25 September 2018

Insurance plays rally on policy support and online demand

Chinese insurance plays saw a strong rally over the last couple of sessions in view of the vast opportunities presented by the recently announced economic reforms and the fast-evolving business landscape.

Life insurers stand to gain after the plenum of the country’s ruling elite decided to support tax deferral to encourage the development of an insurance-type social security system. The move has fueled speculation that the much anticipated income-tax-deferred pension insurance scheme is just around the corner.

Similar to the United States’ 401(k) retirement plans, the proposed scheme will allow policy buyers to defer tax payments during the long period of contributions until they are able to withdraw the funds during their twilight years.

As the country’s huge population rapidly ages, the proposed scheme will help ease the hefty burden of social security disbursements in the future but it will inevitably put a dent in fiscal revenues in the short run.

The proposal, if adopted, will give a lift to the overall life insurance premium income. According to Great Wall Securities, a nationwide introduction of the scheme will add 216 billion yuan (US$35.45 billion) in premiums to the market. The overall life premium in China last year was 891 billion yuan.

China Life (02628.HK) and China Pacific Insurance (02601.HK) are widely tipped to be in the first batch of companies that will be allowed to participate in the scheme.

On the non-life front, the growth potential appears even broader. The ruling party’s top leaders agreed to further optimize the existing basic health insurance and create an insurance system for catastrophes.

Meanwhile, it is also expected to press ahead with the long-awaited deposit protection scheme.

As online shopping becomes more popular, for instance, there will be growing demand for return freight insurance to facilitate e-commerce transactions.

China Life and The People’s Insurance Company (Group) of China Ltd. (01339.HK) have seen the huge potential of this new field and started this month to offer both e-vendors and online customers protection on shipping costs if goods are returned.

This new business, where transactions are entirely done online, should help traditional insurers establish a useful databank about e-commerce habits before they make further inroads into the internet insurance industry.

– Contact the writer at [email protected]


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