China’s personal insurance sector is predicted to grow in the range of 5% to 10% by 2035, a potential expansion primarily driven by the relatively untapped market for pension and health insurance in the country, according to a recent report by BCG.
With an ageing population, increased health awareness post-COVID, and a prevailing low interest rate environment China’s personal insurance sector is poised for a growth spurt, analysts argue.
BCG projects that personal and health insurance, which have so far remained relatively unexplored, will present significant opportunities for growth within the sector over the next decade.
The firm estimates that these product lines will comprise approximately 50% of China’s personal insurance market by the year 2035.
To capitalize on these opportunities, analysts emphasize that insurance companies need to adopt a strategic positioning approach, leveraging specific opportunities in health and pension insurance while also investing in digital transformation.
Based on BCG’s forecasts, the personal insurance market in China will expand from its 2021 level of RMB 4 trillion to between RMB 6.6 trillion and RMB 12.6 trillion by 2035, with the focus of the sector shifting from rapid expansion to higher-quality insurance products.
The insurance sector is expected to see significant changes in the mix of products and features, integration of financial services, channel structure, and sources of value creation.
The mix of products in China will start changing as by 2035, the county’s aging population (25% over 65) is predicted to fuel demand for commercial health and pension insurance.
Government support will further accelerating growth in these sectors wit tax policies and regulatory measures
Currently, according to data by China’s insurance regulator and BCG, life insurance dominates the market (72%), followed by health insurance (27%) and pension insurance (1%).
But this is projected to shift. By 2035, life insurance will decrease to 45-50%, while health insurance will exceed 35% and pension insurance will rise to 15-20%.
Regarding product features, analysts believe that personal insurance policies will shift towards comprehensive, long-term policies that integrate savings, protection, and health and pension services.
As society becomes wealthier, long-term and comprehensive features in personal insurance policies will gain importance. Savings-type life and annuity products will have extended terms, and health insurance products will supplement basic social security more comprehensively.
While China’s insurance and financial services sectors have seen limited integration, favorable market conditions are expected to drive sales of new investment-linked products.
However, global market volatility may limit their long-term value, analysts note. Outside the US, new products tend to scale rapidly during a stock market boom and shrink quickly when there is a financial crisis, hindering sustained growth.
Therefore, while the share of such products in China is projected to rise by 2035, it’s unlikely to exceed 10%.
The diversification of insurance products will lead to more balanced distribution channels, with a change in emphasis from recruiting more insurance agents to winning customers with professional services. Currently, agents dominate sales at 57%, followed by bancassurance (32%), direct sales (7%), and brokerage (4%).
In the next decade, agent share will decrease to 45% while bancassurance remains steady at 35%, driven by savings and pension products. Direct sales may shrink to 5%, but brokerage will surge to 15% due to increased professionalism and customer-centric services.
Analysts also predict that, for insurers, the source of value will shift from being investment-led to having increased sources of profit.
As the economy matures and interest rates fall, profits must come from diversified sources, not just investment spreads. Consequently, the personal insurance sector will need to diversify its sources of value.
China has great growth potential, as BCG research suggests that personal insurance spending plateaus when a market’s per capita income hits roughly $20,000-$30,000.
With a per capita GDP of about $12,500, the country is far below this threshold. This indicates “the space and opportunity for growth is therefore immense,” especially given China’s low insurance penetration (3.28%) and density ($342) in 2020.
BCG stated: “Insurance firms can position themselves based on the size of their operations. Small and medium-sized personal insurance companies should strive to be experts in specific segments, addressing the unique needs of those customers. Large insurance companies should tap into new development models for promising insurance lines while enhancing their digital and operational capabilities and improving their support service and product offerings.
“Reinsurers should innovate with newer products and support small and medium-sized insurers with data analytics and service platform development. Across the board, insurers should establish a smart operations infrastructure with sound data governance and effective models to empower offline services, business development, and operations.”
