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Life Insurance in China

China's life insurance market is the largest one in the world, both in terms of the volume of collected premiums and the number of concluded contracts. Even though that literally thirty years ago there was no insurance in the country at all. But, like everything in this country, insurance is now developing at an unprecedented pace. In 2015, China became the third largest insurance market in the world, behind the United States and Japan. Our countries are geographically close, year by year the integration of the economies of the PRC and Kazakhstan is strengthening; for these reasons there is a good chance that our insurance markets will develop in one direction.
Life Insurance in China
Life Insurance in China

So, China, first of all, impresses with its scale. The population exceeds 1.36 billion people. This is eighty times more than our Kazakhstani population. Chinese GDP exceeds 11 trillion dollars, which is 60 times more than Kazakhstani one. At the same time, China’s economy has been demonstrating stable growth rates for all main macroeconomic indicators for years:

  • unemployment remains at 4%;
  • annual inflation - 1.7 - 2.6%;
  • RMB/USD rate has remained stable for years (by Kazakhstan standards). Devaluation does not exceed 1.4%. Periodically, the national currency of China strengthens against the dollar, i.e. the yuan exchange rate is on the rise;
  • GDP grows from year to year by at least 6.5%.

For most parameters, the Chinese economy is a world leader. It should be noted that the Communist Party plays a leading role in development of PRC’s economy and the economic structure of the economic system is planned one.

Until 2010 the social security system of China was aimed at government giving maximum guarantees to its population in terms of pension and medical provision. The funds established at the expense of employer's funds (deductions depending on the size of payroll fund (PF)) were to provide 60-80% of retired people’s incomes from the incomes they had before the retirement and coverage of about 50% of medical expenses at the expense of government. However, the birth-control regime introduced in the 1980s led to aging of population. According to forecasts, by 2050 a third of China's population will be at the age of 65 or older. The available pension system would not be able to close government's obligations in this matter. The burden on employers' PFs increased up to 65-70%. Dropping one-child policy which will ease the financial situation of elderly population with children and grandchildren taking care of them, in turn, led to an increase in government spending on prenatal care, deliveries and maternity pay.

In 2010, under such circumstances a decision to reform the insurance system and encourage private initiative in organizing pension and medical provision for country’s residents was adopted. The taxation system was revised. Employers received extensive benefits in generation of their employees' retirement plans. Insurance organizations enjoyed some tax exemptions, or the tax burden was reduced. The system of accounting and supervision of the activities of the insurers was also revised. These measures resulted in an increase in the insurance industry by 17-20% per annum. The insurance market previously state-monopolized began to be actively developed by private insurance companies. Government insurance company reduced its market share from 77% to 26%.

To date, China’s insurance market is represented by 180 organizations that promote insurance products and 38 associations of insurers that carry out supervisory functions in different regions of the country.

The insurance market is regulated by Insurance Law of the People's Republic of China. Currently, the fourth edition of the Law is in force. Despite the frequent revisions, the Law cannot reflect all aspects of the insurance market, so the Supreme Court periodically publishes “interpretations” of the Law. Now the fourth edition of such “interpretations” is being prepared for release. Each province of China also has the authority to regulate the insurance market, even to introduce mandatory types of insurance on its territory, but the main regulator is the China Insurance Regulatory Commission (CIRC). CIRC regulates the activities of insurance organizations, intermediaries, including agents, brokers, claims adjusters, and all business operations of these entities. CIRC has the widest powers up to execution of direct management of an insurance organization when there are risks of its insolvency.

The presence of a large number of secondary regulators on a par with CIRC makes the Chinese insurance market too bureaucratic.

The insurance market is divided into life insurance and general insurance industries. Both groups of companies may deal with accident insurance on a voluntary basis and medical insurance. In these two segments, the share of LIC is 84%. Life insurance industry as a whole owns 62.7% of the insurance market.

Chinese insurance market is characterized by increased protection measures for the insured. The special fund is financed through the deductions of insurers and in case of insufficient assets of the liquidated insurance organization it guarantees:

  • to compensate 100% of losses in general insurance industry with the amount of damage up to 50 thousand yuan, and with higher amounts - 90% of losses for individuals and 80% of losses for legal entities;
  • in the life insurance industry, the obligations of the liquidated company are transferred to another insurer, to whom the fund reimburses 90% of assets to cover obligations to individual customers and 80% to cover liabilities to clients - legal entities.

Distribution is largely handled by banks and agents/agencies. Banks specialize in sales of cash-value insurance policies with a one-time payment. The presence of the policy makes it possible to purchase securities on the stock exchange. The average premium is about $ 48 thousand which is returned to the insured after deducting the costs of the insurer during first two years upon the termination of the insurance contract.

At the end of the first two years of insurance the premiums paid must be returned in full upon termination of the contract. Agents (about 3 million people) and agencies (1.8 thousand organizations) specialize in selling policies every year. The average contribution is $ 1.1 thousand. The share of the life insurance industry of China in GDP is 2.37%. The average premium per resident is $ 192. The life insurance industry occupies 62.7% of the insurance market. Therefore, Chinese government plans to maintain and accelerate the growth rate and equate the share of insurance to 5% and the average premium per resident to $ 561 by 2020. Basic segments of the market that will provide this growth include social insurance: pension plans, optional medical insurance, occupational injury insurance, unemployment insurance. Quantitative and qualitative increase in the number of insurance agents, tax benefits, introduction of information technology in the insurance business (online sales, tele-underwriting), tightening insurance control over market participants, attracting foreign investment should form the basis for growth according to the plans of supervisory bodies.

Unfortunately, Kazakhstan’s insurance market cannot even be compared with the Chinese one. The capacity of market barely reaches $ 0.85 billion, of which only 0.23 billion falls on the life insurance industry (27.7%). The share of the insurance market in the GDP of the Republic of Kazakhstan is only 0.46% and the life insurance industry accounts for 0.13%. Only $ 49.9 of insurance premiums fall on one Kazakhstani, of which only $ 13.8 pertain to life insurance. In other words, we are at the very beginning of our long journey and it opens up the broadest prospects for development of insurance in Kazakhstan.

 Sources:

  1.  China Life & Benefits Insurance Market Report.- AXCO Insurance Information Services Ltd, 2016
  2. http://www.allinsurance.kz/index.php?option=com_content&view=article&id=5317:ob-em-mirovogo-rynka-strakhovaniya-zhizni-v-2015-godu-vyros-na-4-3-do-2-5-trln&catid=79:mezhdunarodnyj&Itemid=1916
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