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Indian Economy Suffers $3bn Loss From Persistent Floods Amid Low Insurance Penetration

Impact Forecasting launches the latest edition of its monthly Global Catastrophe Recap report, which evaluates the impact of the natural disaster events that occurred worldwide during November 2015

The report reveals that an enhanced North East Monsoon – almost certainly impacted by current El Niño conditions – brought weeks of torrential rainfall to southern India and Sri Lanka for much of November and early December, killing at least an estimated 386 people in the heavily impacted states of Tamil Nadu and Andhra Pradesh. The Chennaimetropolitan region in India was particularly damaged by the event.

Total economic losses in India were estimated to reach INR200 billion (USD3.0 billion), asIndia's General Insurance Corporation reported insurance claims of around INR20 billion (USD300 million).

Adityam Krovvidi, Head of Impact Forecasting Asia Pacific, said: "New economic developments in Asia are taking place in flood plains and marsh lands with scant attention to drainage, thus increasing run-off and flooding. The 100-year rainfall event in Chennaiexposed the inherent weakness of the one-dimensional nature of this economic pursuit, and highlights the need for serious introspection, implementation of mitigation measures and the redesign of urban landscapes. Risk assessment can play a major role in awareness and insurance in mitigating the financial hardships. The large gap between the economic and insured loss from the Chennai flood event further emphasises the need for greater insurance penetration in large industrialized cities in Asia. This will become even more important as Asian megacities continue to grow and the risk of major urban flood events increases."

Elsewhere during November, a series of early season winter storms brought periods of frigid temperatures, freezing rain, ice, heavy rainfall, and the season's first major snowfall to many areas of the U.S., killing at least 18 people. The events led to major disruption to travel and caused widespread reports of damage from the Rockies to the Midwest. Total combined economic losses from the events were expected to exceed USD200 million.

Windstorms Heini and Nils (also known locally as "Barney" and "Clodagh") impacted parts of the United Kingdom and Western Europe in the latter part of the month. Total insured losses, primarily driven by Heini (Barney), were expected to exceed USD100 million.

Other natural hazard events to have occurred globally in November include:

  • One of the worst droughts in decades intensified in South Africa as water shortages affected 2.7 million households. Total economic losses were estimated to exceedUSD2.0 billion.
  • Nearly 100 tornadoes touched down in the U.S. in November across the Plains and Midwest.
  • Winter storms swept through northern China that led to minimal economic losses ofUSD268 million.
  • Noteworthy floods impacted portions of Southern Europe, China, and Saudi Arabia.
  • Severe thunderstorms caused tens of millions of dollars' (USD) of damage in South Africa and Australia.
  • A pair of rare cyclones made historic landfalls in Yemen, killing at least 26 people.
  • Multiple wildfires burned just to the north of South Australia's Adelaide, killing two people. The Insurance Council of Australia preliminarily cited 1,344 insurance claims worth AUD119.7 million (USD88 million).
  • A magnitude-5.5 earthquake struck southern Kyrgyzstan damaging almost 4,500 buildings in Osh Region.

Insurance Companies And Products As We Know Them Today Will Have To Evolve

That's according to Griselle Chernys, CEO, at Wellaway, who took an executive seat on a recent iPMI Magazine round table business forum.

Although global risks have changed dramatically, medical inflation and the cost of employee benefits continues to cause concern. In the most recent iPMI Magazine Round Table Business Forum we spoke with leading C-Level executives from the world of International Private Medical Insurance about the rising cost of healthcare and medical inflation.

An AON report report shows that in 2015, medical costs are expected to increase by 10.15 percent before plan design changes and vendor negotiations—6 percentage points higher than the average inflation rate. In 2014, the global average medical trend was 10.34 percent. While the global average medical trend is expected to decline, three regions--Asia Pacific, Europe and Latin America--are projected to see an uptick in rates for 2015.

Talking to the IPMI round table group about the Aon Hewitt report Griselle Chernys, CEO, at Wellaway told us, “I think that the data is pertinent and probably correct. Healthcare is a commodity that providers will control and deliver as they want, especially in the private sector with IPMI coverage. Hospitals and physicians have the upper hand in the delivery and pricing, thus the need for integrated services. As I heard a physician administrator in a hospital say once, during some insurance pricing negotiation, “this is our price and if you do not like it, I would like to see you admit and deliver the medical care the member needs." As long as the relationship of providers and insurance is antagonistic, a solution will not be able to achieved. More and more hospitals and physicians will develop and deliver health plans via their medical facilities and I predict that the multi-hospital system will develop internationally as it has happened in the USA or as we see with Hospiten and the like.

Insurance companies and products as we know them today will have to evolve.”

ANDREW APPS, HEAD OF GLOBAL HEALTHCARE, BELLWOOD PRESTBURY added, “Competition between iPMI insurers is intensifying and will continue to do so as new entrants dip their toe into the market and dream of taking a slice of the ever expanding market. Price cutting particularly amongst the employer-sponsored plans is inevitable as the larger players jockey for position and greater market share, all of which is good for the employer in the short term at least. As the saying goes, there is always someone out there who will take the risk. But there has to come a point where underwriters have to make a return on their investment. At this point premiums have to rise and with the relationship between insurers and medical service providers becoming all the more strained as medical treatment fees increase, that day is not too far away. This makes the job of the adviser /broker all the more important."

ROMAN BEILHACK, CEO, GLOBALITY HEALTH said,Employers are operating in an environment where they need to provide high levels of healthcare for their employees, sometimes due to statutory requirements and other times due to the natural tendency of employers to look after the well being of their workforce. Employers are typically under pressure to keep their operating costs low and when they review their budgets during their annual business planning cycles they will aim to minimise the cost of employee benefits. Due to these cost pressures, there may be situations where employers will downgrade the insurance coverage so that they can afford a plan rather than removing the plan altogether. Globality seeks to find solutions for their clients in these situations.

The global average inflation rate is interesting for comparing one year to the next. However, when it comes to employer-sponsored plans then the specific features of those plans should be considered. This means considering the locations of the insured members, the benefit levels, the treatment providers and network access. Referring to a single global average can be misleading for many employers.”

One of the most common questions we hear within the IPMI industry is: how will the cost of international private medical insurance rise in the next 5 years?

ROMAN BEILHACK, CEO, GLOBALITY HEALTH told us, “Costs are expected to continue to rise at levels above general price inflation. There are continual advances in medical science with new treatments and medicines being developed all the time. It is normal that insured members will demand the best treatments and services available, particularly for expatriates. In order for insurers to offer these new treatments then there will inevitably be premium increases.

However, insurers should not use this as an excuse to increase premiums beyond what is necessary. As can be seen recently, Globality is holding 2016 rates at 2015 levels for many categories of its business."

ARJAN TOOR, MANAGING DIRECTOR, CIGNA GLOBAL IPMI added, “Medical inflation is driven by unit cost, i.e. the price of each service; and utilization, that is how many and what type of services are used. As the world’s health care standards continue to rise and the range of treatment facilities and breadth of treatment options available continues to increase, it is without doubt that both unit cost and utilisation will also continue to increase.

It’s our job as the insurer to understand these risks and continually evolve our proposition to protect our customers from the impacts of medical inflation as far as possible. We’re continually working on initiatives to help minimize the impact of inflationary volatilities including investments in expanding our medical network and claims teams globally, meaning we can counteract medical inflation spikes to a certain extent as we build long-term relationships with hospital groups. It’s a lot about experience as well - it’s imperative that our claims advisors know the expected cost of a hip operation in Singapore, for example, and can ask the right questions to ensure the costs are appropriate.

Ultimately, it’s impossible to say exactly how premium costs will rise over a 5 year period, but our focus will continue to be on driving forward our mission of helping the people we serve improve their health, well-being and sense of security.”

ANDREW APPS, HEAD OF GLOBAL HEALTHCARE, BELLWOOD PRESTBURY commented, “If I had a crystal ball, it would be easy to answer this; however, the reality is that no one really knows to what extent iPMI premiums are going to rise over the next few years. What is certain is that premiums will continue to increase due to the rising cost of medical treatment along with the ever popular demand for private medical treatment.

That said, increased competition amongst the iPMI providers has, to some degree, helped to keep premiums palatable for most policyholders (putting to one side the notion that nobody likes to see their premiums increase), with average year on year increases running between 5-10% depending upon where a person is living and working. How long this will continue is anyone’s guess, but the market is hotting up with yet more new provider entrants trying their hand.”

GRISELLE CHERNYS, CEO, WELLAWAY added, “The cost of international private medical insurance will rise dramatically and this will be driven by the development and demand for new treatments, pharmaceuticals and technology. Longevity is also playing a role in the inflation and utilization of medical services which creates more demand and demand will drive costs.”

















Global Reinsurer Capital Continues To Build To USD575 Billion

Aon Benfield has launched the latest edition of its Aon Benfield Aggregate (ABA) report, which analyses the financial results of 31 major reinsurers in 2014.

Aon Benfield estimates that global reinsurer capital rose by 6% to USD575 billion in 2014, including a 28% increase in alternative capital to USD64 billion.

The firm's latest study found that capital reported by the ABA companies rose by 2% to USD346 billion. Net income of USD38.5 billion was offset by dividends and share buybacks of USD22.3 billion.

Further key findings relating to the 29 publicly-listed holding companies in the ABA* include:

  • Gross property and casualty (P&C) premiums rose by 2% to USD198 billion, with reinsurance volume unchanged at USD89 billion, despite the industry’s pricing pressure.
  • The combined ratio improved by 0.3 percentage points to 89.9% and P&C underwriting profit rose by 6% to USD16.8 billion.
  • Net catastrophe losses declined from 5.6% to 3.8% of net premium earned and were well below the long-term average.
  • Support from the favorable development of prior year reserves rose by 7% to USD8.0 billion, equivalent to 4.8% of net premium earned.
  • Return on equity was unchanged at 11.1%, based on net income attributable to common shareholders.
  • Reinsurers are incorporating material alternative capital (through ILS, sidecars and asset management mandates) to lower their cost of underwriting capital.

Mike Van Slooten, Head of Aon Benfield’s International Market Analysis team, said, “Sector consolidation is underway as companies look to achieve the advantages of scale and diversification, one of the drivers being enhanced access to alternative capital. Three recently announced M&A transactions between ABA companies will reduce the number of entities in the study going forward.”


Falling Oil Prices Have Global Implications

Sanctions, oil prices and war continue to weaken investment environment in Russia and increase corporate default risk in Ukraine. Oil producing states outside the GCC likely to face political & economic uncertainty Oil producers Iran, Iraq, Libya, Nigeria, Sudan and Turkmenistan rated Very High or High for political risk.

Aon Risk Solutions today unveiled its 2015 Political Risk Map which portrays political risk in emerging markets. Topping the list of political risks facing emerging market investors is the increasing instability in already-fragile oil producing countries such as Iran, Iraq, Libya, Russia and Venezuela as a consequence of the low oil price. The effectiveness of extremist groups in the Middle East & Africa will be amplified in afflicted countries that lack the resilience to absorb economic shocks. The map illustrates that 2015 will be a particularly challenging year for oil producers in the Middle East and Africa several of which already have High or Very High country risk ratings. Egypt, Tunisia and Morocco, which should otherwise stand to benefit from cheaper oil imports, face increased security risks because of the power vacuums in Iraq, Libya and Syria. The low oil price continues to cast an economic shadow over the CIS region, particularly for Russia’s larger regional trading partners such as Belarus and Kazakhstan.

Matthew Shires, Head of Political Risk said “By using the latest data and analytics, the political risk map helps organisations determine their emerging market investment strategies. Businesses need to constantly monitor their exposure to political risk such as the impact of oil price uncertainty and political instability. The Aon Political Risk Map allows our clients to do exactly that.”

Paul Domjan, Managing Director, Roubini Country Insights, said "Roubini Global Economics is proud to continue its partnership with Aon for its clients. During 2014 political risks in the emerging markets rose, particularly in oil exporting regions. The quarterly updates to the risk icon scores and the country ratings highlight developing risk-trends, allowing investors to respond quickly to deterioration and to better hedge their exposure or take advantage of new opportunities. Once again, the map demonstrates the power of combining RGE's country analysis and benchmarking with Aon's expertise in country risk.”


Aon Hewitt Delegated Investment Solutions Reaches $54 Billion In Assets Under Management Globally

Aon Hewitt announced that its global investment consulting business now holds $54 billion (USD) in assets under management for its delegated investment solutions clients around the world.

Delegated investment or fiduciary management as it is also known, involves the delegation by pension fund trustees of day-to-day investment decision-making and implementation to a third party, usually their investment consultant or an investment manager.

"We continue to see a strong demand for delegated services globally," explained Kemp Ross global head of Solutions and Operations at Aon Hewitt. "To help our clients face their challenges head on, we continue to invest in people and resources throughout the world and are launching new delegated solutions such as delegated defined contribution consulting services, which have launched in the U.S. and U.K."

Globally, Aon Hewitt provides delegated or fiduciary investment management services for 190 plan sponsors, representing 278 pension plans.

In the U.S., Aon Hewitt Investment Consulting, Inc. has grown its portfolio of clients to more than 100. Total assets under management in the U.S. are $35 billion, up from $26 billion in October, 2013. Aon Hewitt's delegated investment business continues to thrive in the U.K. Currently, Aon Hewitt provides delegated investment consulting services to 72 schemes, representing over $13 billion (£8 billion) in assets under management, up from $9 billion in October, 2013. Aon Hewitt has expanded its capabilities and has recently added delegated clients in Belgium and Germany.

"Institutional investors in the U.S. are under continued pressure to effectively manage their liabilities to improve the funded status of their plans, while the legal and regulatory complexities also grow," explained Clinton Cary, leader and chief investment officer of U.S. Delegated Investment Services at Aon Hewitt. "The growth of our delegated business demonstrates the trust our clients place in Aon Hewitt to expertly handle the investment management and fiduciary operations, responsibilities for their plans. We take that commitment seriously and we remain committed to offering our best thinking, talent and resources to clients in the U.S. and around the globe."

Aon Hewitt's delegated investment consulting services team works with pension plan sponsors to gain control of the rapidly rising cash and P&L costs, manage volatile corporate pension obligations holistically and dynamically, and helps investment committees execute dynamic polices in order to reduce decision cycle times.


Insurance-Linked Securities Set Issuance Record Amid New Highs In Collateralized Reinsurance Capital

Aon Benfield Securities, the investment banking division of global reinsurance intermediary and capital advisor Aon Benfield, today announces that a new record for annual insurance-linked securities issuance has been set with the pricing of the latest offering from Nakama Re Ltd.

When Nakama Re Ltd. Series 2014-2 priced on December 12, the total property catastrophe bond issuance for 2014 stood at USD8.03bn. It is worth noting that this figure excludes almost USD500mn in new issuance through private ILS structures. The previous record for annual property catastrophe bond issuance was set in 2007 when USD7.86bn of property catastrophe bonds were brought to market. In a year where Aon Benfield Securities launched its innovative CATstreamSM platform – which allows catastrophe bonds to be brought to market in less than half the time of traditional ILS solutions – there has been notable development in the ILS space.

Aside from the record annual issuance, 2014 has witnessed several further records being established in the ILS sector, including a record second quarter issuance total of USD4.5bn across 12 catastrophe bond transactions, a record first half issuance total of USD5.9bn, and a record value of catastrophe bonds on-risk –which stood at USD22.7bn as of November 30, 2014. The year also saw a new record established across other forms of collateralized reinsurance capital. As of June 30, 2014, collateralized reinsurance capacity excluding catastrophe bonds had reached a record USD36.2bn, compared to USD29.4bn in 2013 and just USD7.7bn in 2009.

Paul Schultz, Chief Executive Officer of Aon Benfield Securities, said “The inflows of alterative capital into the reinsurance industry over the past two years have been well reported, and in 2014 we have seen the results of this influx in terms of the volume of ILS transactions that have been completed. This year, however, has been characterized by more than just largesse, as we have taken positive steps to expand the scope of the ILS offering by structuring innovative deals to address new perils, new territories, and new currencies, as well as making ILS solutions more accessible to smaller firms and those companies wanting to structure smaller transactions. Our outlook for the ILS sector for 2015 remains highly positive, and we anticipate that the capital inflows and strong pipeline of opportunities seen in 2014 to continue.”

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