The insurance industry, designed as it is to smooth over life’s dramas, is meant to be somewhat dull. Insurers themselves mostly conform to this type: they produce modest, consistent returns—steady growth and, to reassure the skittish, a dividend. Things are different in China. Dividends are a trivial component of share prices, and the industry’s growth prospects are breathtaking, not boring.
One measure of its buoyancy is the industry’s resilience in the face of a series of recent setbacks. Concerns over questionable sales practices have prompted regulators to restrict banks’ distribution of life-insurance products, a channel that is responsible for about half of all life sales. If that was not bad enough, the end of subsidies for car purchases introduced during the global crisis removed a main impetus for sales of car-insurance policies. Car insurance is three-quarters of the country’s property and casualty business.
Even so life-insurance sales are off by only 5% so far this year, compared with the same period in 2010, and car-insurance sales, after slowing early in the year, seem to be rebounding. In the longer term most analysts are looking at 15% earnings growth for both life and non-life products for years to come. Optimists think growth in excess of 20% a year is a good bet.
Some of the reasons for this rosy prospect are obvious: China’s size, its growing wealth and the immaturity of the industry (see chart) all explain its potential. But the fact that the industry has so far to go also reflects two historic shifts in government policy, one which set the market back and the other now propelling it forward. Read more.
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