Product innovation urged at non-life insurers
By Zhang Dingmin (China Daily)
Updated: 2004-07-30 08:38

China's non-life insurers need to intensify the development of investment-type products to shake off the sector's lacklustre growth, regulators and companies said yesterday.

Insurance regulators also pledged to strengthen supervision of insurers' solvency and asset management as they promote the complex investment-type products.

Feng Xiaozeng, vice-chairman of the China Insurance Regulatory Commission (CIRC), warned that the range of products currently available on the market does not meet market demand.

Only four of the nation's 11 property insurance firms currently sell investment-type products, which provide policyholders with risk coverage and investment returns.

Total premiums from such policies currently stands at 8 billion yuan (US$960 million), equivalent to less than 7 per cent of non-life premiums last year.

"That is a small number," Feng told a seminar held yesterday by the Huatai Insurance Company of China Limited.

Most Chinese non-life insurers have yet to realize the importance of investment-type products, and badly need the expertise and human resources to develop these complicated products, he said.

Feng pointed out that another problem facing the sector is the high interest rate risk. Most of existing investment-type non-life policies carry fixed interest rates, making insurers subject to losses should banks lower their deposit rates.

But potential demand for non-life investment-type products is huge in China, with a staggering 6 trillion yuan (US$720 billion) of Chinese households' savings having the potential of being used to purchase insurance, said Jiang Shengzhong, an insurance professor with the Nankai University.

When the proportion of investment-type products grows to around 30 per cent of total non-life insurance premiums, as is the case in South Korea and Japan, which experts say are comparable to China in terms of the residents' spending habits, premiums from such products could total 36 billion yuan (US$4.3 billion) in a year with 2003's premiums, Jiang said.

Non-life investment-type products have already demonstrated their appeal to the Chinese people. The Industrial and Commercial Bank of China said its Shanghai branch once collected 850 million yuan (US$102 million) in investment-type premiums for Huatai Insurance in just 12 days.

Tapping the investment-type market will also hopefully inject new life into China's non-life insurance sector, which has witnessed its share of total insurance premiums shrinking in recent years as product innovation, mainly in investment-type products, propelled growth in the life insurance sector.

Non-life premiums grew by an average of 11.5 per cent over the past five years, while life insurance premiums rose by 32.8 per cent, according to Wang He, executive vice-president of PICC Property and Casualty Insurance Co Ltd, China's largest non-life insurer.

The structural imbalance is deepening, he said, with the share of automobile insurance in China's non-life premiums growing to nearly 66 per cent in the first half of this year.

"We need to fully recognize the potential demand (of non-life investment-type products) and develop products that cater to people's investment tendencies," said Feng of the CIRC.

The official called for greater innovative efforts at insurance companies, urging them to learn from their international counterparts and develop multiple investment-type products.

But he cautioned against interest rate risks. "The focus should be on developing floating rate products to prevent interest rate risks having a major impact on insurance companies."

Feng said his commission would also enhance prudential supervision of insurance companies' solvency margins and asset management practices, and strengthen co-operation with other financial regulators to ensure the healthy growth of the sector.

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