China's life insurance sector is forecast to enjoy a golden growth period of around 15 years, according to Shanghai-listed stockbroking company Tianfeng Securities.
Based on its quantitative analysis, Tianfeng Securities’ research report predicts that the life insurance penetration rate, which stood at 2.68% in 2017, will reach 5.00% in 2030; 6.68% in 2032, and 8.81% in 2034.
The report says that when per capita GDP in China exceeds $30,000, life insurance penetration will reach a peak. In 2017, China's per capita GDP stood at $8,643.
In a qualitative analysis, Tianfeng Securities says that the life sector has room to growth because of the three major factors of economy, population and society.
Stemming from these, specific factors involve at least several major aspects including: per capita GDP is still at a low level; personal debt ratio will rise steadily; inflation level is low; the proportion of people aged 35-45 will continue to increase in the next five years; social security is limited; while urbanisation still has space to expand, and higher education standards will improve.
Tianfeng Securities also points out that although the domestic market is facing slowing economic growth and Sino-US trade friction, these short-term economic fluctuations have limited impact on life insurance demand.
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The main reason is that life insurance covers the entire life cycle, and demand is mainly affected by long-term economic factors.
Tianfeng says that the higher the personal debt of an individual, the higher the demand for insurance will be in order to ensure that the debt can be repaid.
In China, the personal leverage ratio is still low. In 2017, the ratio reached 48.4%, which is lower than the average of 76.1% in developed economies.
Inflation
Inflation levels are also an important factor affecting the development of the life insurance industry. According to Tianfeng Securities research, the inflation rate is inversely proportional to life insurance penetration. The negative impact of high inflation on life insurance demand is mainly reflected in three aspects:
- Real income reduction.
- Risk of lower value of future insurance payouts, most of which are fixed in amount.
- Increased yields of other financial products could lead to replacement of savings-type life insurance products.
Demographics
Tianfeng Securities expects that the proportion of the Chinese population aged 35-54, who form the biggest group of insurance buyers, will continue to grow in the next five years, leading to an increase in life insurance penetration.
However, after 5-10 years, the population structure will gradually have a negative impact on the development of the life insurance industry as the number in the 35-54 age group diminishes. In 2017, those aged 25-29 accounted for 8.72% of China's population, while the population aged 45-49 accounted for 8.88%.
Urbanisation
Tianfeng Securities believes that the higher the degree of urbanisation in a country, the greater the demand for life insurance. Urban residents have higher income and stronger purchasing power than those who live in rural areas. In addition, as urban consumers are more geographically concentrated, insurance companies have lower operating costs.
This first appeared on Asia Insurance Review's premium eWeekly China service.
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