Summary of Key Points
In an environment of low interest rates, the product and channel strategies of the life insurance industry on the Chinese mainland are being restructured. Aifang Life Insurance, a foreign-funded insurance company, serves as a typical example of how to address these challenges through three major transformations:
1. Product Strategy: Increasing the proportion of dividend-paying insurance products (forming a balanced combination of 57% dividend-paying products and 35% protection-based products).
2. Channel Strategy: Focusing on bancassurance partnerships while adopting a differentiated approach (selecting partners and targeting high-net-worth customers).
3. Investment Strategy: Establishing an independent asset management company to implement separate accounting for assets and liabilities.
These measures not only align with industry trends but also aim to leverage global experience in conjunction with the characteristics of the Chinese market, in order to gain a competitive advantage during the transformation process.
Detailed Analysis
1. Product Strategy: Moving from Pure Protection to Protection + Dividends – A Win-Win-Win Approach in Low-Interest-Rate Environments
Low interest rates pose difficulties for insurance companies. In the past, selling long-term protection-based products (such as lifetime insurance) and promising fixed returns to customers meant that any investment returns might not be sufficient to cover the promised benefits, leading to what is known as "interest rate margin losses." Aifang has shifted to a "protection + dividends" approach:
- Benefits of Dividend-Paying Insurance: According to Zhang Xiaoyu, this strategy is a win-win-win situation: insurance companies avoid the risk of maintaining high fixed interest rates, customers can share in investment returns, and the industry provides long-term stable capital (known as "patient capital") to the economy.
- Current Proportion: In Aifang's sales channels, dividend-paying products account for 57% of new business value, with protection-based products accounting for 35% (and this proportion is still increasing). This balance reduces interest rate risks while maintaining the value contribution of protection-based products.
- Future Direction: Customizing products for different customer groups – for example, designing health insurance for young people and offering wealth management solutions for high-net-worth individuals, avoiding a one-size-fits-all approach.
2. Channel Strategy: Bancassurance as a New Frontier, but with a Differentiated Approach
Bancassurance (selling insurance through banks) has become a popular strategy for insurance companies recently. However, Aifang takes a different approach:
- Reasons for Focusing on Bancassurance: Regulatory measures have become stricter (the "four-category" policy, implemented in July, strictly regulates the fees charged by banks for selling insurance, preventing hidden rebates), making the market more competitive. Aifang sees this as an opportunity, as the traditional approach of investing heavily to gain channel access is no longer effective; now, comprehensive capabilities are key.
- Differentiated Approach:
- Aifang only partners with banks that share its values.
- It targets high-net-worth customers rather than trying to sell insurance to everyone.
- It focuses on improving its own management capabilities, such as branch operations and customer maintenance.
- Core Focus: Li Yuanxiang emphasizes that the company's professional sales channel remains its core strength, with bancassurance serving as a supplementary strategy.
3. Investment Strategy: Independent Asset Management for Safer Financial Management
In January this year, Aifang established its own asset management company (one of the first wholly foreign-owned asset management companies in Shanghai), which currently manages assets worth 400 billion yuan. The purpose of this move is to:
- Separate Accounting for Assets and Liabilities: Divide the funds from dividend-paying insurance and traditional protection-based insurance. Traditional accounts mainly invest in long-term bonds (to match the long-term nature of protection) with a small portion in stocks and private equity; dividend accounts also invest in bonds (to ensure basic returns) but with a higher proportion in stocks to generate more dividends for customers.
- Application of Global Experience: Aifang applies the group's unified investment standards while adapting to the Chinese market. For example, while Hong Kong uses a variety of financial tools for risk hedging, the Chinese market primarily relies on bonds to match investment durations, but the core principle remains the need to ensure that the funds collected match the investments (asset-liability matching).
- Positive Results: The comprehensive investment return rate for the first half of the year exceeded 8%, higher than many other insurance companies.
4. Opportunities for Foreign-Funded Insurance Companies: Leveraging Global Experience to Meet Local Market Needs
Low interest rates are a challenge for all insurance companies, but foreign-funded ones have an advantage in their global management experience. Aifang's approach is to:
- Adapt Global Practices: Apply the group's investment expertise while complying with Chinese regulations.
- Balanced Channel Strategy: Engage in bancassurance while maintaining its core sales channel, which aligns with local customer preferences.
- The Critical Period: The company that successfully combines global experience with local regulations and channel ecosystems will gain a competitive edge during the transformation. Aifang's adjustments in products, channels, and investments reflect this integrated approach.
Overall, Aifang's transformation strategy is clear: it aims to reduce risks (through dividend-paying insurance and separate accounting) while seizing new opportunities (through differentiated bancassurance) and maintaining its core strengths (professional sales channels). This strategy provides a valuable reference for both other foreign-funded and domestic insurance companies.