China’s insurers seem to be enjoying a golden age As over the past two years, premium revenue has risen by 88 % and total assets by 49 %, while claims are up only 43 %. The industry now manages some $2.4 trillion in assets.
In a business where risk management is fundamental, China’s insurers lack the basic actuarial manpower and data tools necessary to make informed decisions. A recent survey found that 47 % of Chinese insurance firms “haven’t developed any methods at all” to conduct risk and solvency analysis. Many lack even rudimentary internal controls.
Another problem may be that China’s modern insurance industry doesn’t have much to do with insurance. Firms typically view it as a capital-raising exercise, not a way to protect companies and individuals against risk. They often offer high-yielding investment products “that include a small insurance component,” as Bloomberg Gadfly’s Nisha Gopalan put it recently. Consumers view such products as multi-year investment vehicles that offer a higher rate of return than banks but are safer than the stock market. For executives bent on becoming the Chinese Buffett, insurance has become the go-to way of generating investment capital.
Such an environment is bound to lead to excesses. Take Anbang Insurance Group Co. At the end of last year, its Chinese stock holdings had risen to a staggering 203 billion yuan, up from 27 billion yuan at the end of 2014. Anbang’s domestic holdings grew so fast that it soon counted itself as a top-10 shareholder in each of the four major state banks.
One product Anbang offered was a type of high-yielding investment known universal insurance, which offers buyers a guaranteed redemption value upon maturity and included a death benefit to qualify as “insurance.” Regulators have started to get wise to this kind of thing: Last month, they said one product Anbang wanted to offer “deviates from the fundamental origin of insurance” and imposed a temporary sales ban on the company.”
Yet cracking down on insurers more broadly won’t be easy. When Foresea Life Insurance Co. was barred from selling new products last month, the company threatened to block customer redemptions unless it was allowed to gear up again. It issued something close to a threat, urging regulators to avoid “inciting mass incidents by clients and localized and systemic risks.”
The message was pretty clear. As with tightening money markets, authorities can’t clamp down too hard on insurers or they risk triggering collapses — and the resulting “mass incidents.”
