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Foreign firms make a dash for health pie
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China's health insurance sector is attracting increasing international interest from companies looking to become established in the area which according to insiders will see substantial growth.

Foreign groups are looking to set up consulting firms, entering into joint ventures and buying stakes in local companies in a bid to take a piece of what could generate a substantial part of the country's GPD in the near future.

An advertisement for a health insurance product in Shanghai.

A report from DKV Deutsche Krankenversicherung AG, a German-based private health insurer, suggested the market could triple in size by 2015.

The group believes that the growth reflects the rise in living standards across the country.

Industry forecasters claim that by 2010, health insurance premiums in China could reach 60 billion yuan ($8.66 billion). They say the development is due in part to "a combination of the growing elderly population and an expanding economy. Healthcare spending is expected to account for 6 to 7 percent of GDP, pushing the health insurance market".

Swiss Re, the world's largest reinsurer, reported in a recent study that China spent more than 1 trillion yuan on healthcare in 2007. Commercial medical insurance covered less than 6 percent of these costs, implying a market potential of 489 billion yuan.

It is this potential that has encouraged foreign investors to jump on a financial bandwagon and move more directly into the sector. Most choose to run a third-party administrator (TPA) company first or buy shares in local businesses to gain presence in the sector.

WellPoint, one of the biggest US health insurers, set up its Beijing representative office in April. And the company, together with Premera Blue Cross, another US health insurer based in Idaho and Combined Benefits Management, plans to establish a TPA in Shanghai.

"We need first to understand the market. The representative office and the Shanghai company will help to do this," said John P. Domeika, president of WellPoint's Shanghai joint venture. "But when the time is right, we will also join hands with local companies to start a health insurance group."

Swiss Re recently received approval to establish a health care consulting company and a TPA in China - Beijing Prestige Health Consulting Services Co Ltd.

It is expected to open later this year, and will provide consulting and outsourcing services to hospitals, insurers, policyholders and employers.

TPAs provide specialist claims administration services. They can keep medical insurance costs down, help insurance companies become more efficient and provide improved and more up-to-date services to policy holders.

But companies are also opting to take the more direct route into the market by entering joint ventures.

"Sales channels and government resources will be the major concerns when seeking our Chinese partner," said Paul Gregersen, head of Bupa's representative office. Bupa has been long looking for a suitable Chinese partner. "If everything moves on smoothly, we will apply for a health insurance license in September next year," he added.

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