Rising life expectancy, growing per-capita
annual disposable income and an increase in the country’s ageing
population are forecast to enable China’s life insurance market to
ensure a CAGR of 19.2% between 2011 and 2016, according to a market
report from the Insurance Intelligence Center.
The report, Life Insurance in China, Key
Trends and Opportunities to 2016: New Administrative Rules for
Reporting Premiums to Change the Market Structure,explains
that life expectancy increased from 72 between 2000 and 2005 to
74.6 in 2011 – and is estimated to reach 75 by 2015.
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Given that life expectancy is used to
calculate the premium to be paid by policyholders when a life
insurance policy is purchased, the rising forecast for life
expectancy in China is expected to contribute towards the growth of
its life insurance market between 2012 and 2016.
The predicted rise in life expectancy is also
expected to be accompanied by a rise in China’s ageing population.
The report cites US census bureau data, which said 3% of the total
population was aged 64 in 2000 and this has increased to 9% in
2011.
Another boost for the Chinese life insurance
market is forecast to come from growing per-capita annual
disposable income (PCADI). In China, PCADI increased from $1,487 in
2007 to $2,438 in 2011, says the Insurance Intelligence Center
report.
The PCADI is estimated to reach $3,659 in 2016
due to an increase in the disposable income of young professionals
aged between 25 and 40.
With the growth in PCADI, there is anticipated
to be an increase in savings and investments in life insurance
policies that provide tax benefits between 2012 and 2016.
A market on the move
In 2011, the Chinese insurance industry was
the sixth-largest insurance industry in the world in terms of gross
written premiums.
Prior to this, the Chinese insurance industry
entered the World Trade Organisation (WTO) in 2001, resulting in
the removal of a number of trade barriers in the country’s
financial sector.
Since the Chinese accession to the WTO,
socioeconomic developments have led to a significant growth in the
volumes of premiums paid.
With the introduction of new products and the
relaxation of policies by the Chinese government, coupled with the
ageing population, the Chinese insurance industry has recorded
rapid growth.
Indeed, foreign insurance companies continued
to increase their investment in China despite the global financial
crisis between 2008 and 2009.
The growth in the Chinese insurance industry
has been fuelled by a range of business drivers, macroeconomic
factors and favourable regulations.
These business drivers included factors such
as the increase in rural insurance schemes. The macroeconomic
factors included the growing surplus of savings in the country,
favourable demography in terms of the growing middle class and the
lack of attractive alternative options.
In terms of the increase in rural insurance
programmes, since the first microinsurance rural policy was sold in
September 2008, the market for such premiums has grown
significantly.
Microinsurance impact
As China has a considerable rural population,
microinsurance policy providers have increasing access to new
buyers and it is estimated that microinsurance schemes have
contributed significantly to the overall insurance industry.
Although such microinsurance involves low
premium value, the volume of premiums in China is significant and
indicates the opportunity for growth in the long term.
Despite the insurance industry expansion,
China remains a significant opportunity for insurers as only 50% of
the population was insured in 2010. The life insurance penetration
of 2.8% of GDP highlights the opportunities within the industry for
life insurance companies over the forecast period.
From a regulatory viewpoint, the Chinese
insurance industry has recorded high volatility and a sharp growth
in its premium values that has resulted in more stringent
regulatory control.
In July 2008, the China Insurance Regulatory
Commission (CIRC), divided companies into two categories, Grade I
and Grade II. Grade I companies were categorised as those that had
a solvency adequacy ratio of between 100% and 150%.
It became mandatory for Grade I companies to
explain to the regulator the methods that they plan to follow to
avoid insolvency. Grade II companies were categorised as those that
have a solvency margin of more than 150%.
At the time, the CIRC was equipped with a wide
range of powers to intervene if an insurer’s solvency adequacy
ratio were to fall below 100%. These powers included requiring
capital raisings, forcing the sale of assets and assuming control
of the company.
The CIRC has announced administrative rules on
insurance companies with the objective of reducing operating risks.
These regulations set a detailed threshold for foreign insurance
institutions to operate representative offices in China.
This means that any foreign insurance company
interested in investing in China is required to have accumulated
registered capital of a minimum of RMB200m ($31.5m).
With this, the CIRC will look to focus on
minimising misleading sales and enforce a strict investigation
process, by ensuring that only financially viable companies are
operating in the market, and that consumers are appropriately
protected.
Adopting new guidelines from the CIRC on the
implementation of enterprise risk management for life and health
insurance companies could also shake up the sector.
This is because the guidelines mean insurance
companies are required to include risk management as a core
business function.
The new policy, which mirrors the European
Solvency II regulations, aims to punish inappropriate behaviour,
increase transparency in the transactions and ensure that the
insurer is financially viable and possesses the required capital to
cover any potential loss.
Changes to the rules concerning provisions
will permit some companies to report larger profits and higher net
assets. Consequently, there could be significant changes in the
market shares among domestic companies.
Market dynamics
The Insurance Intelligence Center report says
the Chinese life insurance market accounted for 67.8% of the total
Chinese insurance industry and increased at a CAGR of 28.3% from
2007-2011.
By comparsion, the value of the Indian life
insurance market grew at a CAGR of 18.2% from 2007-2011.
This growth was caused by China’s robust
economic growth, alongside increasing levels of employment,
increasing life expectancy, the introduction of flexible life
insurance plans and an increasing awareness of the benefits of
insurance.
The Chinese life insurance market increased
from RMB454.9bn in 2007 to RMB1.23trn in 2011 and registered a CAGR
of 28.3% during the review period.
Within the Chinese life insurance market,
individual life insurance represented the largest category in terms
of written premiums, valuing RMB1.2bn, equivalent to a total market
share of 94.2%.
The life insurance market is highly
concentrated with the top 10 companies generating 90.12% of the
total premium income, according to the report.
The rest of the premium income is generated by
many smaller insurance companies.
The CIRC’s regulation relating to a minimum
capital of RMB2bn for setting up operations coupled with the CIRC’s
move on providing low priced insurance products to those affected
by natural disasters will further enhance the requirement for
additional financing sources.
China’s life insurance market has been
dominated by China Life, which held 33% of the market in 2010.
In 2010, apart from China Life, the leading
life insurance companies included Ping An Insurance Group with a
15.5% market share, New China Life with a 9.3% market share, China
Pacific Insurance Company with 8.9% of the market, and Taikang Life
and PICC Life with 8.8% and 7.8% of the market respectively.
During the review period, the growth in the
Chinese life insurance market was partly attributable to Chinese
insurers expanding their businesses and establishing distribution
channels with the ability to service small towns and villages.
However, alternative distribution channels are
emerging that include corporate agents such as non-banking
financial companies and bancassurance, direct selling agents,
online distribution and brokers.
In China, direct marketing has been the most
important and effective channel of distribution,
generating 43% of the total new life insurance
premium income in 2011.
Bancassurance has been the next most popular
distribution channel in terms of growth, accounting for 34% of the
overall new premium income for life insurance during 2011.
From 2012-2016, further regulations on
intermediary channels are expected to lead to the development of
newer channels in the Chinese life insurance market.
The online distribution channel is becoming
popular while telemarketing is also expected to gain more
popularity. Moreover, agents are expected to gradually transform
into financial consultants.
In China, more companies are anticipated to
adopt new business models such as online insurance sales and online
servicing.
Although mobile technology is not very
popular, the Insurance Intelligence Center report says it has the
potential to dominate the insurance industry in applications such
as issuing policies, servicing, and assessing claims.
Growth outlook
In 2011, the written premium of the individual
single premium category was RMB438.7bn, which represented an
increase of 7.2% compared with 2010.
During the period 2007-2011, the written
premium for the individual single premium category in China
increased at a CAGR of 34.2%.
Between 2012 and 2016, the written premium for
the individual single premium category in China is expected to
increase to RMB1.1trn in 2016.
This represents a CAGR of 20.1% over that
period.
By 2016, the written premium for the group
single premium category is expected to value RMB14 bn, after
growing at a CAGR of 4.4% over the period 2012-2016.
For more information on this China report,
contact the Insurance Intelligence Center on +44 (0)20 7406 6596 or
info@insurance-ic.com
