A Glimpse into China’s Booming Insurance Industry

We have referred to a wide range of secular mega-trends here on ChinaFund.com, some of which can be considered… well, problematic, for example China’s aging population. However, even the challenging ones have quite a bit of upside, sometimes lifting entire industries. While the insurance industry of China has most definitely not been lifted by demographics exclusively, let’s just say this has been a decisive factor.

At the end of the day, facts speak for themselves and expert projections add to the picture they paint. At this point in time (Swiss Re Institute data for 2018), we are looking at roughly $575 billion in terms of Chinese insurance premiums and for the year 2032, a figure more than four times greater is expected: $2.36 trillion, to be more precise.

From Japan’s stringent insurance needs to potential in jurisdictions such as China, it isn’t exactly a stretch to state that insurance companies love Asia. While China’s demographics pave the way for impressive annuity product sales increases as well as increases on the health insurance front, it is important to understand that they are not the only factor.

China is poised to become the #1 insurance market in the 2030s for a wide range of reasons:

1. The increased prosperity brought about by its impressive economic growth, with more and more individuals having something that would have been considered impossible a few years ago at their disposal, excess liquidity. Among (many) other things, this excess capital is frequently allocated toward insurance products
2. Improved education and access to technology are enabling the average consumer to become increasingly better-informed. A few decades ago, even basic literacy seemed like a goal out of reach for the average Chinese, that is certainly not the case anymore. An educated, well-informed consumer is far more likely to manifest interest in “peace of mind” or “big picture” products such as insurance-related ones
3. The authorities shaping policy in a manner that helps the insurance industry and, ultimately, the robustness of the entire system in China from a risk management perspective. By even making certain insurance products mandatory, you as a legislator risk alienating certain groups of individuals who aren’t thrilled about the fact that they have to reach for their proverbial wallets but in the end, the entire system can be better off by embracing the products in question
4. Foreign companies being granted access to the Chinese markets. Needless to say, China becoming a member of the World Trade Organization represented a game-changer in this respect as well and, like in other industries as well, this resulted in foreign entities being allowed to tap into this promising market. While not always at a satisfactory pace, remarkable progress has undoubtedly been made

… the list of reasons could continue but for now, it should be obvious why China’s already-significant market share when it comes to insurance (11% of the global pie for the year 2018) is poised to literally double within just 15 years. Comparatively, the United States still seems fairly far ahead, with a 2018 market share of 28%. However, just like in many other industries, the trend seems to be China’s friend when it comes to insurance.

As mentioned previously, Asia is the place to be in terms of insurance-related business opportunities, with China’s growth rate for premiums expected to be 200% greater than the global average. When it comes to the emerging Asian market dimension at a whole, premium growth rates even 300% higher than the worldwide averages are to be expected (when it comes to certain countries in this “basket” however, this will come with a greater degree of volatility).

While nothing is impossible in the world of economics, it is quite unlikely that the trends which are currently contributing to the positive insurance-related outlook will be altered dramatically. Especially in light of how strong some of them are, for example the aging population dimension, with the Chinese population aging at 400% in terms of speed compared to the manner in which the European population has aged over the past 100 years. This is, in no small part, a result of the one-child policy of 1979 and which has only been significantly amended in 2016. By the year 2055, there will most likely be one Chinese citizen aged 65 or older for every Chinese citizen aged between 15 and 65.

A reasonable conclusion would therefore be this: whenever secular mega-trends such as those found in China manifest themselves at the same time, there tend to be winners as well as losers. When the population aging trend as well as the economic growth/prosperity one do just that, the end result can only be a reality involving individuals who find themselves wealthier than in the past but concerned about the future.

Ask yourself which types of products such people are likely to seek and it will become clear how you or your organization should act. Positioning yourself so as to reap the (many) rewards associated with secular mega-trends (with the previously mentioned pair representing just one example of many) which are manifesting themselves in China is the name of the game and, as always, the ChinaFund.com team is only one message away, should our expertise be required.