Report: China’s Life Insurance Premium To Surpass The Us Market By 2030 And Reach 45 Trillion Yuan By 2050

Shanghai, March 10, 2022 – Despite the short-term headwinds, China’s life insurance premium is expected to surpass the US market and become the world’s largest market by 2030, according to a recent report by Oliver Wyman. The consultancy anticipates China’s life insurance market size to grow by up to 13% per annum after the country’s disposable income per capita hits the US$7,000-10,000 tipping point, and reach an 11-13% penetration rate by about 2040. By 2050, the market size is expected to reach 45 trillion yuan (approximately US$7 trillion) in premium (see Exhibit 1).

Titled Unlocking the 45 Trillion Yuan Potential, the report analyzes the long-term potential of China’s life insurance industry and the reform initiatives needed to capture the potential. The report also demystifies multiple, common misperceptions of the market by surveying 12,000 life policyholders and agents from a pool of 12 diverse firms.

“Such enormous growth potential signals the significant protection gaps existing for the Chinese population,” said Hang Qian, an Oliver Wyman Partner and the lead author of the report. “Particularly, the medical insurance, pension and annuities, term life, and whole life policies are currently underdeveloped, and thus will become the backbone of this future growth.”

Inadequate health protection and pension support will drive long-term growth

Today, the Chinese population faces life-related risk exposures totaling 1,600 trillion yuan. The greatest financial needs for Chinese households lie in healthcare expenditure (about 1,050 trillion yuan) and pension support (about 370 trillion yuan). 

China’s social health insurance is under pressure. Its commercial medical insurance, with high on-paper coverage yet insufficient payouts, covered only 7% of the country’s healthcare expenditure in 2019, resulting in 35% being paid out-of-pocket by patients.

In 2020, China’s social security pension scheme (the first pillar) plugged less than 50% of the population’s pension needs. The deterioration in the first pillar’s replacement ratio has compelled the Chinese government to accelerate the development of third-pillar commercial pension schemes. However, annuity and endowment products today can only cover about 30 trillion yuan, much lower than the population’s expected pension needs, highlighting the gap and opportunities for insurers.

Digital channel unlikely to replace this ‘people business’

Despite the vast and fundamental yet unmet needs, China’s life insurance industry has experienced headwinds in recent years. Gross written premium (GWP) growth has slowed to single-digit levels, and the first year premium (FYP) has dropped for three years in a row. “With technology disrupting most consumer sectors in China, many believe digital enablement can be the silver bullet for the industry, and the traditional headcount-based agency model will no longer work,” said Hang. “However, our survey shows a different yet nuanced conclusion.”

The digital channel, albeit gaining traction, only accounts for 5-6% of the GWP. It is unlikely to challenge the leading status of the tied agency and bancassurance channels, accounting for approximately 60% and 30% of the total life GWP, respectively, says the report.

The reason, unveiled by the survey, is that consumers go to digital channels for product research and simple product purchases, but often switch to offline channels for complex long-term products. The survey thus confirms that the ‘human touch’, based on trust, is indispensable in the life insurance industry.

The reform calls for a customer-centric model

The widely adopted ‘mass-in-mass-out’ tied agency model is no longer sustainable and unsuitable for serving the target segment of the middle class and above in China. “High-quality agents are called for, yet more importantly and urgently, life insurance companies should shift their mindset from focusing on product sales to fulfilling customer lifecycle needs. A customer-centric model will be much more suitable, covering customer profiles and needs, sales and service delivery channels, and insurance ecosystem offerings. To build trust with customers, a customer-centric ecosystem will be required to bring all kinds of financial and healthcare needs together,” said Hang.

Hang added: “Life insurers should continue committing to the reform initiatives, even without immediate results. Patience is required for the industry to get over the bumpy transformation ahead. Nevertheless, we are confident in China’s life insurance market in the long term.”

About Oliver Wyman

Oliver Wyman is a global leader in management consulting. With offices in more than 70 cities across 29 countries, Oliver Wyman combines deep industry knowledge with specialized expertise in strategy, operations, risk management, and organization transformation. The firm has more than 5,000 professionals around the world who work with clients to optimize their business, improve their operations and risk profile, and accelerate their organizational performance to seize the most attractive opportunities. Oliver Wyman is a business of Marsh McLennan [NYSE: MMC]. For more information, visit Follow Oliver Wyman on Twitter @OliverWyman.