Future Trends in Health Insurance Industry Development

1. NEW GLOBAL BUSINESS ENVIRONMENT GROUP ASSIGNMENT How will the Health Insurance industry develop in the next 10 years? GROUP MEMBERS: Marc Haarler, Frank Mölling, Anna Lisa Nalin-Kaufmann, Sasha Paslen, Ananda Ramanan Swaminathan

2. Health Insurance Industry Today • Health insurance industry is now facing a great transformation. The speed of medical and technological progress, globalisation, changes in the regulatory environment, demands for greater efficiencies are key issues confronting the industry • Traditionally this industry is quite fragmented and focused on local markets and/or homogeneous regions • Replications rather than Innovations have characterized new product launches. Customisation to satisfy particular needs is not very common • The global economic downturn of the last years has seriously hit insurance companies, mainly impacting the market for health and life insurance products • A wave of Consolidation has begun. Year 2003 witnessed a slew of mergers and acquisitions, which are expected to continue and eventually increase even more • Convergence of health care systems in US, Canada and Europe has started: European governments want less involvement in the insurance industry, whereas in the US the government is looking at a larger role. In US public spending is increasing while in Europe impending reforms of public healthcare systems open new opportunities for group insurers

3. Focal Questions The world seems to be at the threshold of a medical care revolution aided by advances in bio-technology, ICT, globalisation and convergence of medical standards. There are opposing views on these developments. E.g. Progress in biotechnology may eradicate diseases, but also induce ethical conflicts. Globalisation may bring more wealth, but also unequal wealth distribution, causing poorer people to spend less on healthcare and richer people develop even more “affluent illnesses”. A highly technology oriented and an ever more alienating society lets people to live individualistically and yet seek a more balanced life. Currently, health means “disease-free”. In future it may be seen as an “overall well-being of body, mind and soul”……… so… What will these developments mean for a company selling health insurance products? What are the key uncertainties ? What are the possible “ worlds ” that can emerge in the next 10 years?

4. Thinking Process Events Patterns Focal Questions Driving forces Systems diagram Systems modeling Key uncertainties framework Identification and development of scenarios Strategic implications

5. Exploration of the Driving Forces (1) • The Group’s exploration process has included the following steps: • Exploring the Library of Babel: • Academic reading and several sources describing current and future global trends not specifically related to the health insurances. • What is going on in the insurance industry: • Consultation of newspapers (FT, WSJ), magazines and web sources focussed on the health industry (i.e Hazard Hotel, Prudential web site) scenarios (i.e.scenario for the WHO Regional office for Europe, Howard J. Bolnic, Dr. P. Dixon Bio, PWC). Informal interviews with people working in the insurance industry. • Creative brainstorming: • Team members discussed patterns and factors they perceived to be related to the future development of health insurance

6. Exploration of the Driving Forces (2) • Focussed Research: • Research and discussion about driving forces, enablers and inhibitors ranging from factors which may affects insurers in the long-term as well as factors of more immediate effects • System diagram: • Previous steps led to drawing the system diagram where complexity of the the health industry is represented through the analysis of ongoing trends in the world (globalisation, aging population, immigration, urbanization etc.), technological advances and changes in socio-cultural dimensions (feminisation, health perception, risk aversion, need for balance in life etc.) • Ranking the driving forces: • From the various driving forces, six key driving forces were selected and described. Decisions were based on group’s perceptions and clearly compromises were necessary. This process led to the identification of a new, more focused network of forces

7. Exploration of the Driving Forces (3) • Key uncertainties: • Biotechnology and (governmental) regulation emerged as key uncertainties. They seem to represent the greatest bets in the timeline the group adopted. Investigations focussed on the following issues: “Will biotechnology really deliver on its promises and will consumer needs be satisfied by biotechnological progresses? Will Governments intervene through regulation? What position will Governments take in a possible ethical debate?” • Scenarios and their strategic implications: • Four main scenarios emerged through the analysis of different combinations of the two chosen uncertainties. A low probability fifth scenario based on dramatic events happening is also discussed. For each of the main scenarios strategic implications for insurance companies are presented and suggestions for future business development taken in consideration.

8. Driving Force: Biotechnology Revolution (1) More than 325 million people worldwide have been helped by the more than 155 bio-technology drugs and vaccines approved by the FDA. There are more than 370 bio-technological drug products and vaccines currently in clinical trials targeting more than 200 diseases, including various cancers, Alzheimer's disease, multiple sclerosis and AIDS. Biotechnology is responsible for hundreds of medical diagnostic tests that keep the blood supply safe from the AIDS virus and detect other conditions early enough to be successfully treated. (1) • Definition:Advances in biotechnology like stem cell research and genetic harvesting have ushered a new world where perfectly healthy life is possible • Enablers: • Societal acceptance and embrace of biotechnology. • Uniform and effective government regulations without erecting too much barriers - will allay fears about the misuse of the technology and the moral issues. Key areas are in Data protection, Security, Guidelines for patenting and licensing, Global system of safety standards. • Economic viability of biotech innovations – Many of the innovations have not progressed beyond lab research (due to lack of scale, regulatory barriers, social acceptance). Emergence of homogenous maket for biotech products will increase the viability of investments. • Ground breaking revolution that brings positive change in the society will increase the confidence level and negate the ill-feelings (i.e.For cure for lethal diseases).

9. Driving Force: Biotechnology Revolution (2) • Inclusion of third world nations in the benefits of biotechnology • Inhibitors: • Ineffective and conflicting regulatory systems presents different image to different set of people and increases the overall concern. • Power of religious institutions and other NGOs that are fundamentally opposed to the biotech revolution involving genetics will continue to put pressure on the public perception. • More media focus on the negative impact of the technology rather than the positive effects. • Impact: The biotechnology revolution will help health insurance companies offer customized consumer focused package solution to suit different individuals. This will allow insurers to screen individuals based on their genetic profile (susceptibility to certain diseases) and charge differential premiums. Screening technology and genomics will allow health insurance companies to look forward (preventive) rather than take up a hindsight view. Medical costs would in the long run come down drastically. At front of these great promises a question arise: Will biotechnology be able to deliver its promises? • Sources: 1) http://www.bio.org/er/statistics.asp 2) Biotechnology Scenarios 2000-2050 Using the future to explore the present, World Business Council for Sustainable Development Scenario Unit, www.wbcsd.ch 3) Future of Health care, www.globalchange.com

10. Driving Force: Biotechnology Revolution (3) Regulations Accurate diagnosis Genetic Profiling and diagonising future susceptibility Ethical and Moral issues Focus on Prevention rather than care Advances in Bio-technology Better, faster, cheaper and long lasting cure Customer segmentation based on risk profile – selection, Differential premiums Overall lower medical cost Major impact on Promotion, Price and Product Customized product offering (+) Works for (-) Works against

11. Driving Force: Aging Population (1) • This social phenomenon, persistent for decades, will dramatically affect the world in the future years. Gradual greying of population will happen both in the developed countries and in many of the more advanced developing countries. (1): • 2 out of 3 of all over 65s in history of earth are alive today • 75% of all US wealth held by over 65s; • 50% of all discretionary spending controlled by over 50s in US/Europe • Number of children in Germany have halved in the last 10 years • Definition: Shift in the population composition which is characterized by declining birth rates and lower ratios of young and working people to older people (who are mainly retirees) • Enablers (1): • Falling birth rates due to falling fertility but also due to feminization of the society (women study and work more than in the past and have less time for having children) • Increased life expectancy through biotechnology revolution (earlier diagnosis, new drugs, body repair); • Technological innovation helping elderly people to enjoy better quality of life by alleviating everyday difficulties; • Social recognition of elderly needs: more numerous and improved health and pension systems as well as services for elderly people; • Reduced poverty; • More attention to personal life balance

12. Driving Force: Aging population (2) • Inhibitors: • Increase of birth rates through medical and technological progress • Immigration of young balancing the demographics across the globe • Reduction of economic wealth caused by globalisation • Increasing inequality and poverty (4) can severely hit older generations • Reduction and worsening of health and pension systems and services • Impact: A declining ratio ofworking to retirees will create new challenges for covering costs of social services, pensions and health coverage. In this context private insurances may find new way to reverse the current slowdown trend by developing a major market orientation. Governments have to react to mitigate the problems through (5):delaying retirement, encouraging women participation in the work force, relying on immigrants. These factors along with consolidation wave resulting in a new picture of the players in the marketplace will represent opportunities to offer more customized products not only to wealthy elderly people but also to new customer segments such as women and immigrants. There may be a shift in health care from cure to prevention. • Sources:1) Dr. P. Dixon Bio, http://www.globalchange.com; References for Enablers and Inibitors: Global Trend 2015, National; Intelligen Council (2000), http://www.odci.gov/nicpubs/2015_files/2015.htm; Economic Policy institute, The Unremarkable record of liberalized trade (2001); J E Stiglitz, Ethics, Market and Goverment Failure, and Globalization; Magazine, Hazard Holtel, sep. 2002, dec. 2003

13. Driving Force: Urbanization (1) By 2015 more than half of the world’s population will be urban. The number of people living in mega-cities with more than 10 millions inhabitants will double to more than 400 millions (1). World‘s urban population is estimated at 3 billion in 2003 and expected to rise to 5 billion by 2030. Rural population is anticipated to decline slightly from 3.3 billion to 3.2 in the same time. The process of urbanization is already advanced in the more developed regions -74% of population is urban. But, almost all the growth of the world’s total population will be absorbed by the urban areas of the less developed regions - from 42% to 52% - (2). • Definition: Migration of people who live in the countryside to towns or cities and progressive creation of greater human agglomerates and mega-cities • Enablers • Concentration of industrialized areas and related labour demand • Increasing inequality and poverty because of negative effects of the globalisation process • Failures of governmental interventions (i.e. creating more infrastructures in rural areas) and international governance (i.e. no debt forgiveness for poorest countries) • Conflicts which force people to move from war-areas to safer countries • No diffusion of medical and technological innovation outside urbanized areas

14. Driving Force: Urbanization (2) • Inhibitors: • Reduced poverty • Governments’ environmental friendly interventions (i.e. infrastructure for rural areas) • International governance and regulation of globalisation (i.e.debt forgiveness; less or no drugs’ intellectual property protection) • Reduction of conflicts • Exportation of drugs and new technology to poorer countries and rural areas • Impact: Speed and scale of growth of urbanization will continue to be a challenge for governments. This will lead to more expensive and less safe cities and to worsening of labour conditions (3). 2/3 of the world will leave in mega urban area and up to 50% will be city slum; there will be a rapid social « lift » (4). On the other side, urbanization could provide many developing countries to tap information revolution and other technological advantages (5). This will increase wealth conditions of local populations and eventually open new markets. Insurances will be faced with the necessity to better understand consumers’ needs in this highly complex society through offering customized services and targeting micro-segments providing different health and life insurance coverage. • Sources: (1) Global Trend 2015, National; Intelligence Council (2000), (2) Press Release POP/899 24 March 2004 UN Department of Economic and Social Affairs; (3) Economic Policy Institute, The Unremarkable record of liberalized trade (2001); (4) Dr. P. Dixon Bio, http://www.globalchange.com; (5) J. E. Stiglitz, Ethics, Market and Government Failure

15. Driving Force: Immigration (1) Immigration has at least three faces: cross-border political migration of people facing persecution or oppression in their native lands, economic migration of people living in grinding poverty in their home states and of skilled workers in areas such as information technology (1). Legal and illegal migrants account for more than 15% of the population in more than 50 countries. These numbers are expected to grow substantially. Up to 2015 immigrants will seek to move to North America primarily from Latin America and East and South Asia; to Europe from North Africa, Middle East, South Asia and post-Communist States; from the least to the most developed countries of Asia, Middle East and Sub-Saharan Africa. • Definition: Cross-border movement of people entering in a new country to work and settle there • Enablers (2): • Political instability and conflicts • Inequality and poverty and related search of a better life pursued by millions of people living in the poorest countries of the world • Globalisation which in general has opened up the labour market • Labour demand for unskilled and skilled workers in the developed countries • Aging population and related Governments’ need for reducing the negative ratio workers to retirees and of founding pension systems

16. Driving Force: Immigration (2) • Inhibitors: • More effectiveness of international governance (i.e. debt forgiveness, deletion of trade’s barriers which penalize developing countries) • Spread of economic wealth in the developing countries • Reduction of conflicts and more generally peace in the world • Export of drugs and new technology to poorer countries and rural areas • Dramatic increase in fertility and birth rates in the most advanced countries • Tribalism intended as general come back of group of population to the “origins” and as establishment of smaller communities of individual sharing the same roots or culture or values • Impact: Legal immigrants are taxpayers and can “subsidize” pensions and health care needs of the increasing greying population of the most advanced countries. This may diminish the urgency for Governments’ drastic changes in regulation. But, states will also face more difficulties in managing migration pressures and flows as well as original inhabitants’ political consensus. A radicalisation of different values/religions may lead to social and racial tensions. Many immigrants(low-skilled) will live in very poor conditions, those that do not integrate in the society may lobby to support terrorism and conflicts or join criminal organizations. Escalation of violence, new form of conflicts or even wars can have the following impact: all known demographics and basis for actuaries are shifted. • Sources:(1) • CNN, Special Immigration,http://www.cnn.com/SPECIAL/2001/immigration/stories/overview; • References for Enablers and Inibitors: Global Trend 2015, National; Intelligen Council (2000), http://www.odci.gov/nicpubs/2015_files/2015.htm; J. E. Stiglitz, Ethics, Market and Goverment Failure, and Globalization; Economic Policy institute, The Unremarkable record of liberalized trade (2001);

17. Driving Force: Globalisation(1) Globalisation is generally expected to have a positive impact on growth and poverty in the long term. However, it also leads to increased inequality in the distribution of wealth. This in turn leads developing countries to spend less on healthcare as they need their funds to pay off debts. Increasing wealth leads to a number of developments in developed countries, such as work-life balance issues, luxury lifestyles leading to ‘wealth’ diseases such as obesity. Frequent travel leads to rapid spread of contagious diseases. • Definition: The global circulation and exchange of goods, services and capital, information, ideas and people • Enablers (1): • Progress in Information technology allows the quick and cheap circulation of data and information, transfer of funds, exchange of services and products on a global scale • Enhanced international communication facilities allows rapid dissemnination of information • Improvement of Transportation facilities allows for travelling and transportation of people and goods to every corner of the globe • Increased Trade Liberalization reduces barriers to trade • Deregulation of industries allowing for companies to step into industries they could not enter before

18. Driving Force: Globalisation (2) • Shifting geopolitics allows for reduction of power of the nation state and increaseing power to regions and institutions • Expanding financial flows • Inhibitors: • Anti Globalisation movement • Tribalism leads to people searching for idnetification on a more local scale • Need of people for sense of belonging to an identifiable group • Globalisation may cause Social and Religious unrest; this effect of Globalisation is an inhibitor • Inability of developing countries to keep up with the globalisation pace • Economical crises related to globalisation leads to people wanting to stop or reverse the process • Disease transmission (for instance the spreading of SARS) • Cross-border criminality • Impact: Globalisation has various effects. In one angle it has increased the connectivity and information power in the world. But on the other angel it is argued that it increases inequality in wealth distribution, it increases the number of poor and the relative share of poor people. It also enhances the wealth of developed countries. The population getting richer will develop their ‘rich’ lifestyles, leading to obesity, use of alcohol, tobacco, drugs etc.

19. Driving Force: Globalisation (3) • Impact: Another effect will be the development of work/balance related psychological llnesses. This in turn will impact on the need for healthcare and insurances. The population remaing or getting poor will not spend too much on health care and insurance. • In addition, Globalisation leads to (social) unrest with has its effect on terrorism and tribalism. The increased uncertainty in the world may increases the need to have insurance against uncertainties. Attacks by terrorists, especially if biochemical, may lead to increases need for health care and (health + life) insurance. Finally, the circulation of people because of global business and holidays has an effect on the spreading of illnesses and bacteria such as SARS and Malaria (no. 1 killer in the world) leading to increased need for additional insurances. • Globalisation may pave way for convergence of health standards and open up markets for insurers. • Sources:1) Poverty in an age of Globalization, The World bank, October 2000; (2) C. E. Weller, R.E. Sott, A.S. Hersh, The unremarkable Record of Liberalized Trade; (3) Ethics, Market and Government Failure, and Globalization, J.E. Siglitz, November 2003 

20. Driving Force: Globalisation (4) Globalisation Inequality (Social)unrest Casualties NBC Terrorism Wealth in developed countries Travelling Luxury lifestyles Ability to over insure Sense of crises and uncertainty Low threshold for spreading diseases (SARS) Need for safety net, insurance Obesity, cancer, cardiovascular illnesses Need for life and health insurances

21. Driving Force: New consumerism (1) Consumer-driven health plans are ramping up for rapid growth, poised to attract 2.7 million members and $16 billion in premiums by 2005, according to Forrester Research Inc. The plans are likely to grab 24% of the health insurance market and $413 billion in premium income by 2010, as 40% of PPO and point-of-service plan members switch coverage. A scientific poll commissioned by the Health Insurance Association of America suggests that 44% of privately insured adults would switch to a "consumer choice” health plan, if given the chance. (1) • Definition: Global, Knowledgable, E-savvy and Health focused consumers who are taking more responsibilities for their insurances and are much more demanding. « My Healthcare, My way » • Enablers: • Rising cost of medicare & social welfare and subsequent decline in institutional funding. This and rising insurance premiums will force consumers to shop around aided by the surge in e-Insurance. • Increasing pressure on individuals to play an active role in selection and administration of policies. e.g. Employers are gradually moving from guaranteeing benefits to guaranteeing contributions. As out-of-pocket expenses rise consumers will be more demanding thereby shifting the power balance. • Harmonization of regulation of health insurance, globally accepted medical standards - will open doors for insurers to expand globally offering more choices to consumers. • Consumer need for customised insurance solutions. Tomorrow’s consumer can profile his/her exact health risk aided by biotech advances and choose accordingly.

22. Driving Force: New consumerism (2) • Better education and healthcare awareness. • Wide spread adoption of e-Insurance models by e-savvy customers. • Further deterioration in the efficiency of the current government propped insurance system resulting in even longer waiting lists, even lesser physician’s time • Inhibitors: • Regulatory restrictions both in terms of health and legal frameworks. • Privacy concerns about security of Internet model and sharing information. Increased threat of e-insurance fraud due to lack global legal systems. • Continuing social welfare systems and institutional support will maintain status-quo and delay onset of the new consumer age. • Knowledge gap; The pace of medicare advances are mind-boggling; Failure of helathcare organizations to bridge the gap to help consumers make complex health decisions will be a hurdle. • Impact: The new consumerism will, through a shift in power from traditional health care buyers to consumers, force insurers to re-evaluate marketing strategies. Companies can expand globally and take advantage of mass customization taking advantage of e-Insurance models. Further Consolidation, Strategic marketing and Branding will become key focus areas for insurers in the consumer age. • Sources: (1) Decision support tools pave the way for consumer-driven health, Jill Elswick, Employee Benefit News, http://www.benefitnews.com (2)Healthcast 2010 Smaller World Bigger Expectations, PwC, www.pwcglobal.com

23. Systems Diagram-Interplay between Driving Forces Works against Leads to Breeds New forms of conflict Cures/ Prevents Environmental degradation New disease and ailments Hastens spread of Provides tools for Prevents Leads to May create Changing Health Perception Creates market for Triggers helps Triggers Advances in bio-technology Increase in risk aversion In society Poverty/ Economic Inequality Increases life expectancy evokes Prevents Leads to Creates market for Ethics may restrict Aging population Globalization Decreases Is a basis for Increases Protests against Increases Acts against Power of alternate Governance (NGO) Compensates for Enables Tribalism Need for balance in life Supports Advances in ICT Opens up Increases possibility of Regulations Immigration Supports New consumerism Enables Enables Deters Deters Reinforces Welfare oriented Social state Urbanization Supports Leads to Feminization of society Creates need for Individualism Inhibits (+) Works for (-) Works against

24. System Modelling • From the researched driving forces, the following were short-listed based on their leverage in the Systems diagram and the nature and timing of impact: Biotechnology, ICT, Aging Population, Globalisation, Regulatory framework(Governance), New Consumerism, and Conflicts. • Developing the interplay between these forces further, two major major positive • loops were identified: • Involving Advance in bio-technology, Advance in ICT and Advent of new consumerism • Involving Globalisation and Regulatory framework. • Two key uncertainties surrounding the future of the health insurance industry were • identified based on web research and interviews: • The nature and time line of the bio-technology revolution – Uncertainties include the future focus and costs of medical care, the nature of future health risks (can they be understood), risk profiling possibilities (with genome screening mass customisation on the scale of 1 should be possible; adverse selection is also possible) and new customer requirements (e.g. Personal organ libraries). Possibilities span the whole spectrum ranging from the status quo where bio-technology has not taken off except in fits and starts to the world where it offers completely perfect health care at affordable prices. • The nature and time line of the changes in the regulatory framework – uncertainties include the government‘s role in the health insurance industry, the future medical standards (global convergence), regulation on individual risk assessment and differential premiums, regulation on the nature and costs of insurance. Again a whole array of possibilities may unfold.

25. Focused Network of Driving Forces Influences May delay Governance/ Regulations Can provide market for Biotechnology Advance supports Can stimulate spending on Provides market ICT Advance Rich/Poor Increased Globalization Open Trade Welfare measures support Social Unrest Helps sustain Global Diseases Offers choice Aging Population May be misused in restricts Can stimulate Consumerism Trends Rising Conflicts Provides tools for May be at the forefront given their growing influence (+) Works for (-) Works against

26. The Uncertainty Framework Regul a t ion Free, Open, Standard Bio technology revolution Doesn’t take off Takes off Restrictive, Closed, Diverging

27. Identification of Scenarios Free, Open, Standard Regulation Titan Morpheus Bio-technology revolution Takes off Doesn’t take off Serene Muses Restrictive, Closed, Diverging

28. Scenario “Morpheus” (1) BIO-TECHNOLOGY TAKES OFF; REGULATIONS FREE, OPEN AND STANDARD In the “Morpheus” scenario, the health insurance industry undergoes fundamental transformation (hence the name Morpheus) propelled by advances in biotechnology, standardization, relaxation of regulations and the dominant presence of an aging population. Biotechnology is delivering its promises. It continues on its current growth path, gains momentum supported by Governments and by the ever growing need for better health care conditions. In the short run, medical costs for new ground breaking cures are high due to insufficient scale economies and R&D costs but drop off in the medium to long term. Insurance companies assess the risk of users based on the complete health profile and charge differential premiums. In some areas biotechnology results in cheaper and more effective cures for age old medical problems. Government regulations approve this risk profiling and interfere only to prevent the insurers from using the advance know-how to unjustly deny or overcharge consumers for coverage. Many Governments realize that the omnipresent “welfare state” model is not sustainable. In an era of increasing elderly people and smaller number of taxpayers supporting all costs of the health care is simply no longer an option. Therefore Governments ration their health costs covering only care and medical services considered strictly Essential, while relaxing some of the tabs on health insurance industry. Basically, States requires their citizens to cover privately a very large part of their health systems costs, especially those related to prevention. In this way, the expansion of a much more privatised and customized medical care/insurance system is favoured by the new course undertaken by several Governments.

29. Scenario “Morpheus” (2) The perception of health changes from that of “disease/ailments free” to “holistic soundness of mind, body and soul”. The psychological dimension gets a bigger focus and many behavioural techniques enter the main stream of health care. Prevention more than cure is at the fulcrum of health system. All these mean new opportunities but more risks as well for the insurers. At least in the advanced countries (but not only) a very wealthy aging population is willing to invest and pay much more to increase life quality and the chance to live disease-free as long as possible. New consumer segments such as independent working women or an increasing number of skilled and well earning immigrants look for tailored insurance services. Information available through various media, especially the internet, spreads common awareness that preventive care may make possible a better and even more longer senility. The “desire of immortality” always present in the human history is more appealing than ever. Nevertheless from some sides of the public opinion the ethical issues of biotechnology and the risk of too discriminating insurance practices are still questioned and strongly opposed. Individualism and the search of a more balance life amplify the need for a more customized and consumer friendly healthcare organizations. Winners will be those insurances which will be able to respond to these social trends offering the right services for a larger number of consumer segments while keeping costs low, leveraging ICT potential.

30. Scenario “Morpheus” (3):Implications Implications: Health insurance companies need to keep pace with the technological possibilities and come out with customized product offers in time. Menu pricing and multi-layered policies will become increasingly popular. Since the boundaries of health have expanded to include an “overall well -being-body, mind and soul” insurers need to develop a deeper understand of the differences between traditional care and prevention. If the emphasis on prevention increases costs because of early detection and intervention, it also enhances profit possibilities. Prevention includes not only sophisticated medical tests but also (e.g.) major attention to nutrition, fitness activities related to patient physical weaknesses and wellness offerings. Risks are also considerably higher as some of the new cures might result in unforeseen side effects that would also need be covered. There is also the risk of an escalation in the public debate about the ethical boundaries of biotechnology. This may transform insurances challenges into threats. Under religious and social pressures governments could be forced to reconsider their hands-off policies. This would question the high investment bets insurers had taken on the biotechnology potential. All these risks would require the health insurance companies to collaborate even more closely with the health care researchers, providers and regulators.

31. Scenario Morpheus (4):Implications Speed to market is the key: the ability to understand the complex medical possibilities and to quickly design and market policies will be differentiators to achieve success. This also offers the possibility to go after some niche markets e.g. Coverage for chronically ill and thus open up new possibilities. Consumerism trends in the advanced countries requires at least better care services without long waiting lists. The increasing awareness that prevention may guarantee a longer and healthier life means that consumers will be willing to pay for the extra benefits of having an efficient and privileged insurance coverage (e.g. covering prevention). Insurance companies may concentrate mainly on advanced countries in homogeneous regions such as Europe, Canada and United State where a converging balance between privatisation and governmental coverage is underway. Globalisation and technological advances would enable insurers to step into the emerging markets, at least in some segments. Insurers will have to build competence in understanding complex new medical care possibilities. Insurers may have to share the know-how and co-operate among each other to share the costs of acquiring this know-how.

32. Scenario “Titan” (1) BIO-TECHNOLOGY DOES NOT TAKE OFF; REGULATIONS FREE, OPEN AND STANDARD In the “Titan” scenario, biotechnology delivers only in fits & starts, many of the promising breakthroughs do not make to medical applications because of lack of funds, societal acceptance and technical hiccups. Except in some niche areas, the biotechnology revolution comes unstuck or gets delayed by at least a decade. In the meanwhile, Governments realise the process inefficiencies and the high medical costs and relax some of the regulations. Users demand more from the coverage and the only way insurers can provide that is by being more profitable and bigger. To stimulate this Governments, at least among more advanced countries, deregulate the industry creating a base for more open markets and international convergence of standards. Because of the failure of the most discussed bio-technology to fully deliver on its promises, debates about the related ethical issues are no longer the central and lacerating themes among different social and political communities. Instead it is back to the basics as far health care is concerned. Insurers focus on expanding their business boundaries geographically looking beyond scientific/medical innovation. Deregulations permit health care organizations to push for standards in medical treatments. Technological innovation can facilitate this process offering an increasing possibility to share information. The global market place spurs the consolidation process as insurers seek economies of scale to achieve operational efficiencies.

33. Scenario “Titan” (2) Within the developed world there is a major harmonization of medical standards, free movement of medical services and mutual acceptance of norms. This results in improved productivity and overall reduction in medical costs. Further, the consolidation process leads to a concentration of big players (hence the name Titan) capable of exploiting their synergy advantages. Stronger financial capabilities let insurances to look for a major competitive advantage by exploiting geographical expansion. Several big insurers enter emerging markets that are less risky (politically and in general) and have proper governance in place. Even as biotechnology fails to deliver on its promise of a “disease-free” world, new social trends such as individualism, more holistic view of health, need for balance in life etc. make users less inclined to tolerate health care inefficiencies, be it in provision or in coverage. Users, especially the well-to-do seniors, who look for a more balanced life take greater responsibility for their own health. Wealth spread among the elderly forces the insurers to come up with targeted product and services offering. Other social phenomena such as feminisation and immigrations also require insurances to adopt a more market oriented approach.

34. Scenario “Titan” (3): Implications Implications: Globalisation continues on its track aided by positive results from earlier efforts like increase in overall wealth. Although inequality in the world increases this is only by a small % and is more than offset by the overall increase in wealth and job opportunities. The stunning economic success of some developing countries that open up their economies in their globalisation drive provides the necessary fillip for other countries to follow suit and embrace globalisation. Many countries reap the economic benefits of globalisation and use the wealth to invest in basic infrastructure, health and education. This again reinforces belief in globalisation creating a positive momentum. The “Globalised” world presents opportunities for insurers to expand and enter emerging markets. Convergence of medical standards and regulations aid this expansion. Globalisation and free information flow raises health care provision and coverage knowledge. Overall health care expectations are raised and demand for more health care coverage increases. Government unshackle the insurance industry from regulatory restrictions and restrict themselves to playing moral watch dog. Private contributions form major chunk of the premium payments. Areas of health care like preventive treatment, behavioural sciences start coming to the forefront creating both opportunities and threats. Since, insurers recognize the great opportunity to expand globally focus on consolidation of their backend operations and a major customisation of their front end. The handful of major players dominating the market gain in financial capabilities and go for even more consolidation and take on higher risks and newer markets. There will be a frenzy of mergers and acquisitions unfettered by Government regulation.

35. Scenario “Muses“ (1) BIO-TECHNOLOGY TAKES OFF; REGULATIONS RESTRICTIVE, CLOSED AND DIVERGING In the scenario “Muses”, biotechnology delivers in a big way (same arguments as “Morpheus” scenario) throwing up new cures and prevention techniques and opening up new opportunities for the medical industry. However Governments show strong resistance to deregulating the industry. They opt for keeping controls on the insurance sector in response to the clamour for upholding social values and moral standards. Profiling and selections, at least those based on genetics, are not approved. Ethical discussions also contribute to preventing markets from opening up in a big way. Regulations are very restrictive rigidly limiting what can be screened, profiled, insured etc. Aided by information flow and changing health perception (from disease free to over all well-being), consumers would want coverage for all new cures and preventions. This may still permit insurances to identify new possible business developments inside the boundaries of States’ regulation. In fact, to the extent that such health care is grounded in morality and can be covered at reasonable cost, Governments will approve them. However this will require specialization to understand the health risks and costs. The focal theme will be “niches” (hence the name Muses). Insurers operate in specific products and segments of health care e.g. clear separation of cure and prevention coverage, physiological and behavioural treatment coverage.

36. Scenario “Muses“ (2) In the same time, new theories and sciences based on overall well-being (mind, body and soul) will emerge and found a high acceptance among several classes of the population. The individualism trend spreading in society and the related search of the “own best possible life” count among the enablers of new awareness about a more balanced life and the meaning of physical and psychological wealth. Both healthy people and patients seem to take greater responsibility for their own health and care. They also appear to want to be involved in many more decisions about options for additional treatments and a more quality oriented care insurance. Since the “welfare state” will remain a “must” among several of the most advanced countries this scenario foresees an increasing gap between developed and developing countries. Lack of open markets and the diffusion of international standards stand in the way of significant health care improvement in many countries of the world. Obstacles to standardization are also exacerbated by “information exclusion” about biotechnology and medical treatments. A localized medical industry will not easily facilitate information exchanges among companies operating in different countries under different regulatory environments. This results in deterring trans-national growth for insurance companies. Muses is likely to be a transition scenario. In the long run, Governments might unshackle the health insurance industry from restrictions and so this scenario might converge into the “Morpheus” scenario. Driven by the huge consumer interest and gaining confidence in the technology, Governments could gradually relax the regulation as the moral issues (profiling, selection etc.) are resolved to the overall satisfaction.

37. Scenario “Muses” (3): Implications Implications: Insurance companies are constrained in their growth potential not only in term of territorial expansion (even limited in countries belonging to homogeneous areas, impossible and unprofitable in the developing countries ) but also in their qualitative approach to their local market. Insurers have to make continuous trade-offs between what they are allowed to cover and the costs that they have to sustain to satisfy the needs of very different segments of customers. However, “Muses” opens up a lots of opportunity for insurance companies as many more products with more attractive features can be offered. Insurers should move to a major market orientation e.g. setting up very innovative coverage for some of the emerging cures. Also the behavioural sciences and their cures, if scientifically proven and affordable will open a niche market for the insurers. They need to understand in which way primary and secondary care can be better integrated in their coverage offerings. This will also require significant investments in understanding the technology and not many insurers will have the scale to do that. Winners will be those insurers proved capable of understanding their highly constrained business environment while bringing to the market customized products and services. A major strategic approach in the development of the relationships towards local governments will also represent a no indifferent competitive advantage.

38. Scenario “Muses” (4): Implications Even within homogenous markets consolidation may not be possible because of anti-trust regulations. Risks are also considerable higher as some of the new cures might result in unforeseen side effects that would also need be covered. Companies need to collaborate with specialists and medical research companies to build the in-house capability of assessing the technology. In the short run, medical costs will increase and companies need to offer menu based pricing. In the long run, cost of medical services may come down on average and this may offer insurers better margins that can be passed on to consumers in terms of better coverage and/or more services.

39. Scenario “Serene” (1) BIO-TECHNOLOGY DOES NOT TAKE OFF; REGULATIONS RESTRICTIVE, CLOSED AND DIVERGING This scenario is extension of status-quo where biotechnology does not take off because it is not still widely accepted and adopted or fails in delivering the expected successes. In the same time regulations remain close and quite restrictive in most of the advanced countries. Therefore, health care and health insurance industry are still localized. The industry picture is not fundamentally different from the current generalized situation and is quite calm (hence the name “Serene”). Marginal benefits due to globalisation might result in slightly reduced medical costs. In order to achieve better financial capabilities, consolidation processes continues but in a painfully slow manner. Because of its endemic fragility insurance industry may be shaken up by dramatic events like new medical pandemic medical threats, increased bio-terrorism threats etc. Governments maintain their strong control on health and pensions systems bowing to the public pressure for an accessible, uniforms and indiscriminating health coverage for all. Social phenomena such as immigrations and feminisation of the society contribute to enhance the number of taxpayers and therefore to keep alive the current social systems of many advanced countries. The insurance sector may run the risk of not being able to come out of a permanent state of stagnation. At the heart of the crisis there is still the unresolved basic problem: Sustainability of a health system that promises unlimited health care while meeting all individual needs at an affordable price. Despite the medical breakthroughs this is a tall order to sustain but public opinion in several advanced countries is convinced that this remains the best possible system.

40. Scenario “Serene” (2):Implications Implications: Barring the dramatic events that might shake up the industry, the outlook for the health insurance industry will not significantly change. Overall, the industry will still be very fragmented still responding to the needs of quite limited consumer segments. The slow pace of consolidation will not bode well for the customized standardization necessary to pursue a systematic and dynamic international/global expansion. However, medical costs will come down and this will permit a slow but progressive diffusion of an increasing number of medical practices of the developed countries to other less advanced countries. Nevertheless, the ongoing globalisation process in the world will push for new business developments of the insurance sector. In fact, globalisation aided by the ICT and the economic growth in rapidly developing countries (e.g. BRIC economies) can open up a whole new market of new health insurance users. So companies with the financial muscle and global outlook can still grow by green-field investments or mergers and takeovers. An overall increase in demand for insurance products driven by the consumer search for better health service and related coverage will keep the industry afloat. Increasing awareness of a more balanced life and the search for a more qualitative medical care will ensure a limited but stable growth, avoiding stagnation. Insurers need to look “inwards” reducing process inefficiencies and lowering their cost structures. They should focus on on service and speed to satisfy their customers gaining in this way a reputation as “consumer friendly insurance” Tightening the belt will be the watchword as insurers seek better returns.

41. Scenario “Hades” This scenario occurs because of unexpected or low probability events happen on a large scale eroding the fundamentals of insurance business. In its most dramatic manifestation, this leads to collapse of the entire industry. For example, new terrorist attacks, attacks of new strains of viruses that affect particular segments of society leads to massive claims on specific insurers destabilizing the industry. Climatic catastrophes may also lead to this dramatic result. Insurers when faced with deluge of claims can go bankrupt or forced to renege on their commitments. Either way this leads to domino effect where consumers lose faith in the ability of insurers to manage risk and opt out of insurance altogether. This scenario may also be triggered by new waves of consumerism aided by lenient regulations which pass the power to the consumers. Although this possibility may now appear quite remote, nevertheless it cannot be completely excluded especially given the speed and progress of technology and the rapid spread of consumerism trends. The consumers may be empowered by the biotechnology advance and ICT developments and are able to profile their risk better. Consumers assess their risk more accurately and buy customized coverage. This again erodes the fundamentals of insurance: The industry thrives on less risky (healthy) majority who contribute a high average premium because they are unsure of their risk profile and fund (subsidize) the payment to relatively few high risk individuals. “Information asymmetry” may trigger a collapse of the health insurance industry due to “adverse selection”.