Private insurance gains ground in the Gulf

10 October 2010

Regulatory reforms for mandatory health insurance and increasing opportunities are making the healthcare sector more attractive for private investment in the region

Private sector participation in the health sector is growing. From mandating health insurance policies to entering into partnerships with leading international institutions, private equity investors seeking alternative propositions to real estate, are showing increasing interest.

Governments are successfully pushing private sector firms to shoulder some of the healthcare burden

The parallels with the needs of the region are clear. Improvement of the quality of healthcare is the main driver of investment, but governments do not want to do this alone. By making health insurance mandatory, governments in Saudi Arabia and Abu Dhabi are successfully pushing private sector firms to shoulder some of the healthcare burden.

Saudi progress

To date, most progress has been made on this in Saudi Arabia, where more than 6 million people have private health insurance. From a market where premiums were just $365m in 2005, growth has been massive thanks to the introduction of the Cooperative Health Insurance Law in October 2005. This began the process of making health insurance compulsory for expatriates.

Saudi Arabia health premiums ($m)
Health insurance3655928171,2811,944
Health insurance as % of total premiums2632364449.9
Total premiums1,3741,8492,2882,9113,893
Net Written Premiums
Health insurance2954916391,0001,482
Health insurance as % of total premiums3542435155.2
Note: Net written premuim is the premuim retained by the insurance company after it has sold premiums to re-insurers. Source: Sama

By the end of 2009, this had expanded to cover Saudi nationals and their families working in the private sector and has resulted in a market where gross written premiums totalled $1.94bn by the end of 2009.

Insurers are optimistic that legislation will also be introduced in Kuwait and Qatar with regulatory reviews expected in 2011. Abu Dhabi is also contemplating its approach to health insurance.

Abu Dhabi members, by insurer 2009*
Insurer20092008Market share %
Daman enhanced301,447304,64931
Al-Ain Ahlia23,8574,7072
Green Crescent21,34102
*=2008 number of members do not exclude in-year cancellations except for Daman. Source: Health Authority of Abu Dhabi

“At Mubadala Healthcare, we are playing our part in stimulating this new private healthcare infrastructure by partnering with international expertise to create world-class healthcare facilities here in the UAE,” says Suhail Mahmood al-Ansari, associate director of Mubadala Healthcare, which is a subsidiary of state-owned Mubadala Development Company.

 “The Health Authority Abu Dhabi has identified a number of areas for focus and we work closely with them to understand the needs of the Emirate when planning new investments,” he says.

Saudi Arabia health insurance 20052006200720082009
Value of claims paid ($m)2573315017571,069
Source: Sama

The partnership model used by Mubadala Healthcare sees it collaborating with private organisations to design, plan and then operate the facilities. However, Mubadala retains ownership. The most high-profile example of this is a partnership with the US hospital Cleveland Clinic, which began in September 2006.

More flexibility is required in the plans. We offer a new lower tier so administrators can control budgets

Stuart Leatherby, Aetna Global Benefits

“Abu Dhabi has had a long relationship with Cleveland Clinic as a trusted patient care provider for UAE nationals, who would travel to the United States to receive treatment. Cleveland Clinic is consistently rated as one of the nation’s best hospitals so as part of our strategy to bring world-class healthcare to the region, partnering with this renowned and respected organisation was the natural progression of this relationship,” says Al-Ansari.

As a result the emirate is set to gain a new 364-bed specialist hospital, which focuses on five main areas – digestive disease;  eye; heart and vascular; neurological, and respiratory and critical care. The facility is currently under construction by the joint venture of the local/Belgian Six Construct Abu Dhabi and South Korea’s Samsung Group, which was awarded the contract in March 2010. Al-Ansari says construction is on schedule to open to the first outpatients at the end of 2012 and will begin receiving inpatients in early 2013.

Training support

With staffing shortages being acute in the region the partnership brings other benefits to the UAE as training support will be provided from the US. “The new hospital will provide a number of career opportunities, and medical professionals will receive ongoing medical training directly from Cleveland Clinic,” says Al-Ansari.

In Saudi Arabia, private health providers face different pressures. The Saudi German Hospital Group has aggressive expansion plans in place, but insurers are still reporting a lack of facilities. Particular areas of concern are rural areas with low population densities. Such locations are not attractive to private hospitals that rely on a continuity of patient numbers.

In the UAE, insurers report less pressure on healthcare facilities and more on premiums as competition grows.

“In developed [insurance] markets such as the UAE it is very competitive. The economy is hard hit and we have to find the classic balance between benefits and pricing,” says Stuart Leatherby, managing director for Middle East and Africa at Aetna Global Benefits (AGB), the international arm of US insurance giant Aetna. “We can’t offer the same at a lower price. So we are considering a range of options.” These include steerage, where policy holders are directed to certain facilities and co-payment where services are offered on a shared cost basis.

“More flexibility is required in the plans. We offer a new lower tier so that human resources and administrators can control their budgets. It is a scale down,” says Leatherby.

With medical inflation running at between 10 and 14 per cent increasing the pressure on providers and insurers alike, it is often a struggle for private providers to maintain profitability when staff and equipment costs are on the rise.

Cost savings can be generated by insurers and healthcare providers working in partnership, but the relationship between insurers and hospitals has not always been transparent. With an increasing requirement for pre-authorisation of treatments and procedures and growing collaboration between the two parties, this is changing.

Regulatory pressures

Better regulation in the region puts pressure on margins though. There are fewer insurers registered in markets like Saudi Arabia but those that are present are strong and financially stable, enabling local firms to compete on the same level as the global giants.

Established firms also face pressure from customers to provide a continuity of service, which is tricky when regulators impose varying requirements from the need to cover maternity services in Abu Dhabi to a requirement for eye tests in Saudi Arabia.

“We have to try and find a balance between having a locally licensed programme that meets all of the criteria and offering continuity. There can be massive differentiation. In some cases this has meant putting more into our regional plans,” says Leatherby.

The factors in play mean that market consolidation is a natural progression and insurers are expecting to see some strategic acquisitions unfolding in 2011 and 2012, particularly in Saudi Arabia.

However, nothing may happen without the approval of the Saudi Arabian Monetary Agency (Sama) which watches the market closely and licenses all firms.

“Economies of scale are very important. We are always mindful of this and strategically will consider acquisition if it fits. In certain markets there has been a big increase in the number of players and it won’t be sustainable,” says Leatherby.

Consolidation is an indicator of maturity in markets such as the UAE and Saudi Arabia, but elsewhere the private sector health market is less advanced. This means insurers and private health providers alike are watching and waiting for new opportunities to unfold, as well as working with the public sector to develop the most appropriate routes for reform.

Governments … are successfully pushing private sector firms to shoulder some of the healthcare burden

New players eye the market

In 2008, three specialists from the private Saad Specialty Hospital in Khobar, Saudi Arabia travelled to the United States to train in using the Saebo Programme. The programme involves the use of functional orthotic devices for rehabilitation. “It is a neurological device designed for the upper extremities. We call them functional orthotics. They are designed for victims of brain or spinal injury, for example stroke victims, and are used to both regain function and improve function over time,” says Saebo founder and president Henry Hoffman, who is also an occupational therapist. “The goal is to get the hand used for grasp and release.”

Therapists wishing to use the products must undertake a two-day training course, which is currently not available in the Middle East. “We get a lot of interest from Middle Eastern patients, but to implement the system requires a physiotherapist or occupational therapist to become certified.” Hoffman adds that a partnership with a regional distribution company is an option being considered.

“Markets with private insurance have been favourable because insurers are used to paying out for functional orthotics. These are much cheaper than robotic devices and just as effective, but robotic devices cost $200,000. These systems are under $2,000. In markets such as Saudi Arabia and the UAE, there is a good opportunity for a distributor who could supply the market. This is the next step for us.”

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