Specific
Inspection on Bank Insurance, CIRC retains life insurance ¡°soft-landing¡±
Source:
21st Century Business Herald
Author: Zhao Ping
Date: 23 Sep, 2008
Although
the overheated bank insurance has cooled, supervision is getting
strengthened.
In
22 September, CIRC published the operation status up to August of the
insurance industry. The premium income increased by 66.1% which is a
little less than in July, 66.7%. But
two days earlier, September 19, a month after CIRC Life Insurance
Business Meeting, China Insurance Association (hereinafter referred to
as CIA) asked all branches prepare to carry on specific inspection on
bank insurance business nationwide. Self-inspection, spot-check in
province and cross check in various provinces will be adopted.
Self-Inspection,
Spot-Check and Cross Check In
the meeting, Wang Zhichao, the Secretary-General of CIA gave a negative
attitude on ¡°standardized Bank Insurance business may mislead the
direction of a company¡± and said Bank Insurance rectify must be lead to
negative growth for some companies and it will make difficult to
survival for new companies, even so, it is not right to increase
commission casually for carry on business because it may cause a
company running in the red.
¡°If
Bank Insurance business not rectify and laissez-faire, the result may
be collapse¡±, said Wang. CIA
had published Self-disciplinary Convention of Beijing Bank and Post
Agency Insurance Business (hereinafter referred to as Convention) in
2006 for avoiding vicious competition. The
Convention has stipulated maximum of commission rate for all kinds of
Bank Insurance. This includes: when selling Ordinary and Participating
Endowment Life Insurance Single Premium product, no more than 2.5% of
premium in 5-year or less than 5 year products; 2.5% to 3% of premium
in 5 to 10 year products; no more than 3% of premium in 10-year or more
than 10 year products. When selling Universal Insurance, no more than
3.2 per cent of premium. When selling 1-year or less than 1 year
product of Accident Insurance, no more than 10%of premium.
But
without subsequent supervision and examination, the Convention was not
implemented well. Wang said, CIA will start to revise the Convention
recently and take counsel with whole insurance industry.
Besides,
Wang Zhichao asked all CIA Member Associations to carry on
self-inspection, spot-check and cross check between associations for
sales-misleading and commission of Bank Insurance.
The
examining on sales-misleading should focus on the sales offices and
salesman, whether they unauthorized increase insurance responsibility;
whether they conceal some deduction expenses; whether they make false
promises on selling Participating Insurance; whether they make promises
additional profits besides guaranteed yield on selling Universal
Insurance; whether they make promises investment return guarantees or
fixed-income on selling Invested Unit-linked.
Risk
of Bank Insurance is Hoarding
Just
in last month, CIRC hold a life insurance meeting. In the meeting, the
Chairman Assistant Chen Wenhui said, this year the supervisor will set
about Bank Insurance, take control of growth of life insurance business
immediately, focus on structural adjustment for business, and avoid
growth ups and downs, to be low and even negative of next year and
bring the industry to a soft landing.
Due
to the influences by various factors, the first 7 months of this year,
China's life insurance industry reach to the largest increase yoy over
the past decade. According to CIRC statistics, January to June this
year, premium income of life insurance companies increase by 64.4% yoy,
including Bank Insurance increase by 153.8%. In July, the development
is faster, the life insurance company's total premiums increased by
66.7%, the Bank Insurance premium income is as high as 244.37 billion
yuan, increase by 159.6% yoy.
The
high growth of this year in market, in terms of sales channels, it
comes from speeding development of Bank Insurance; in terms of
products, it comes from rapid growth of new type investment products,
Chen Wenhui said in the meeting.
By
end of July, Bank Insurance accounted for 50.7% of life insurance
business, increase by 18% yoy.
"In
terms of risk diversification, I think Bank Insurance should be
accounted for about 30% of life insurance, make it in a relative minor
position of the entire industry, so that the development of the
industry will be to stability of rather than such excessively dependent
on the channels and make the whole industry lost independence and
initiative for controlling its own law of development." Wang Zhichao
said. At
the same time, the three main investment insurances, Participating,
Universal and Invested Unit-linked accounted for close to 80%, which
are 78.8%. In stark contrast, the premium income of the ordinary life
insurance products, which has strong guarantee function, does not
increase and its proportion dropped to 11.7%. If deduct renewal
business, the new policy premium proportion even lower.
Chen
Wenhui said at the meeting that is such a bad business structure and
just a single channel. First half of this year, the fast growth of life
insurance industry had strong effect of external factors, such as the
downturn in capital markets and banks changes in business strategy. But
these "external factors is unreliable", as soon as the situation
changes, the industry will fall into a passive position and result in a
number of risks. The
largest risk of current insurance market is the risk of ups and downs
of the industry. The minor are decline in solvency, misleading,
surrender and cash flow risks. Investment business over-development and
security business development lags behind may deviate from the correct
direction of development of the industry. Chen pointed out further. Cao
zhan, the General Manager of Hua Xia Life Insurance company which is a
company just established more than one year, told reporters that due to
the big bull market for capital market last year, many large companies
have accumulated a large number of dividend special reserve and smooth
reserve, thereby they increased this year's bonus and universal
insurance settlement rate (at one time more than 6%), while the smaller
companies must maintain a high level under competitive pressures as
well.
Cao
said, the profitability of investment insurance is not high, 2.5% base
interest, dividends, charges, bonus for client manager, the operating
costs are very high over a series of cost calculation. What can only
rely on is high return of investment to earn spread benefits for
maintenance. But the capital market remains in the doldrums. The
results of "to maintain" can only be "The larger scale, the more lose."
In
addition, he believes that a gradual rise, non-rational settlement rate
of return make a great deal of uncertainty for the industry. Once
insurance fail to match the reasonable expectations of customers,
universal insurance and participating insurance are likely to drop down
or surrender.
Chen
said in the meeting mentioned above, January to July this year,
surrender status of life insurance is not optimistic, surrendered has
reached to 57.89 billion yuan, increased by 19% yoy. If the industry
ups and downs, it may make consumer lack of confidence in the industry
and result in a great deal of surrender, and even result in cash flow
risk for few companies.
In
addition, the rapid development of Bank Insurance business can also
gradually erode the company's capital, so that insurance companies are
facing shortage of solvency risk. First half of this year, the life
insurance company's Solvency Adequacy Ratio universal decline, at the
end of second quarter six life insurance companies have been inadequate
solvency, three additions than at the end of the first quarter.
Adjustment
Ensures Soft-landing At
the meeting, Chen stressed that this year the supervisor will set about
Bank Insurance, take control of growth of life insurance business
immediately, focus on structural adjustment for business, and avoid
growth ups and downs, to be low and even negative of next year and
bring the industry to a soft landing. "This year life insurance
industry¡¯s over heating is very prominent." From now until the end of
the year, the objective is set about the Bank Insurance, take control
of growth of life insurance business immediately, focus on structural
adjustment for business, and avoid growth ups and downs, to be low and
even negative of next year and bring the industry to a soft landing.
Chen set the keynote at the meeting for development of life insurance
industry in the coming months. Up
to now, many companies have completed the task of the annual premium.
It is a good opportunity for business adjustment.
According
to CIRC statistics, January to August this year, the former premium
income of China Life Insurance is 225.2 billion yuan which had exceeded
last year's total premium income. In the second half of this year, one
of the main tasks is business structure adjustment. Not long ago, on
the Global Media Open Day of China Life, vice president, Liu Yingqi
said above, and said they will communicate with banks to gradually
increase the proportion of regular premium bank insurance product.
Compared
to large companies, new companies have begun to take action. Cao Zhan
told reporters that around November Hua Xia life insurance¡¯s regular
premium bank insurance product will sooner be selling, the original
product has been transformation at present and enhance the protection
features of product and the value connotation. Meanwhile, make efforts
to control the growth of operation costs and laying the foundation for
next year.
In
theory, the settlement rate of universal insurance is based on return
of long-term investment of life insurance funds, and it of
sustainability and smooth. If interest rates fluctuated, the consumer
is likely to result in the frustration and cause sales misleading or
surrender and a series of questions follow-up.
Since
this year, a number of company's settlement interest are rising. In
reaction to the phenomenon, Chen made it clear that the companies
remain at higher levels should take the lead with immediate measures to
adjust settlement interest, and make it in a long-term sustainable
levels at the stable, same in participating insurance.
At
the same time, CIRC will continue strengthen the supervision of reserve
evaluation and enforce the smoothing mechanism of participating
insurance and universal insurance. The most important measure is to
urge self-examination on withdrawing funds for reserve of the insurance
companies¡¯ Invested Unit-linked and Universal, and then the CIRC will
select several companies to carry out spot checks.
On
the regular press conference of CIRC in the second quarter of this
year, the Chairman Assistant, Yuan Li, put forward a slogan that the
insurance industry should return to guarantee, and concrete measures
need to be improved. Chen
clearly pointed out in the aforementioned meeting, it is necessary to
improve the product, actuarial, investment, solvency, and many other
regulatory systems, and promote the development of guarantee business.
Referring
to how to make insurance industry return to guarantee function, an
executive of a large and medium-sized life insurance company told
reporters that his proposal is increase commission proportion of
guarantee products, especially the proportion of first year commission
to increase benefit drives for sales and to increase the proportion of
guarantee products from the source.
In
addition, in accordance with regulation policy of rates for life
insurance objective result in serious problems, such as high rates of
traditional life insurance, lack of attractive and benefit-sharing
mechanism, CIRC is prior considering the implementation rate reform of
the traditional life insurance, especially rate reform for guarantee
products. A
few days ago, since the implementation of "Implementing Regulations of
Tianjin Binhai New Area Supplementary Endowment Insurance pilot", two
Supplementary Endowment Insurance products approved by CIRC of PingAn
Life and Sun-Life Everbright, they tried a favorable rates level, it is
regarded as a huge improvement of rates reform of life insurance market.
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