A majority of the growth seen in reinsurance demand for health products in emerging markets has been generated in Asia, heavily owed towards fast premium expansion of fixed-benefit products such as critical illness and personal accident, according to ratings agency AM Best.

Within many emerging markets with limited penetration of health insurance and a high share of healthcare expenses paid out-of-pocket, health insurance premium has increased by double-digits throughout the last decade.

In a new report, AM Best states that the Asian markets still remain as the fastest growing health insurance segment, which heavily pushes the need for reinsurance support, however new trends are also emerging.

Looking at China, a multi-year critical illness product, which reached high levels of penetration over the past decade, recently showed an increase in medical cost.

In fact, large reinsurer Hannover Re, who stopped underwriting this product in 2016, recently reported a material increase in reserves related to this block.

AM Best explained that the reason for the new development is increased incidents of cancer driven by more frequent screenings as more people are utilizing their old policies.

On top of this, medical inflation has also pushed claims costs higher. AM Best noted that Hannover Re communicated that after a period focused on morbidity risks, they will reduce their exposures until the segment begins to show more stability.

Elsewhere, AM Best noted that critical illness proved to be a popular product in China, however the COVID-19 pandemic drove demand for more comprehensive indemnity-type health products.

In order to meet market demand, primary carriers have began phasing new products that target certain demographic segments such as seniors, youth, and women.

AM Best further explained, that the Chinese government is providing private insurance carriers with access to population health data and, in some cases, is supporting insurers’ operational capabilities.

Furthermore, the agency illustrated that the formation of new reinsurers has been limited, primarily due to regulatory difficulties in obtaining a license, as well as a lack of active interest from capital markets towards that segment.

A notable factor to highlight, reinsurance cessions for health products in China has been around 10%, according to AM Best. But, given the extensive size of the market, this still presents a significant opportunity for reinsurers.

Meanwhile, across smaller Southeast Asian (SEA) markets, reinsurers, reportedly, are continuing to support the growth of health insurance products.

“Similar to global trends, SEA has experienced higher frequency of health insurance claims and medical inflation further drives overall medical cost. Primary carriers have implemented substantial rate increases to keep up with a growing cost trend. Premium growth may result in additional demand for reinsurance to provide capital relief and allow further product expansion,” commented AM Best.

Concluding: “Over the past decade, reinsurers have viewed the health insurance segment in Asian emerging markets as a good diversification opportunity. The post-COVID environment of greater healthcare awareness and enhanced interest in health insurance products are likely to support further demand for health insurance solutions. But this new environment can put pressure on profitability and require more sophisticated risk selections and population health management. Reinsurers are in a good position to provide support in that more complex environment.”