China's insurance industry showed concrete structural improvements last year, as insurers refocused on the quality of growth to help resist ever tougher foreign rivalry.

The China Insurance Regulatory Commission (CIRC), the industry's watchdog, said initial results have been achieved in the industry's structural reform, especially the life insurance sector, boosting the sustainability of its growth.

Many Chinese life insurers increased their share of annual-premium products on offer, which are more valuable to companies in terms of future growth, last year. Some managed to bring down sales of high-commission bancassurance products and boost sales of traditional protection-based policies.

"The quality of business was lifted," Yuan Li, director of the CIRC's Development and Reform Department, said in an interview. "The embedded value of life insurance companies increased noticeably, boosting their ability to sustain growth."

China's life insurance industry has posted double-digit growth in recent years, as the robust economy brought increasing wealth to households. But the newer firms have been too eager to ride the wave of wealth to pay adequate attention to the quality of their growth, analysts say.

A huge proportion of premiums in recent years have come from single-premium five-year products sold at banks, but such business brings little embedded value to the insurers as it offers limited potential for future growth, analysts say.

Chinese insurers have been raising commissions to ensure banks sell their products rather than those of their competitors, pushing up distribution costs and weighing on their bottomlines.

The insurers in recent years have also been obsessed with chasing growth from investment products that offer policyholders a share of their investment returns, and largely neglected the conventional products that centre on risk protection, which many now argue should be the primary role of insurance.

Many life insurers took concrete steps last year to optimize their product mix, trying to boost profitability in the face of increasingly stiff foreign competition. China lifted all restrictions on foreign insurers at the end of last year as part of its World Trade Organization commitments, opening such key areas as group insurance and annuities.

The efforts of local players are paying off. Annual premiums accounted for the bulk of new individual business last year, the CIRC said, with the growth of first-year premiums outstripping single premiums by as much as 22 percentage points at some leading insurers, such as China Life and China Pacific Life.

Improvements were also reported in the burgeoning bancassurance business. China Ping An Life Insurance trimmed its high-commission bancassurance business by 43.8 percent last year from a year earlier, while China Pacific Life, New China Life and Taikang Life managed to boost sales of their long-term 10-year products sold at bank outlets by more than 100 percent from the previous year.

In the property and casualty insurance sector, competition helped reduce the dominance of the three largest players - PICC Property and Casualty, China Ping An Property Insurance and China Pacific Property Insurance - last year, the commission said. Their combined market share dipped to 79.9 percent from 89.3 percent in 2003.

Structural improvements were also seen in the insurers' asset management, as the share of bank deposits, the safest but lowest-yielding way of investing, dropped by 5.1 percentage points.

But the structural adjustments took their toll on the industry, dragging growth of premiums down to a slow 7.2 percent last year. In Beijing, where foreign competition is fierce, the life insurance sector shrank by some 6 percent.

This year, Yuan said his commission will continue to push forward the structural adjustments, but will pay more attention to balancing the work with ensuring development.

"We will try to achieve a balance between business readjustments and the bearability of the industry, so as to prevent major ups and downs in growth," he said.

The commission will promote the development of protection-based insurance, third-party liability insurance as well as agricultural insurance this year, the official said.

(China Daily March 3, 2005)