Market Size and Breakdowns
Insurance provides financial protection from various forms of losses, such as property, life or health. Insurance can also play an important role in individual and family financial planning. The PRC insurance market has experienced rapid growth in recent years, increasing from CNY 1.4 trillion in 2011 to CNY 3.1 trillion in 2016 as measured by GWP, representing a CAGR of 17.2%. Although the size of the PRC insurance market was the second largest market in the world as measured by GWP in 2016, insurance penetration and density in China are still substantially lower than those in developed countries, indicating significant growth potentials.
In 2015, GWP over GDP was only 3.6% in China, compared with 10.9%, 9.9%, 7.3% and 6.3% in Japan, the United Kingdom, the United States and Germany, respectively; and GWP per capita was only US$0.3 thousand in China, compared with US$3.6 thousand, US$4.4 thousand, US$4.1 thousand and US$2.6 thousand in Japan, the United Kingdom, the United States and Germany, respectively. According to the Several Opinions of the State Council on Accelerating the Development of the Modern Insurance Service Industry (《国务院关于加快发展现代保险服务业的若干意见》) issued in 2014, China’s GWP to GDP ratio and per capita GWP are targeted to reach 5% and CNY 3,500, respectively, by 2020. Furthermore, the PRC government deems insurance as a strategically important industry and has provided strong support. See “— Favorable Regulatory Development” below. Partly based on the favorable policies, the PRC insurance market is projected to further expand to CNY 4.9 trillion in 2021, representing a CAGR of 9.6% from 2016 to 2021.
Insurance products are distributed through multiple channels. In China, life insurance is predominantly distributed by agents or in partnership with banks under the “bancassurance” model. By contrast, approximately 40% of non-life insurance (including P&C and A&H) in China is sold by insurance companies directly including through the internet. Direct sales of non-life insurance products are expected to further accelerate as online insurance marketplaces improve in product offerings and pricing.
Favorable Regulatory Development
The PRC government has issued several major policy pronouncements guiding the development of the insurance industry, such as the Several Opinions of the State Council on the Reform and Development of the Insurance Industry (《国务院关于保险业改革发展的若干意见》) in 2006 and CIRC’s Outline of the 13th Five-Year Plan for China’s Insurance Industry (《中国保险业发展“十三五”规划纲要》) in 2016. The following recent regulatory developments are expected to have a positive impact on the PRC insurance industry:
C-ROSS. The China Risk Oriented Solvency System (C-ROSS), a new-generation solvency system developed by the CIRC, took effect in January 2016. C-ROSS reflects the determination of the CIRC to give the market a decisive role in resource allocation.
Deregulation on pricing. Pricing deregulation is gradually taking place, covering some previously tariffed traditional products, such as auto insurance and life insurance.
Deregulation in asset management. Compared with a few years ago, insurance companies in China are allowed to invest in a wider range of assets.
Changes in accounting rules on the inclusion of investment products in GWP. In 2011, changes in PRC accounting rules resulted in the exclusion of certain investment products from GWP. Such changes are intended to foster a healthier product structure and better investment risk management.