Posted on Feb 03, 2012 by Sergio Ulloa
China Pacific Life Insurance, the nation's fourth-largest life insurance company, received approval from the China Insurance Regulatory Commission (CIRC) this week to expand their rural individual life microinsurance pilot program to seven more Chinese provinces. China's insurance regulator is striving to develop the country's micro insurance market, particularly in rural areas, in a bid to help Mainland farmers and low-income families better manage risks, protect their savings, and expand national insurance coverage in 2012
A special report
commissioned by the Asian Development Bank (ADB) in 2006 found that household vulnerability was the leading cause of new poverty in Asia. Amongst Chinese working poor, the two leading risk factors were serious illness/accident to family members, and investment failures due to price volatility or natural disasters. Insurance could of course play a key role in mitigating these risks, but standard coverage and savings tools remain out of reach for millions of poor and disadvantaged households in China, and indeed around the world. Mircroinsurance has been developed to rectify this problem.
Microinsurance refers to insurance products that are specifically tailored to provide basic, inexpensive cover for specific low-income populations that require protection for risks including healthcare, crop, catastrophe, life and non-life products. Premiums on microinsurance policies are kept at a low level, and often pooled across entire families or even villages, with the purpose of making the products more affordable and attractive to these first time policyholders. Microinsurance thus provides security options for populations that need some insurance protection against financial ruin but until now have been unable, or even aware of, the ability to afford a policy. For insurance companies meanwhile, microinsurance presents a key commercial opportunity due to the high volume of available policyholders combined with low cost margins. According to a recent Swiss Re sigma study
, the global microinsurance market is now estimated to be worth over US$40 billion. In China alone, there are at least 200 million to 400 million potential clients. The Asia Pacific region overall is one of the fastest growing regions for microinsurance development, with Africa and Latin America also having emerging markets.
According to a CIRC filing, China Pacific Life will now be allowed to expand their rural individual life microinsurance programs into the provinces of Hunan, Inner Mongolia, Jiangsu, Ningxia, Qinghai, Xinjiang and Zhejiang. Prior to this accord, China Pacific Life was only cleared to provide rural individual life microinsurance, including accident injury protection and fixed-term group life insurance, in certain areas within the provinces of Guangxi, Hubei, Hunan, and Sichuan. Starting next quarter, the Shanghai-based insurer will also be given greater control over their own business model in certain districts, which will likely lead to them adjusting their rates downward to match domestic lower-income conditions. China Pacific Life will be required to work with local insurance regulators and to report back to the CIRC regularly on the progress of the life mircoinsurance scheme.
This is not China Pacific's first venture into the Chinese microinsurance trade. The insurer's non-life affiliate, China Pacific Property Insurance, received the necessary CIRC approval last October to participate in its own trial program for rural microinsurance. The China Pacific Insurance Group
is cumulatively coming off a good year, reporting total premium income of CNY 143.8 billion (US$ 22.67 billion) for 2011, a 12 percent annual increase. China Pacific Life reported premium income CNY 87.9 billion (US$ 13.94 billion) in November 2011, up 7.8 percent from CNY 81.52 billion (US$12.9 billion) in October, while the insurer's property and casualty business reported CNY 55.9 billion (US$ 8.81 billion) for 2011, noted the regulator.
China has over 700 million people in rural areas, making it a huge market for the micro insurance business. In a statement outlining its work for 2012, the CIRC intend to further develop the domestic rural insurance and catastrophe insurance markets in 2012. Going forward, further growth of the microinsurance sector hinges on better regulations and more innovation in distribution and communications with potential customers.
The Chinese government began testing life microinsurance schemes in rural areas in August 2008. China Life Insurance Co, the mainland's largest insurance firm, was the first participant in the trial scheme, providing basic cover and savings products to rural farmers and low-income urban dwellers across nine Chinese provinces. According to the CIRC, the simple life insurance products that China Life developed for the pilot scheme provided an eight-time refund on annual premiums of CNY100 for farmers to cover against terminal accidents. In the pilot scheme's first year of operation, China Life covered 1.2 million farmers with insurance income amounting to around CNY1.12 billion (US$180 million) in total. By the end of 2009, and now with more insurance companies in tow, the trial rural life microinsurance program generated premiums of more than CNY230 million, underwriting more than CNY136.4 billion (US$21.6 billion) in risks 8.71 million people. In 2010, the rural micro insurance program was expanded by the CIRC to cover 20 million people across 24 provincial regions. This is of course still a small number relative to the country's overall population (and roughly equates 4 percent of the rural population), and the Chinese government recognizes the need to increase its penetration further. Microinsurance, with it's lower premiums, easier-to-understand policies, and simplified claims procedures, is regarded as a particularly important tool in growing the rural insurance market. Besides local governments and insurance companies, multinational insurers are also showing growing interest in this potentially lucrative market
Insurance Companies Mentioned
China Life Insurance
China Life Insurance Company Limited (China Life) is a People's Republic of China-based life insurance company. The products and services include individual life insurance, group life insurance, accident and health insurance. The Company operates in four business segments: individual life insurance business, group life insurance business, short-term insurance business, and corporate and other business.
China Pacific Insurance
China Pacific Insurance (Group) Co., Ltd. (CPIC) is a insurance company providing, through its subsidiaries, a range of life and property and insurance services and pension products to individual and corporate customers throughout the country. CPIC was founded on May 13, 1991, and is headquartered in Shanghai. The company was listed in Shanghai Stock Exchange on Dec. 25, 2007, with the stock code of 601601 and the stock name of "China Pacific". The Company was listed in the Stock Exchange of Hong Kong Limited on Dec. 23, 2009, with the stock code "02601" and the stock name of "CPIC".