When it suddenly wakes up, China's burgeoning insurance industry finds that bubbles almost reach its "waist".
Hao Yansu, dean of the Insurance Department of the Central University of Finance and Economics, hit the point directly, "In 2003, as much as forty percent of revenue in China's insurance industry was bubbles."
Since this summer, Hao has organized people to analyze the 2003 statistics from China Insurance Regulatory Committee (CIRC). Under the magnifier of generally accepted international statistics practices, the bulging bubbles in China's insurance industry are very clear.
Hao noted, "According to international statistical coverage, we eliminated revenue that does not belong to insurance premium income, namely peeling off non-insurance premium income, including non-insurance premium income from investment insurance and universal life insurance. After the simple subtraction is done, the real premium income of China is reduced substantially.
According to statistics from CIRC, in 2003, China achieved premium income of RMB388.04 billion, with RMB301.1 billion coming from personal insurance, up 32.4 percent year on year, and RMB86.94 billion from property premium income, up 11.7 percent year on year.
Such growth is nothing but prosperity on the surface.
The revised statistics is more telling. Figures provided by Hao are these: based on calculation through international statistical methods, in 2003, China's premium income was RMB221.039 billion, instead of RMB388.04 billion. It means that in 2003, premium per capita was 163.73 Yuan in China, as compared with 287.44 Yuan, which was released by the authorities.
Thus, insurance bubbles are thoroughly exposed by these figures.
These bubbles were generated largely by China's life insurance industry. The life insurance companies' irrational product orientation and structure led to a lot of bubbles. What is especially noteworthy is the current development of investment insurance products. For example, participating insurance is another source of headache after investment insurance affecting China's insurance industry.
Western countries turned to wealth management products after the security insurance products basically reached saturation, but the fledgling Chinese insurance industry chose to launch similar insurance business in a large scale. Both participating insurance and investment insurance are investment-focused insurance products. The latter experienced a surrender tide that swept China. Some industry insiders predicted that if not prevented well, participating insurance might cause greater troubles than investment insurance did.
What is concerning, however, is that the premium of participating insurance in China amounted to RMB167.001 billion in 2003, taking up more than fifty percent of the total premium income of personal insurance. In addition, there was a premium income of about RMB9.4 billion from universal life insurance and investment insurance products.
Although insurance companies' premium income grows rapidly, people do not necessarily see substantial improvement in the quality of security. For this reason, we cannot but doubt whether insurance density (per capita premium) has truly increased in this country.
According to Hao, there is only one way to squeeze bubbles out of the insurance industry – to let the insurance industry return to security and its main business. That is to say, the stress should not be placed on the earnings out of investment in insurance, but on the earnings of insurance itself.
What worries the researcher is that among the eighteen Chinese insurance companies approved by the CIRC this year, none is a reinsurance company that focuses on security.
According to the latest statistics from Beijing Insurance Regulatory Office (BIRO), as of the end of September, Beijing-based insurance companies earned a total of RMB20.86 billion from premium, down 1.2 percent year on year, in which premium of life insurance amounted to RMB15.73 billion, with a year-on-year decrease of 7.8 percent. BIRO attributed the decrease in life insurance premium to "increasing efforts to restructure personal insurance services."
We hope that through such restructuring, the situation in China's insurance industry will look up this year. Yet how much bubble will eventually be squeezed out needs to be verified by figures.