Roche Holding (RHHBY) has found a way to sell its cancer drugs to millions of Chinese who couldn’t otherwise afford them: First, sell them insurance. The world’s biggest maker of cancer medicines is collaborating with Swiss Re (SSREY), the world’s second-largest reinsurer, to sell policies that are on track to bring in 10 million clients this year, says Harald Sprenger, Roche’s director of private insurance. They expect enrollment to jump 20 percent next year.
The two Swiss companies dreamed up the program in 2010 as a way to skirt Chinese regulations that prevent foreign firms from selling retail insurance in China, says Roche Chief Executive Severin Schwan. The rules do let foreign firms sell reinsurance, so in 2010 Roche and Swiss Re began trying to convince Chinese insurers to offer coverage for cancer treatment and drugs. The idea was to help the Chinese firms lessen the risk of covering cancer patients.
“It took a long time until we made inroads,” says Schwan. Roche provides the Chinese insurers and Swiss Re with statistical data on various types of cancer, including how treatable they are. Swiss Re uses that data to calculate the risk and cost of treatment. The reinsurer designs and prices the policies for the Chinese insurers and then provides reinsurance so local firms don’t assume the full risk. “Swiss Re’s involvement made all the difference,” says Sprenger. A Roche spokesperson says it has no financial arrangement with Swiss Re to share in revenues from the insurance policies and is doing this “free of any charge.” The companies may eventually offer similar policies in Thailand and Indonesia, according to Robert Wiest, head of Swiss Re’s China unit.
Roche and Swiss Re are working with five Chinese insurers and are in talks with China Life Insurance (LFC), the nation’s biggest insurer, which they expect to join the program in early 2013, according to Swiss Re. The goal is to have 12 million people—nearly 1 percent of China’s population—enrolled by the end of next year.
About 2 million people die from cancer each year in China, accounting for about 25 percent of all deaths there. That rate is expected to rise for the next 10 to 25 years, says Qiao Youlin, director of the department of cancer epidemiology at the Cancer Institute in Beijing. A full course of some cancer medicines can cost 10 times the average Chinese worker’s annual income, which despite nearly quadrupling over the past decade, was only 41,799 yuan ($6,681) in 2011. The prices of the new insurance policies range from about $50 a year to several thousand dollars, according to Swiss Re, far less than the drugs’ cost. A one-year course of Roche’s Herceptin, used to treat breast cancer, costs up to $59,000 in the U.S. Avastin, used to treat colon cancer, can cost as much as $106,000. Roche won’t disclose Chinese prices, but says they are similar to those for cancer drugs in the U.S.
The private insurance supplements basic coverage that the government provides to about 95 percent of its citizens. That pays for roughly 70 percent of hospital expenses, but not costly drugs or cancer treatments. According to a study published in the Lancet in March, about 13 percent of Chinese households last year paid for health expenses that accounted for more than 40 percent of their income.
Tu Biqing, a 60-year-old restaurant worker from Sichuan, says he spent more than 10,000 yuan ($1,601), 10 times his monthly salary, in the first month after being diagnosed with esophageal cancer in September. He paid for it out of his savings and now fears he’ll need to rely on charity from friends and family as he gets sicker. “It is going to be difficult to pay for it,” says Tu from his hospital bed, his voice barely audible.
The new program makes up less than 5 percent of Swiss Re’s business in China, where it also sells property and casualty reinsurance. Swiss Re expects China to overtake the U.K. as the second-biggest reinsurance market within 10 years. Says Wiest, “It holds up a flag in what is for us a very important market.”
• 2m: Deaths from cancer each year in China
• $27k-$59k: Annual cost of breast cancer drugs
• $6,681: Avergage salary of average Chinese worker