– Expert Perspectives on Industry Risk: New Challenges Interwoven with Legacy Issues
MAY 2 , 2018
From April 19 to 20, the 16th Meeting of the Risk Assessment Expert Committee for Insurance Industry was held by China Insurance Security Fund Co., Ltd. (CISFC) in Beijing. At the meeting, CISFC’s Risk Monitoring Department delivered a report that analyzed the trends and risks in life insurance, property insurance, and use of insurance funds in 2017 and 2018; more than 20 experts from insurers, securities companies, and research institutions discussed such hotspot issues as kaimenhong (the practice of using specially designed policies to boost sales in year-opening months) in the life insurance sector, operations of non-motor insurance, and the impact – on the use of insurance funds – of China’s supervisory rules on asset-liability management. Committee Chairman Wei Yingning and officials from the CBIRC, PBoC, MOF, and regional offices under the former CIRC attended the meeting. Also in attendance were CISFC Board Chairman Ren Jianguo, Vice Chairman Yi Cheng, Deputy General Manger Wei Zhuyong, Secretary of the Discipline Inspection Committee Zhang Zhongliang, and Assistant General Manager Zhou Fuping.
Life insurance sector. Factors including product mix adjustment and higher yields on bank’s wealth management products contributed to a slowing growth of the kaimenhong business at many insurers in 2018, challenging them in their attempt to build stronger sales teams and maintain liquidity. The attending experts believed this growth decline is an inevitable but temporary effect during the business transformation of life insurers. At present, the life insurance industry as a whole is returning to its principal business lines and original functions, which cannot be done through a simple product switch but rather improvements in areas such as risk pricing, data collection, sales channels, and operating capacity. In addition, as installment payment plans and longer-term policies are slowly becoming an industry mainstay, the duration of liabilities will see a significant increase and interest rate risks will merit greater attention.
Property insurance sector. Following the reform of commercial motor insurance clauses and premium rates two years ago, the motor insurance segment has been characterized by fierce competition and high expense ratios. In 2017, the growth rate of commission expenditures far outpaced that of premium income. At the same time, the motor insurance market is transitioning to non-motor insurance businesses, with the latter accounting for 37% of the premium income in the first quarter of 2018. The attending experts warned that the continuously falling premium rate, wildly expanding insurance liabilities, and rising sales expenses brought by competition in the non-motor insurance segment would threaten the health of the property insurance sector; and advised insurers to place higher priority on addressing corporate governance shortfalls.
Use of insurance funds. While an ever greater amount of insurance funds is being invested in a more diverse range of assets, experts at the meeting believed that the use of insurance funds is not without challenges. These challenges include the risks brought on by assets as well as liabilities, uncertain market environment home and abroad, and greater pressure to make short-term than longer-term investment. Moreover, the newly introduced supervisory rules on asset-liability management have imposed additional restrictions on insurers regarding the use of insurance funds, which will press them to consider asset-liability management at an earlier stage of strategic planning and, therefore, have far-reaching impact on their business philosophy, management system, and funds use.