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CIRC Chairman on Insurance Reform

12-31 00:00 《财经》杂志 《财经》杂志

By staff reporter Yu Yan

The Third Plenary Session of the 18th CPC Central Committee held in Nov. 2013 set the course for reform of the insurance industry as part of broader reform in the financial sector, paving the way for further development of the industry.

The insurance industry reform program covers four types of insurance, i.e., catastrophe insurance, agricultural insurance, pension insurance, and health insurance.

At the end of 2013, China Insurance Regulatory Commission (CIRC) Chairman Xiang Junbo accepted an interview with Caijing, during which he explained the key points of insurance industry reform going forward. The key is to build a market-oriented industry and more appropriately position insurance regulators in order to promote the renewed prosperity of the industry, said Xiang.

In recent years, China's insurance industry has faced a more complex domestic and international environment and a more competitive market. The industry has bid farewell to the high-speed development period and encountered a bottleneck.

During the 11th Five-year Plan period, the average annual premium income of the insurance industry was 24.2 percent. However, since the first year of the 12th Five-year Plan period in 2011, premium growth dropped to 10.4 percent. In 2012, industry-wide premium income growth shrank further to 8 percent, bidding farewell to double-digit growth for the first time in several years. First tier companies such as China Life and Ping An Insurance performed poorly, while small and mid-sized insurance companies faced even greater pressure to survive.

Although the liabilities side of premium growth has slowed, total assets of insurance companies still posted strong growth in 2012, with year-on-year growth reaching 22.29 percent. But the over 7 trillion yuan in total assets has also put unprecedented pressure on asset management in the entire insurance industry, and asset-liability mismatches of many insurance companies have intensified.

Insurance asset management has become China's third largest asset management business, though it is still in its initial development stage. The asset management capacity of the insurance industry also has been questioned, with its huge fluctuations in investment income and over-reliance on capital market performance. In 2011, for example, the industry average investment yield was 3.6 percent, well below the debt cost line of 4.5 percent.

At the same time, as "big capital controls" emerge in the financial sector, other financial sector competition from outside the insurance industry has intensified, especially product and service innovation from the banking and securities industry. The competition has put pressure on the insurance industry's innovation ability.

The industry has realized that after fully reaping the dividends of initial market development, the coarse development mode featuring heavy scale and light benefits which has long been adopted by insurance companies has led to a slew of product, marketing and service problems.

On Oct. 29, 2011, 54 -year-old Xiang Junbo became the third Chairman of the CIRC.

Recalling the past two years, Xiang's most significant move has been to reposition the Commission as a regulatory authority. To this end, he proposed earlier decentralization in the financial industry and the establishment of a new regulatory concept of "liberalizing the front-end - easing up on insurance companies' asset and liability management, and managing the back-end - strengthening regulation on how companies sell products and address claims."

Decentralization means giving power back to insurance companies and allowing them to have true operating and investment autonomy as market players. Implementation requires appropriate system and mechanism reform.

In July this year, Xiang proposed three market-oriented reform objectives for the insurance industry, namely the establishment of a marketized pricing mechanism, a mechanism for capital utilization, and a market access/exit mechanism. Coincidentally, market-oriented reform was also the core concept of the comprehensively deepening reform objective set at the Third Plenary Session of the 18th CPC Central Committee four months later.

The reform policies implemented by the CIRC have achieved positive results in terms of business data, but the insurance industry's deep-seated contradictions and problems have yet to be fundamentally addressed, such as the existing corporate governance and internal control and management level. It is also difficult to calmly deal with market competition in the fully open and consolidated operating conditions.

Xiang told Caijing there are "three pinpoints" that are key to market-oriented insurance reform: identifying focal points, finding breakthroughs, and determining the path to realization. The CIRC will establish a "comprehensively deepening reform" leading group to strengthen the leadership and co-ordination of reform, said Xiang.

Full article in Chinese: http://magazine.caijing.com.cn/2013-12-29/113750012.html

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