It has become the accepted wisdom that China will become the world’s largest insurance market in the medium term – with estimates converging around 2035 as the likely date for this to happen.
Any economist making such a prediction will add the caveat ‘ceteris paribus’, meaning ‘other things being equal’.
The question that insurers and reinsurers looking to the Chinese market for opportunities or threats will be asking themselves is whether other things in China will be equal. The answer would seem to be far from certain, as the domestic economy faces multiple threats to growth targets.
The first threat is the one that has been garnering most headlines – the real estate crisis that seems to be roiling the property market and making borrowing for Chinese developers very expensive and hard to source.
While the Evergrande Group is the focus of much of this attention, the concern is that the problems facing the developer are systemic and affect much of the sector as a whole.
A significant portion of the P&C insurance market in China is real-estate focused – while around 25% of GDP and 40% of bank assets are tied to the property market. This could prove troublesome as the property market tries to find a new equilibrium and lure back both domestic and offshore investors.
For its part, the life and health insurance sectors in China will increasingly have to grapple with the decline in China’s working-age population that first started to manifest itself in 2015. Coincidentally, 2015 is the same year that China abandoned its ‘one-child policy’ that it introduced in 1980 with the specific aim of lowering population growth.
‘Economics 101’ suggests that fewer workers means slower economic growth – and this will also have a direct impact on the sales of life and health insurance products.
The declining working age population – coupled with a rapidly ageing population – are not the sorts of demographic changes that can be addressed overnight and will take decades to work their way through the population.
China’s growth prospects may also be hampered by the ‘zero-COVID’ policy – making it unique in the world – and that has recently seen complete lockdowns of Shanghai and Shenzhen – with factory output and retail sales first to be affected.
Global supply-chain problems and skyrocketing energy prices caused by Russia president Vladimir Putin’s invasion of Ukraine are also likely to take their toll on production output in China – that has recently been seen as a ‘factory to the world’.
Fortuitously, perhaps, insurance penetration in China has historically been low – and so simple arithmetic suggests that there is still a lot of room for growth, both in life and health as well as in P&C.
The authorities in China surely would have been much happier to try to close these protection gaps in their own time during a protracted boom phase rather than during a fraught period of global uncertainty.
And they surely would not choose to do so during a period when an acknowledged ally is bringing down near-universal opprobrium upon itself through the invasion of a neighbouring democracy.
China will certainly not wish to add to its economic trials by attracting sanctions through being seen to endorse or aid brutal war criminals.
Asia Insurance Review