The changing environment in China's insurance market is likely to depress premium growth in the first quarter of 2019, industry observers say.
The Chinese life insurance sector has traditionally generated 30% to 40% of the entire year's gross written premium during the first quarter, also known as the kickoff sales period. Life insurers in years past focused on the sales of savings-type policies that generate high returns to attract customers, who tend to have ample cash holdings around the Lunar New Year, which falls in early February in 2019.
But that sales approach is changing, as insurers plan to promote a wider range of products in response to more stringent rules around policy design in recent years. Customer demand for protective policies is also growing, with gross written premiums for health insurance business up 23.2% year over year for the first 11 months of the year, compared to a year-over-year decline of 0.5% for the overall life insurance industry, according to regulatory data.
"Insurers plan to shorten the period focused on selling savings-type products and start to sell [protection-type] critical illness insurance policies earlier [in the year] than before," said Tian Dan, a Shanghai-based analyst at China International Capital Corp. "That will significantly impact first-year premium volume, because premium per policy for savings-type products is much higher than for policies geared toward protection."
An investor relations manager at China Life Insurance Co. Ltd., the country's biggest life insurer by premium income, said that for the 2019 kickoff sales period, China Life will offer a wide range of products instead of focusing only on certain flagship savings products as it did previously. Ping An Insurance (Group) Co. of China Ltd., parent of Ping An Life Insurance Co. of China Ltd., said it will "proactively adjust strategies to promote balanced product sales throughout the year to achieve sustainable growth."
As companies devote more resources to selling protection-oriented policies, the growth in sales thereof will accelerate, helping to somewhat offset the decline in savings premiums, even though protection products are usually smaller-ticket business, said Wan Li, a Shanghai-based analyst at BOCOM International.
Wan expects first-year premium for the first quarter to come in flat or slightly down compared to the year-ago period, which would represent an improvement from the 16.9% year-over-year decline in the first quarter of 2018. That was the first sales period after the October 2017 imposition of new rules cracking down on practices such as shortening the effective duration of policies, and the dropoff showed insurers that savings products are no longer as attractive as they once were.
"Even if customers may not be satisfied with the returns generated by banks' three-month wealth management products, would they be more willing to lock up their money in insurance products for more than five years?" Tian said.
Shift to benefit life insurers in other ways
Although the shift to selling protection-oriented policies will depress premium growth, there will be benefits for insurers as well, according to industry observers. For example, new business value should rise alongside the increased share of protection policies in the overall product mix, BOCOM International's Wan said.
Focusing on the protection business also reduces the pressure on insurers to pursue high investment returns to keep promises to policyholders, New China Life Insurance Co. Ltd. CFO Yang Zheng said during a corporate day early December. New China Life said at the event that it would mainly focus on health insurance in the 2019 kickoff period, while annuity insurance, usually marketed as a wealth management tool, would not be part of the main product lineup for the year.
The shift away from aggressively selling savings products at the start of a new year may also ease the pressure to drum up sales in the early months.
"With a decrease in the sales of wealth management-type policies and an increase in protection business, particularly in health insurance, the kickoff sales concept will become less important [over time]," New China Life Chairman and CEO Wan Feng said at the December event. "In the future, we will see more balanced sales" throughout the year, he said.