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The taming of the Chinese insurance industry

China’s insurance industry is undergoing transformation as the authorities try to reign in the speculative practices of some players.

April 07, 2017 | Research
  • According to the China Insurance Regulatory Commission, the assets of the country's insurance industry reached $2.2 trillion in 2016
  • Aggressive tactics of insurance companies in China resulted in the growth of the industry
  • CIRC aims to develop guidelines to strengthen the corporate governance in insurance companies

According to the China Insurance Regulatory Commission, the insurance industry assets in China increased by over 22%, reaching a total of $2.2 trillion in 2016. Premium incomes reached $467.8 billion during the same period, increasing at around 27% year-on-year. Premium income of life insurance companies saw the fastest growth at 31.7%, reaching a total of $256.5 billion in 2016.

The growth has been driven by aggressive tactics of some insurance companies, who have reportedly been guaranteeing returns almost double that of existing bank deposit rates. The insurance providers have essentially been working as wealth management companies, investing a majority of the funds collected in high-risk investments, without the regulatory restrictions that banks or wealth management companies are expected to operate under. The results have been disastrous. Over the years, this industry has attracted individuals or corporations using this industry as a conduit to raise capital for their own businesses interests or ventures. A case in example would be Forsea whose management was involved in real estate business before venturing into the insurance industry. Forsea's parent company, Baoneng Group’s hostile $6.4 billion takeover bid of the country's largest real estate developer, China Vanke, raised questions about the utilisation of funds being collected through the insurer. It also brought in to light the need for more transparent selection of insurance providers and a rigorous regulatory framework to reign in the black sheep of the industry.

CIRC, in response, suspended Forsea Life Insurance Company from selling any new universal life-insurance policies and imposed restrictions on other insurance companies, such as Evergrande Life Insurance Company for involvement in speculative stock investments.

CIRC chairman Xiang Junbo has been vocal about the need to curb the malpractices in the insurance industry in China. Last year, CIRC started inspecting the insurance players whose growth rates were raising a red flag. Prominent among these was Anbang Insurance (Anbang), which has increased its assets over 50 times since 2004. Anbang, which enjoys immense political clout, was not spared by the CIRC, who blocked its $14 billion bid for the Starwood hotel chain. It was therefore ironic, when it was speculated recently that the Chairman of CIRC might be under investigation.

CIRC has introduced several new regulations, in the last one year, in many cases scaling back regulations rolled out in 2014. According to rules issued by CIRC last September, insurers were instructed to impose reasonable penalties for early withdrawals on life insurance policies. Going forward, CIRC aims to restrict the total amount and term of short-term duration insurance products and develop guidelines to strengthen corporate governance in insurance companies.


China, Regulation, Risk and Regulation

Keywords:CIRC, Insurance, Wealth Management