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Product innovation as growth engine of life market over next five years

Source: Asia Insurance Review | Apr 2019

China’s life insurance industry is at a crossroads, and whether it can develop innovative products that meet the protection needs of customers will drive the sustainable development of the industry, said international management consulting firm, McKinsey & Company.
The ability to upgrade and innovate life insurance products will become the core competitiveness of life insurance companies, the firm said in a report entitled ‘Growth engine of China’s life insurance market in the next 5 years: product upgrading and innovation’. 
The report pointed out that compared to mature markets, China’s life insurance sector has a relatively simple product structure at present. In order to adapt to market trends, the future focus of the life insurance industry will be to shift from a ‘product-centred’ approach to ‘creating value based on customer needs’.
Comparing the personal life and health insurance product structures between the Chinese market and overseas mature markets, McKinsey said that there are significant differences in health insurance, life insurance and long-term savings insurance. These spell future development opportunities, particularly as the life penetration rate in China is still low at about 3%, despite the tremendous growth seen in the sector over recent decades.
First, there is a gap in specialisation in the health insurance segment, which accounts for only 17% of the Chinese insurance market, compared to 55% in the US and 36% in Germany. Only a few leading domestic insurers have established standalone health insurance operations and their scale is still small. 
Second, there is still room for improvement in the supply and demand aspects of life insurance. Domestic insurance players tend to focus on the supply side when they talk about product statistics. This reflects that the industry in general has not given priority to customer needs. In contrast, the operations in overseas life markets attach importance to the actual needs of customers (such as offering savings-type products).
Third, the market share of long-term savings-related products, such as investment-linked insurance and universal insurance, in overseas markets is generally 10-20%. This dwarfs the 3% in China at present. The development of investment-related insurance products was affected after 2017 in the wake of a regulatory crackdown on risky short term investment products. It is expected that future supervision will continue to curb short-term speculation. Therefore, developing a new generation of long-term savings products that adhere to the protection principle will better meet customer needs under the new normal. A 
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