Private long-term care insurance opportunities in China

China's population is ageing fast. The number of people aged 60 and above reached 267 million in 2021 and is forecast to increase to 420 million (about 30% of the national population) by 2040. Health typically deteriorates with age, and demand for care services and associated financial protection in China is accelerating rapidly.

To address the growing societal need, the government has been promoting reforms to improve care infrastructure. It has also launched pilot programmes for long-term care (LTC) insurance protection schemes in selected cities, aiming to establish a nationwide LTC insurance scheme during the 14th Five-Year-Plan (2021 to 2025) period by offering basic care provision for the nation's ageing society.

This report (in Chinese only) is the first attempt to estimate the LTC service protection gap for the urban elderly in China; in other words the shortfall in financing that the elderly (especially the disabled) face in acquiring basic care and support-for-living services. At present, available sources of finance are limited. A public-sector LTC insurance pilot scheme was initiated in 2016 but has not yet been rolled out nationwide. Meanwhile, the commercial LTC insurance market in China is small, accounting for around only 1% of the total health insurance market premiums (USD 131 billion in 2021).

Swiss Re Institute and the Insurance Association of China (IAC) conducted a joint research project to assess the size and growth trajectory of the LTC protection gap. Our target group is senior citizens aged 60 and above in urban areas in China. Specifically, the LTC service protection gap is defined as the difference between protection needed for care services and available funding. The latter includes insurance protection (from both state-provided and private sector LTC insurance), fiscal subsidies and family support. In our model, we estimate the monetary value of LTC service gaps for target groups by degree of disability (medium and severe) and also by modes of service provided (home-care services vs nursing homes).

We estimate that the LTC service protection gap for the urban disabled elderly population in China stood at CNY 922 billion (about USD 143 billion) in 2021, or around 65% of protection needs. Of the 35% of funding available, 96% came from household savings and 3% from public-sector LTC schemes.

Under our baseline scenario, key variables including growth of the ageing population, the disability rate/prevalence among the elderly, and household income follow steady development trajectories. On this basis, we estimate that total demand for care services will rise to CNY 3.1 trillion (USD 476 billion) by 2030, and to CNY 6.6 trillion (USD 1 trillion) by 2040. The overall protection gap, meanwhile, will narrow to 58% by 2040. We estimate that the LTC protection gap will reach CNY 1.9 trillion (USD 296 billion) and CNY 3.8 trillion (USD 587 billion), respectively, in 2030 and 2040. This is indicative of a significant opportunity for commercial insurers. We also discuss alternative scenarios.

We also analysed the development of public-sector LTC schemes and commercial insurance markets in some advanced economies (the US, Germany, Japan and Singapore) to derive some key lessons that be applied to help build an effective LTC system in China. Our objective is to encourage society, regulators, care service providers and insurers to take actions to build a sustainable LTC protection system in China.

Taking cues from the experience of advanced markets, we find that a sustainable system includes provision of basic LTC services through public-sector social insurance schemes, with commercial insurance playing a major role in closing the remaining protection gap against LTC risks.

The LTC insurance market in China is still in an early stage of development. Policy and regulation need to be improved before the market can enter a phase of high growth. To establish a sustainable LTC service provision mechanism with well-structured financial protections, our calls to action are as follows:

• Government should clarify the supplementary role of commercial insurance under a multi-layer protection system, to complement the provision of basic LTC services by the public sector.
• Regulators should set up infrastructure (such as standards for care services) and regulatory guidance for risk pricing, risk assessment and design of commercial LTC insurance products.
• Policymakers could introduce tax incentives to encourage insurers to develop commercial care insurance products.
• Insurers should accelerate the innovation of care products tailored to the Chinese market, such as hybrid products combining an LTC insurance element with life, critical illness or pension products.
• The care services industry should expand service capacity and improve operational efficiency to meet what will be growing care demand over the next decades.
• Care services providers and insurers should partner to establish an LTC services system with a focus on the health needs of the elderly, especially risk prevention and health management services, to reduce the cost of care services.
• As an emerging risk pool in China, all stakeholders should enhance their knowledge on the topic of LTC protection, care services and international experience.