Chinese life insurers to benefit from bancassurance restriction being lifted

The removal of a restriction that limits the number of Chinese insurers allowed to cooperate with a commercial bank branch to a maximum of three will benefit life insurers’ new business sales in the bancassurance channel, particularly for those with more recognisable brands, Fitch Ratings has claimed.

On May 9, 2024 the National Financial Regulatory Administration cancelled the restriction, which was put in place in 2010 to rectify disrupted competition. The change will provide life insurers with more opportunities to boost premium growth amid still-strong market demand for saving-type products, Fitch said in a non-rating action commentary titled “Relaxation of Chinese Bancassurance Rule Is More Beneficial to Major Insurers”.

Bancassurance is likely to remain the new business driver after gaining a larger share in premium growth since 2022. The Insurance Association of China’s report shows total premiums generated from bancassurance and postal channels increased by 14.4 percent in 2023, more than the 6.2 percent gain in the individual agent business. The life insurers of listed insurance groups reported an increase of 8 to 38 percent in premiums from their bancassurance channels.

“The industry’s average commission rate has been cut by about 30 percent.”

“We believe major insurers with reputable brand names and stronger partnerships with bank branches across the country will be in a better position to further expand their bancassurance business after the relaxation of the restriction on bank cooperation,” Fitch said. 

“However, smaller insurers with weak brand recognition and heavy reliance on the bank channel will become less competitive because of the regulatory limit imposed on commission fees for the bancassurance business in August 2023. They can no longer acquire business by paying excessive commissions to banks. This may impair their new business volume and earnings as a result.”

Reports

Life insurers are required to report assumptions on commission fees, fee structures and commission rate caps to the regulator, which should not be higher than the actual commission rates. This may help insurers mitigate negative expense margin risk on irrational commission costs, which have soared, driven by fierce competition among insurers before the commission restriction. The regulator estimated the industry’s average commission rate has been cut by about 30 percent, Fitch said.

Life insurers have been expanding bancassurance in the past two years, although most of the major ones disclosed a year-on-year decline in regular-pay premiums from their bank channel during the 2024 opening sales period, due mainly to strong demand for whole life insurance products before a pricing rate cut to 3 percent in August 2023, from 3.5 percent, in response to continued low interest rates in China. 

The decline in new business premium income was more pronounced among some of the bank-affiliated life insurers with a significant proportion of bancassurance business.

“Nevertheless, we believe bancassurance will continue to gain ground to aid agency reform. The number of agents continued to decline in the life insurance sector,” Fitch said.

But it added: “The value of new business contribution by bancassurance is likely to rise over time, as savings-type products remain attractive to customers compared with products offered by banks in view of domestic low interest environment.”

For more news from the East Asian Insurance Congress conference (EAIC) click here.

Did you get value from this story?  Sign up to our free daily newsletters and get stories like this sent straight to your inbox.