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Insurers are desperate for incentives to help expand policy products, investment channels
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AFTER Kate Mao, a 30-year old office worker, discussed insurance with her agent, several work colleagues shared with her their fears about the risk of contracting a critical illness.
“My colleagues were interested in the products I had discussed with the agent, and some said they were considering buying insurance as well,” Mao said. “My parents shrugged off the idea when I asked their opinion, but it seems more people of my age are willing to pay for such financial protection.”
She cited environment pollution and food safety issues as health concerns, and said insurance is a good option if it’s not too expensive.
The health insurance products Mao was looking at is part of the life insurance, in a broad sense.
The attitude of her and others is helping buoy China’s insurance industry, especially the life sector, after two years of stagnant growth.
In the first seven months of this year, insurance premium income in China rose 19.8 percent from a year earlier to 1.2 trillion yuan (US$195 billion). That compared with an 11.7 percent gain in the same period last year, according to the China Insurance Regulatory Commission.
Among them, life insurance companies earned 841 billion yuan in premium income during the first seven months, up 21.2 percent from last year. That compared with only 9.4 percent growth the previous year.
The growth of life insurance policies outpaced the property sector for the second year as the latter continues to suffer from declining margins and fierce market competition.
Performance reports of listed insurance companies for the first half showed that the profitability of life insurers, measured by new business value, all rose from last year.
However, insurers including China Pacific and PICC revealed declining profit for property insurance arms as costs, measured by the combined ratio, rose from last year.
A combined ratio below 100 means a company is making an underwriting profit, while one higher than 100 percent indicates a company is paying out more money in claims than it is receiving in premiums.
Insurance companies said they would continue to pursue reforms as they try to expand life insurance profitability by promoting new products that don’t rely on related investment and by enhancing cost control for liability and car insurance policies.
The companies are still holding out hopes that the government will come to their rescue.
A State Council document released in the middle of August pledged to take steps to boost the insurance industry by providing more policy support.
In the blueprint, the nation’s cabinet said it plans to elevate commercial insurance into a pillar industry to support economic growth. It envisioned the proportion of premium within the country’s GDP to nearly double by 2020, indicating premium growth of about 15 percent a year.
Government departments at various levels have been ordered to work with insurance companies to design government-backed products covering natural disasters, agriculture and critical illnesses. Local governments are also being prodded to purchase insurance services and provide tax incentives for insurers to create more products.
On the investment side, authorities will open up new investment channels for insurance assets, estimated at 9.6 trillion yuan by the end of June.
Currently, two-thirds of those assets are held as bank deposits and bonds. Insurers might be allowed to set equity funds, expand investment in urban construction and elderly care facilities, and set up asset-backed securitization products.
“The package illustrates a new environment and new positions the insurance industry could face in the next few years,” said Gao Guofu, chairman of China Pacific Insurance. “We see a bright future for agricultural and liability insurance, and we are now working to improve health insurance and pension plans.”
For life insurers, the blueprint lends hope that the widely anticipated — yet stubbornly difficult — launch of tax-deferred pension programs may finally be on the cards after a decade of deliberation.
The program would allow consumers to postpone payment of income tax on money put into pension policies until they withdraw the funds after retirement.
In overseas markets, such tax incentives in countries like the US and South Korea helped double the proportion of life insurers’ assets within national GDP. A similar result could happen in China, experts said.
“It will be a great opportunity for the life insurance business,” said Lee Yuan Siong, chief insurance business officer of Ping An insurance. “Experience from overseas market shows us the great potential for premium increases that such policies bring, but it ultimately depends on how big China’s incentives are.”
Seven domestic insurers have been approved to begin preparations to offer such pension products, but the program is still pending a review on the tax-revenue repercussions.
The possibility of the program commencing “next year” has been the common talk of the industry for the past five years.
With state support, the program might start within a year, Wang Zuji, deputy director of the China Insurance Regulatory Commission, told a press conference in Beijing.
Once started, the size of pension funds could increase by as much as 10-fold, eventually reducing the burden on social services spending for retirees, Wang said.
Analysts hailed the comments as a positive signal, but they said they expect a gradual start to the program.
“Tax-deferred pension products could first be introduced as group insurance, and then gradually expanded to individuals,” said Tang Zipei, an analyst of Orient Securities. “Details still need to be decided concerning how much tax the program could save for individuals. But it’s significant that after so many years of waiting, we finally have a relatively certain timetable for the program.”
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