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Insight: Southeast Asia-The new frontier for health insures
2016-04-05 14:24:49

According to research, demand for healthcare experienced a significant increase in Southeast Asia. Gradual growth in population, sharp increase in medical costs, and rise in per capita consumption of healthcare services, are seen as the three main driving forces fueling the need for healthcare service.

Currently, the healthcare service market is more developed in some places than in others. For example, the healthcare system in Cambodia, Laos, and Myanmar are largely undeveloped. This is in part because the government contributes very little to the system and only covers basic vaccinations and a hand full of small clinics and hospitals. Healthcare is most often paid out-of-pocket by individuals or is subsidized by non-governmental organizations (NGO). On the other hand, Indonesia, Vietnam, and the Philippines have met their citizens’ most basic healthcare needs, however; out-of-pocket payment is still the main source of healthcare funding. Malaysia and Thailand provide a much wind range of healthcare service choices. A private health insurance system would gradually grow to complement the government funded system and substitute out-of-pocket funds from individuals. In both countries, private insurers’ market contribution rose to 5%. 

Singapore is the most developed of them all, encouraging the largest amount of private contributions to support the healthcare industry. As a result, this satisfies the growing consumer demand for more sophisticated healthcare services while balancing access to such services and increasing costs. We should fully acknowledge that Singapore is the only country in southeast Asia which is in the final stages of healthcare development. This is due to the local government encouraging the development of the private sector by transferring part of the public health insurance scheme to five private insurers since 2005.


Due to the rapid improvement of the healthcare system, the related expenditures have also doubled in these countries. More specifically, between 1998 and 2010, Cambodia, Indonesia, Malaysia, Myanmar, Laos, Singapore, the Philippines, Thailand, and Vietnam  increased almost double from USD 28 billion to USD 68 billion. This shows an annual rate of 8% per year. Thailand, Malaysia, and Indonesia hold the three largest portions of the market totaling in over two-thirds of the health expenditures across the region. (Chassat et al. 2013)

It is also expected that health expenditures will continue their rapid growth. This expectation can be explained by three major reasons.

Firstly, the demand for universal access to healthcare is recognized throughout the region regardless of income or location.

Secondly, in order for healthcare to prosper in the future, both public and private increases would have to match the speed of the economic growth of the economy in the region. An emerging middle class and higher education will call for more and higher quality services due to the increasing awareness of the importance of healthcare. More and more people are also understanding the importance of healthcare accessibility.

Finally, the third element driving the future of healthcare expenditures is the increasing number of lifestyle diseases such as, cancer and diabetes. These diseases are most commonly diagnosed through screenings and frequent doctor visits. Additionally, there are growing healthcare needs for the elderly.

In Singapore and Thailand in particular, the number of people over 65 is projected to almost double by the year of 2020, together standing at 10 million and accounting for 15% of the population in Singapore and 12% in Thailand respectively, which is align with the level in developed countries such as the United States (13%), Germany (20%) and Japan (23%).

Struggling through the expected growth illustrated above, private health insurance remains low and is new market in Southeast Asia. Private health insurance is reported as having an average per capita expenditure of USD 5 covered by private insurance in 2010. Average per capita health expenditures covered by private insurance are still below those in OECD countries.

What caused this boom in private health insurance? Out-of-pocket remains the most popular healthcare cost payment method. In order to reduce the out-of-pocket costs to individuals, people would need more advanced insurance to control both the risk and budget.

Another factor driving the demand of private healthcare is its ability to reduce the public insurance payment and make it possible for policyholders to afford treatment in private healthcare facilities, especially urgent hospital care. In many cases, people have had to sell their homes to pay the cost, private healthcare enables people to keep their homes and get the urgent care that they need. This market is additionally fueled by consumers’ growing knowledge and belief in the importance of health insurance.

With private insurance, consumers who only had access to public health insurance, since that’s what they could afford, will seek to treat and prevent life changing illnesses such as heart disease and cancer.

As populations grow wealthier and more educated, they tend to purchase additional healthcare products such as, hospital cash, hospital income plans, and hospitalization cost coverage. More advanced health insurance markets offer policy packages which include all of these services and remain affordable by offering a choice of coverage level. In Malaysia, where most private insurers offer four to five variations of each plan, they are able to reach a larger portion of the population. Additional coverage for critical illnesses, dental service, and maternity expenses are usually sold as riders on the existing personal incident or health policy rather than as a full policy. Insurers should be aware, however; of the fact that healthcare use tends to increase significantly once consumers have purchased health insurance. (Chassat et al. 2013)

Apart from that, individual policy plays an important role in the Southeast Asian insurance market as affordability is a key factor in the development of private health insurance. For example, in Malaysia, the overall target population for health insurance – people earning over MYR 3,000 or USD 970 a month –represents about 50% of the total population. So far, only 20% to 30% of this target group has a private health insurance policy, with an average premium around USD 500 per year.


It is worth mentioning that agents and brokers are the two major distribution channels for private health insurance in Southeast Asia. More innovative products are provided in the form of vouchers that customers can activate via their cell phones. In an attempt to increase the penetration of health insurance, regulators have authorized the sale of such vouchers outside of traditional channels. In Indonesia, for example, ACA sells its products through supermarket chains, post offices, and convenience stores. (Chassat et al. 2013)

As we all know, healthcare is a fairly risky business for insurers, therefore; it is recommended that three key rules should be followed by insurers to avoid as many risks and challenges as possible in addition to maximizing the value of new profitable business.

Firstly, insurers are required to have clear understanding and familiarity with clients' healthcare demands and expectations. Acquiring new middle-class customers and migrating them from basic, low-price products like hospital cash to more comprehensive packages will be a significant driving force of market growth. Additionally, providers must improve the current product offers.

Secondly, agents play a significant role in distribution channels in many countries, as a result, well trained and strictly supervised agents are crucial to healthcare development. However, it is sometimes difficult to distribute health insurance products, especially from general insurance companys, therefore; developing alternative ways for acquiring new clients is strongly recommended, especially mass market customers. This is viewed as a critical factor in forming partnerships with banks and leveraging statistics from credit card companies.

Finally, it is essential for insurers to explore more opportunities to balance group and individual policies. The bulk of the market in most Southeast Asian countries is in the individual segment, hence, group policies bear more risks: the underwriting is completed at group level and insurers have less inability to exclude specific individuals from the policy. This contributes to low profit that group insurance can expect to obtain. The inability of the insurer to cancel policies of employees who do not meet the claim standards, renders the overall profitability of the contract as very risky. Opportunities for insurers lie in eva luating risk by pairing group policies with supplementary individual contracts, often sold through workplace marketing. Developing sales partnerships between group and individual policies will be critical for growth as well as profitability. (Chassat et al. 2013)
In conclusion, a combined GDP of USD 2.2 trillion with over 600 million people–only Europe, the USA, and China have larger economies – and growth driven by household expenditure. Southeast Asia provides excellent prospects for health insurers, however, there are some challenges on the road ahead. By leveraging the risks and fully preparing for future opportunities, insurers can effectively prepare for the upcoming growth in private health insurance in Southeast Asia. (Chassat et al. 2013)

Chassat, P, Chen, L, Denis, L & Azizan, A 2013, ‘Think: Act Study: In-depth knowledge for decision makers’, Roland Berger Strategy Consultants, pp.9-44 


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