Transcript Blabla - ScenarioThinking

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
Group assignment Marketing Management
EMBA 2004 - RSM
Health Insurance Industry Today
2
• 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
Group assignment New Global Business Environment
EMBA 2004 - RSM
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?
Group assignment New Global Business Environment
EMBA 2004 - RSM
3
Thinking Process
4
Events
Focal Questions
Patterns
Driving forces
Systems diagram
Systems modeling
Key uncertainties framework
Identification and development of scenarios
Strategic implications
Group assignment New Global Business Environment
EMBA 2004 - RSM
Exploration of the Driving Forces (1)
5
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
Group assignment New Global Business Environment
EMBA 2004 - RSM
Exploration of the Driving Forces (2)
6
• 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
Group assignment New Global Business Environment
EMBA 2004 - RSM
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.
Group assignment New Global Business Environment
EMBA 2004 - RSM
7
Driving Force: Biotechnology Revolution (1)
8
More than 325 million people worldwide have been helped by the more than 155 biotechnology drugs and vaccines approved by the FDA. There are more than 370 biotechnological 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).
Group assignment New Global Business Environment
EMBA 2004 - RSM
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
Group assignment New Global Business Environment
EMBA 2004 - RSM
9
Driving Force: Biotechnology Revolution (3)
Accurate diagnosis
10
Regulations
Genetic Profiling
and diagonising
future susceptibility
Ethical and Moral issues
Focus on Prevention
rather than care
Better, faster, cheaper
and long lasting cure
Advances in
Bio-technology
Customer segmentation
based on
risk profile – selection,
Differential premiums
Overall lower medical cost
Major impact on Promotion,
Price and Product
Customized product offering
(-) Works
against
Group assignment New Global Business Environment
EMBA 2004 - RSM
(+)
Works for
Driving Force: Aging Population (1)
11
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
retirees)
ratios of young and working people to older people (who are mainly
• 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
Group assignment New Global Business Environment
EMBA 2004 - RSM
Driving Force: Aging population (2)
12
• 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 of working 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
Group assignment New Global Business Environment
EMBA 2004 - RSM
Driving Force: Urbanization (1)
13
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
Group assignment New Global Business Environment
EMBA 2004 - RSM
Driving Force: Urbanization (2)
14
• 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
Group assignment New Global Business Environment
EMBA 2004 - RSM
Driving Force: Immigration (1)
15
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
Group assignment New Global Business Environment
EMBA 2004 - RSM
Driving Force: Immigration (2)
16
• 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);
Group assignment New Global Business Environment
EMBA 2004 - RSM
Driving Force: Globalisation (1)
17
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
Group assignment New Global Business Environment
EMBA 2004 - RSM
Driving Force: Globalisation (2)
18
• 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.
Group assignment New Global Business Environment
EMBA 2004 - RSM
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
Group assignment New Global Business Environment
EMBA 2004 - RSM
19
Driving Force: Globalisation (4)
Globalisation
Inequality
(Social)unrest
Casualties
Wealth in developed countries
20
NBC Terrorism
Travelling
Luxury lifestyles
Ability to over insure
Sense of crises and uncertainty
Low threshold for spreading diseases (SARS)
Obesity, cancer, cardiovascular illnesses
Need for life and health insurances
Group assignment New Global Business Environment
EMBA 2004 - RSM
Need for safety net, insurance
Driving Force: New consumerism (1)
21
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.
Group assignment New Global Business Environment
EMBA 2004 - RSM
Driving Force: New consumerism (2)
22
• 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 statusquo 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
Group assignment New Global Business Environment
EMBA 2004 - RSM
Systems Diagram-Interplay between Driving Forces
Changing
Health
TriggersPerception
Increase in risk
aversion
In society
evokes
Is a basis
for
Advances in
bio-technology
Increases life
expectancy
Increases
Ethics
may
restrict
Increases
Compensates
New
Deters consumerism
Reinforces
Feminization
of society
market for
Poverty/ Economic
Inequality
Supports
Leads to
Creates
market forGlobalization
Protest
s
against
Supports
Increases
possibility of
Leads to
Creates
Power of alternate
Governance (NGO)
for
Regulations
Hastens
spread ofPrevents
Prevents
Aging population
Need for
balance in
life
Supports
May
create
helps
Environmental
degradation
Cures/
PreventsNew disease and
ailments
Provides
tools for
Triggers
Works
against
Leads to
Breeds
New forms
of conflict
Enables
Deters
Decrease
s
Acts
against
Enables
Advances in
ICT
Enables
Welfare oriented
Social state
Tribalism
Opens up
Immigration
Urbanization
Leads to
Creates need
for
Individualism
Inhibits
(-) Works
against
Group assignment New Global Business Environment
EMBA 2004 - RSM
23
(+)
Works for
System Modelling
24
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:
a)Involving Advance in bio-technology, Advance in ICT and Advent of new
consumerism
b)Involving Globalisation and Regulatory framework.
Two key uncertainties surrounding the future of the health insurance industry were
identified based on web research and interviews:
a)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.
b)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.
Group assignment New Global Business Environment
EMBA 2004 - RSM
Focused Network of Driving Forces
25
Influences
May
delay
Can provide
market for
Governance/
Regulations
supports
Biotechnology
Advance
Can stimulate
spending on
Provides
market
ICT Advance
Increased
Globalization
Helps
sustain
Offers
choice restricts
Consumerism
Trends
Provides
tools for
Can
stimulate
May be
misused in
Rising Conflicts
May be at the forefront
given their growing
influence
(-) Works
against
Group assignment New Global Business Environment
EMBA 2004 - RSM
Aging
Population
(+)
Works for
Welfare
measures
support
The Uncertainty Framework
Free, Open,
Standard
26
R
e
g
u
l
a
t
i
o
n
Bio technology revolution
Doesn’t
take
off
Takes off
Restrictive
, Closed,
Diverging
Group assignment New Global Business Environment
EMBA 2004 - RSM
Identification of Scenarios
27
Free, Open,
Standard
Regulation
Titan
Morpheus
Bio-technology revolution
Takes
off
Doesn’t
take off
Serene
Muses
Restrictive,
Closed,
Diverging
Group assignment New Global Business Environment
EMBA 2004 - RSM
Scenario “Morpheus” (1)
28
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.
Group assignment New Global Business Environment
EMBA 2004 - RSM
Scenario “Morpheus” (2)
29
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.
Group assignment New Global Business Environment
EMBA 2004 - RSM
Scenario “Morpheus” (3): Implications
30
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.
Group assignment New Global Business Environment
EMBA 2004 - RSM
Scenario Morpheus (4): Implications
31
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.
Group assignment New Global Business Environment
EMBA 2004 - RSM
Scenario “Titan” (1)
32
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.
Group assignment New Global Business Environment
EMBA 2004 - RSM
Scenario “Titan” (2)
33
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.
Group assignment New Global Business Environment
EMBA 2004 - RSM
Scenario “Titan” (3): Implications
34
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.
Group assignment New Global Business Environment
EMBA 2004 - RSM
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.
Group assignment New Global Business Environment
EMBA 2004 - RSM
35
Scenario “Muses“ (2)
36
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.
Group assignment New Global Business Environment
EMBA 2004 - RSM
Scenario “Muses” (3): Implications
37
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.
Group assignment New Global Business Environment
EMBA 2004 - RSM
Scenario “Muses” (4): Implications
Even within homogenous markets consolidation may not be possible because of antitrust 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.
Group assignment New Global Business Environment
EMBA 2004 - RSM
38
Scenario “Serene” (1)
39
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.
Group assignment New Global Business Environment
EMBA 2004 - RSM
Scenario “Serene” (2): Implications
40
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.
Group assignment New Global Business Environment
EMBA 2004 - RSM
Scenario “Hades”
41
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”.
Group assignment New Global Business Environment
EMBA 2004 - RSM