Research on opportinities for tech disruption in private health insurance for German mkt

1. Market survey. Opportunities for
new technology, 2015
Private Health Insurance in EU: Germany

2. Statutory vs private insurance
√√ Insurance is about risks and capital pooling in essence. Health risks (and healthcare expendi-
tures) are distributed unevenly across indivuduals and clusters (risk groups)
√√ Calculation of health insurance premiums has to deal with this uneven distribution
How much each participant to pay for health insurance?
Statutory means social solidarity:
You make more money - you pay
more (proportional?)
You are part of the group (social,
professional etc) - all pay equal
in the group
Risk solidarity Income solidarity
Income rated YES YES
Community rated YES NO
Risk rated NO NO
SHI
Germany
PHI
Germany
Private means market reality
ÎÎ you pay market price of your health risk. This is risk-rated premium. The process is called medical under-
writing in insurance

3. PHI in Germany. Key numbers
2013
√√ Comprehensive PKV is an alternative to GKV
√√ 8,9 million policies with annual payments of
EUR 25,7 billion
√√ There are some group insurances assumed insignifi-
cant. I.e. PKV is individual (B2C) market
√√ There is also 23,5 million supplimentary policies
with EUR 7,4 billion annual payments
* Numbers under PKV Supplimentary adn Long-term represent number of insurances (policies) rather than individuals insured. One person can
have multiple insurance and vice versa (group insurance). We assume it roughly equal to population numbers
Source: pkv.de
DUAL system

4. GKV to PKV migration
Source: pkv.de, “Private Health Insurance in Germany” presentation at the World Bank Workshop June 28, 2011 by Stefan Greß, PhD
2010 2011 2012 2013
PKV policies 8 895,5 8 976,4 8 956,3 8 890,1
Arrivals from GKV 227,7 232,0 159,9 123,9
Departures for GKV 153,2 157,6 162,4 161,2
Net PKV growth 84,6 80,9 -20,1 -66,2
figures in thousabds
You get the right to switch
But.. Once private, ever private!
Occupation (German) Occupation
Angesteller
(>54 900 euro income)
Employee
(> 54 900 euro pa income)
Selbstandliger/ freiberufler Independent/self employed
Beamter Civil service officer
Beamtenanwarter Candidate for civil service
Student Student
Praktikant Intern
Nicht erwerbstatig Unemployed
Only ~25% of those having the right did
switch to PKV

5. PHI supply and traditional distribution channels
Sources: wikipedia, gdv.de (Statistical Yearbook of German Insurance 2013),
√√ There are 43 PHI insurers of which 24 are joint-stock
companies and 19 are mutual societies
√√ PHI insurers provide both
comprehesive substitutive
PKV and suplimentary/com-
plimentary coverage
√√ PKV is a private law contract
Concentration, PHI
5 largest companies 53,1%
10 largest companies 77,5%
15 largest companies 90,2%
Distribution led by intermediaries
type of intermediary 2010 2011
single-tied or insurance group
intermediaries
48,6% 49,2%
as main occupation 32,0% 32,3%
as side job 1,1% 1,0%
employed field staff 15,5% 15,9%
multi-tied intermediaries 37,5% 37,3%
brokers 31,7% 31,8%
multiple agents 5,8% 5,5%
credit institutions 3,1% 2,9%
as single-tied intermediaries 2,0% 1,8%
as multi-tied intermediaries 1,1% 1,1%
directselling 3,9% 3,9%
other 6,9% 6,7%
Insurer
Insured
persons 2013
thousand
Change
to 2000
thousand
Premiums
EUR billion
1 Debeka 2 243 327,7 5,1
2 German Health 857 0,2 4,8
3 Axa 779 321,8 2,5
4 APKV 654 -253,7 3,3
5 Signal Iduna 614 97,5 2,0
6 Versicherungskammer Bayern 464 47,0 1,3
7 HUK Coburg 398 180,5 1,1
8 Continentale Insurance 392 21,3 1,4
9 Central Health Insurance 379 2,1
10 Barmenia 306 -2,5 1,5
Total number of insurance intermediaries/
advisors: 257,6 thousand including:
tied agents: 175,8;
authorized agents: 33,1;
brokers: 45,6;
product accessory: 3,1 in 2011

6. Client’s market
»» It is individual mas market. Group purchases are rare
»» You deal with offline intermediary rather than direct with insurance company. This is
how PKV product reaches ~90% of the client market
»» Comprehensive PKV works
like GKV. You enrolled and
go on paying your (monthly
or annual?) bills
But what if customer not happy
with PKV value for the money?
Tariff change? Insurer change?
√√ That is same insurance company but dif-
ferent plan (i.e. set and scope of services)
√√ Not easy. May deliberately be intricated
by insurers (Spiegel article)
√√ Trditional broker do not earn comission if
you change plan but stay with same insurer
** Cancellation possible as each year
with a three months written notice be-
fore year end. OR at the premium in-
crease (HUK Coburg). Is this a mar-
ket standard?
The bread-and-butter business of private health insurers, the comprehensive health insurance is
advised in recent years clearly stalled. Growth generated the sector last only in the
supplementary insurance
Experts say:
Insuredpeople,comprehensive
PKVmillion
Contractduration,years
Newdeals
perannuminthousand
NewarrivalsGKV2PKV
2013inthousand
Stat Est Est Stat
8,89 25 356 124

7. Preliminary conlusions
ÂÂ Your PKV premium is risk-rated. At least you definitely pay more with age. But
usually no come back to GKV heaven
ÂÂ Comprehensive PKV is the client market now. Intermediaries (brokers) compete
for new deals
ÂÂ This competition is really tough these days as number of brokers compare to
number of new deals available on the market
ÂÂ Insurers strive to keep prices and switching costs up
ÂÂ Brokers do not make any money if their costomer changes tariff (plan). New ad-
visor/broker revenue model may be taking off, get paid as a % of the clien’t saving
ÂÂ Broker’s commsiion for new biz remains traditional high (7-9 monthly premiums).
Competition doesn’t lead fast decrease in broker’s commission. Client kickbacks
are not common practice
ÂÂ Overall PKV distribution seems hardly cost effective now
ÂÂ If effective marketing tech are available for outsourcing (i.e. digital lead gen) it’s
market price likely to soar...
Doesn’t seem ready for some tech
disruption now?