Insurance Awareness Increases in China
By Marius | Published August 04, 2011
Results from a survey released this week by Swiss Re, one of the world’s leading reinsurance companies, has revealed that China’s upcoming generation of workers aged 20 to 40 years old are keen to purchase insurance in large numbers as the awareness of risk, and a need to supplement social security, continues to rise in the world’s second largest economy.
Between April and May 2011, Swiss Re conducted a large scale international survey to identify and examine what changes had occurred in consumer risk attitudes since the group’s first study was held during the global financial crisis in 2009. Swiss Re expanded the scope considerably this year, polling some 13,800 consumers aged 20 to 40 (Generation X and Y) across 11 major markets in the Asia Pacific region. Once the data was collected, individual country scores were then compiled using an in-house metric, the Swiss Re Consumer Appetite for Risk Index (CAFRI), which tabulates an overall level of risk appetite for a specific population by consolidating their risk attitudes in relation to four key factors: health, finance, career and lifestyle. The CAFRI ranges from 0 to 100, the higher the index value, the more willing consumers are to take risks. A score of 50 equates to risk neutrality.
With a final CAFRI score of 38.4, China remains a savings-based society, but one that is certainly open to more insurance business. China ranks eighth overall in the Swiss Re’s CAFRI table below Hong Kong (in second), Singapore (fourth), and Taiwan (sixth). Across the 4 key disciplines, Chinese consumers indicated that they were more willing to take on risk with lifestyle and career expense (ranking second and third of 11), but less willing with finance and healthcare related risk (eighth and tenth respectively).
While Chinese respondents claimed to be more financially prepared on average than their peers in the Asia Pacific, over a third of those surveyed worried about a lack of adequate social security, and half were wary of future medical expenses. Around 72 percent of respondents said they were planning to buy life and health insurance products in the next 12 months, amongst the highest ratios of prospective customers in the Asia-Pacific region. Those surveyed claimed their biggest reasons for purchasing an insurance policy would be to support their family, and the fear of being unable to pay for long-term medical expenses out-of-pocket in the event of a serious illness or injury. According to the survey, those aged between 20 and 40 on the Chinese mainland have in fact become more risk averse as the national economy has grown, with the country total CAFRI value dropping from 2009 to 2011.
“Over the past two years, the 20 to 40 year olds in some main cities in China have become less willing to take risks on all these four aspects: health, finance, career and lifestyle. This across-the-board growing conservatism may be fueled by the increasing need to supplement social security measures or ‘safety nets’ which allow people to fall back on in case of emergencies,” Xing Li, Swiss Re Economist, wrote in the country report.
After acknowledging the significant demand for greater coverage, Swiss Re’s research further revealed some interesting trends regarding how Chinese consumers would choose to evaluate and then purchase insurance. According to the study, Chinese respondents ranked the most important criteria for choosing their respective insurance company as followed: products offered matching consumer needs (first at 34 percent), good reputation (32 percent), efficient claims process (31 percent), financial soundness (31 percent) and pricing transparency (30 percent). Xing remarked that this balanced list of priorities from the respondents demonstrated the sophistication of the Chinese marketplace as well as the pluralistic solutions available to insurers who wish to prosper there: “Insurers must demonstrate the benefits of insurance and their strong value propositions in order to meet the specific needs of consumers, who put emphasis on a wide range of selection criteria,” said Xing.
The survey showed that for these younger Chinese respondents, the internet has become the preferred source for acquiring necessary financial news and information, with over a two-thirds of the vote, followed then by family, friends and colleagues. Social media websites have proven particularly popular in China, with over 41 percent of respondents admitting to using them as a source, more than double the rate of the next country listed, Taiwan at 17 percent.
When it comes to actually making the transaction however, traditional agents have remained the favorite channel for buying life and health insurance (59 percent). The proportion of people in China who claimed to purchase their insurance policies through banks, known as bancassurance, is also the highest in the Asia Pacific region, at 51 percent confirmed. The data reveals however that the number of consumers going through these conventional distribution channels is gradually declining and insurers should look to innovative new sales and marketing technologies to attract the next generation of customer.
“For the insurance industry, 20- to 40-year-olds are not only the future buyers of insurance, they also represent tremendous business opportunities now,” Xing concluded.
The Chinese insurance industry has experienced rapid growth within the past decade and still has much to look forward to due to favorable economic conditions and an under-penetrated market. The country’s current insurance penetration rate (as a percentage of GDP) is only around 3.8 percent and is expected to increase by 18 percent within the next five years. This new consumer data corresponds with Swiss Re’s sigma report issued earlier this year, which projected China to become the second biggest insurance market within a decade. If insurers, both local and international, can effectively match the insurance demands of the Chinese people, cover against holes in the social safety net, and further encourage people to invest their considerable savings back into the market, they all can share in this prosperity.
Swiss Reinsurance Company Ltd was established in 1863 and is present in more than 20 countries. Swiss Re provides reinsurance products and financial service solutions. It offers various reinsurance products covering property, casualty, life, health and special lines – such as agricultural, aviation, space, engineering, HMO reinsurance, marine, nuclear energy, and special risks.