Lukas Steinmann Mexico 10. June 2008

1. To your health: diagnosing the state of healthcare and the global private medical insurance industry Lukas Steinmann Mexico 10. June 2008

2. Introduction: USD 5 000 bn spent on healthcare (2007, estimated) Lukas Steinmann Mexico 10. June 2008 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

3. Financing healthcare: expenditure is outpacing GDP growth OECD countries that define the upper and lower spending band Lukas Steinmann Mexico 10. June 2008 Source: OECD

4. Ever growing healthcare costs? • Strong preferences for health as wealth increases drives demand. The attitude towards health, lifestyle and demographic aging also influence demand for health. • On the supply side, advances in medical technology and infrastructure are the main cost drivers. • 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 scarce Lukas Steinmann Mexico 10. June 2008

5. A healthcare financing system Risk carriers, including the government State funding / reimbursement Insurance premiums / tax Population Medical service providers Direct payment Services Lukas Steinmann Mexico 10. June 2008 Source: Swiss Re Economic Research & Consulting

6. Private Medical Insurance:limited role in healthcare financing in Mexico Lukas Steinmann Mexico 10. June 2008 Source: World Health Organization

7. Financing healthcare: largest global PMI markets // 750 Lukas Steinmann Mexico 10. June 2008 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

8. Financing healthcare: potential PMI markets // Lukas Steinmann Mexico 10. June 2008 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

9. Evolution of medical insurance business Lukas Steinmann Mexico 10. June 2008 Source: Swiss Re Economic Research & Consulting

10. Sales and marketing Administration Medical management Underwriting Pharma. cost mgt Case / disease mgt Building provider network Provider cost mgt Customer service / retention Payment processing Customer acquisition Product / benefit design Claims mgt (adjudication) 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. Lukas Steinmann Mexico 10. June 2008

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. Lukas Steinmann Mexico 10. June 2008

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”. Lukas Steinmann Mexico 10. June 2008

13. Questions? Lukas Steinmann Lukas_Steinmann@swissre.com +41 43 285 4687 Lukas Steinmann Mexico 10. June 2008 Slide 13