible for premium rebates of up to 100%. This proactive approach to fostering healthy lifestyles and habits has significantly reduced mortality and morbidity risks among younger policyholders.
In driving insurance industry reform, China also has its share of explorers and promoters akin to Discovery. After nearly six years of development, the health technology company Miao Jiankang has completed a strategic layout spanning IoT data, artificial intelligence, and health management to pharmaceuticals, medical services, and insurance coverage, thereby providing one-stop solutions for the health insurance industry.
Data-Driven Services: Leveraging its three core platforms—the “Miao+” IoT Health Big Data Platform, the M-AI Health Intervention Platform, and the H-Health Risk Stratification Management Platform—More Health integrates multi-dimensional health data and AI algorithmic analytics to develop personalized health improvement plans for insurance customers. These initiatives aim to enhance health literacy, modify unhealthy behaviors, and thereby reduce or delay the incidence of related diseases.
Miao Health defines this service model as the “M-TPA” platform, which provides the insurance industry with dynamic health risk control algorithms. This approach expands insurers’ underwriting scope and effectively reduces claims risk, while also improving users’ health outcomes and enhancing service satisfaction among insured individuals. This innovation represents a win-win scenario for both health insurance providers and policyholders.
As can be seen, whether it is the model of Hengkang Life Insurance and Vitality, or Miaojiankang’s “M-TPA” platform, all of them front-load health management services. By collecting and tracking users’ fitness and physiological data, they gain real-time insights into users’ health status, maintain long-term high-frequency communication, guide users to develop healthy habits, and comprehensively enhance customer experience.
Health technology creates opportunities for the sales of interactive insurance and ushers in a new era for health insurance. The integration of internet-based technologies effectively addresses the challenge of low-frequency communication between insurers and customers, bringing about a triple transformation in user experience, distribution channels, and marketing strategies, thereby returning insurance to its essence. After purchasing health insurance, users can benefit from long-term health promotion and improvement, ensuring that the role of insurance extends beyond merely being a post-event “payer.”
Insurance provides products, platforms empower capabilities, and technology serves as the means; the collaboration of these three elements constitutes the digital transformation of the insurance market. As technology providers, health tech companies build a “bridge” in the form of an interactive health management platform between customers and insurers. Amidst the ongoing transformation of health insurance, the dual imperatives of creating differentiated insurance products and promoting health to reduce loss ratios serve both as a validation and a further test of health tech platforms’ data collection capabilities and health risk control algorithms.