Summary of Key Points
In an environment of low interest rates, dividend-based insurance products have become a core product for the transformation of the life insurance industry due to their design that combines guaranteed returns with variable dividends. In the first half of the year, premium revenue exceeded one trillion yuan (a year-on-year increase of 94.4%), accounting for more than 35% of total personal insurance premiums. Leading insurance companies have shifted their main savings products to dividend-based options. However, this rapid growth hides potential issues: a high proportion of dividend-based insurance in the market can put pressure on shareholder returns, increase capital consumption, and make it harder to manage customer expectations. Additionally, the rise in the popularity of these products has forced insurance companies to adjust their investment strategies from a focus solely on bonds to a more balanced approach that includes both bonds and equities, which requires higher capabilities in asset management.
Why Have Dividend-Based Insurance Products Suddenly Become So Popular?
Simply put, it's a "win-win" situation driven by low interest rates.
- For insurance companies: Traditional fixed-rate life insurance products (such as lifetime annuities) promise customers a fixed interest rate (for example, 3.5%). However, as market interest rates continue to decline, it becomes increasingly difficult for insurance companies to generate enough investment returns to cover these promised interests, leading to what's known as "interest rate spread losses" (where investment returns are lower than the promised payments). Dividend-based insurance products transfer some of this investment risk to customers, meaning they receive more or less dividends depending on the company's performance. This reduces the financial pressure on insurance companies.
- For customers: Dividend-based insurance provides a guaranteed minimum return (around 2%) and does not risk losing their principal. It also allows them to share in the company's investment profits, offering better value than traditional bank deposits or government bonds, meeting the need for stable investments with the potential for extra returns.
How Rapid Has the Growth of Dividend-Based Insurance Been?
The numbers speak for themselves:
- In the first half of 2026, premium revenue from dividend-based insurance products exceeded 1 trillion yuan (an increase of 94.4%), accounting for over 35% of total personal insurance premiums.
- Leading companies have made significant shifts: China Life Insurance reported that dividend-based insurance accounted for nearly 50% of new annual premiums in 2025; China Taibao saw 61.4% of new policies through its agent channel being dividend-based; and New China Insurance had a 77% share of new policies in the fourth quarter of 2025.
- At the beginning of 2026, dividend-based products became the focus for all insurance companies, with almost every company offering at least one such product.
What Are the Potential Problems With a High Proportion of Dividend-Based Insurance?
Industry experts agree that a high proportion can lead to several issues:
1. Pressure on shareholder returns: Regulatory requirements mandate that at least 70% of distributable profits from dividend-based insurance must be distributed to customers. If the proportion is too high, it reduces the amount available for shareholders, potentially dampening their enthusiasm.
2. High capital consumption: Dividend-based insurance requires a higher allocation of riskier assets (such as stocks) to generate dividends, which increases capital requirements for insurance companies. Smaller and medium-sized firms, which already face tight solvency constraints, may struggle if they rely too heavily on these products.
3. Poor operational stability: The profitability of dividend-based insurance depends largely on investment performance. If the proportion of protection-oriented products (such as critical illness or life insurance) is low, the company's overall profits can be affected in times of poor market conditions.
4. Customer expectations: While dividends are variable, sales often use high projected rates to attract customers. If actual dividends fall short of these projections, customers may feel cheated, leading to policy cancellations or complaints.
Have Insurance Companies Changed Their Investment Strategies Due to the Popularity of Dividend-Based Insurance?
Yes, they have:
- Traditional insurance accounts: These typically involve higher investment risks, so companies adopt very conservative strategies, focusing mainly on bonds to ensure safety and cash flow, with returns as a secondary concern.
- Dividend-based insurance accounts: To distribute dividends, companies need to balance stability and profitability. They continue to use bonds as a foundation for guaranteed returns but increase the proportion of equity assets (such as stocks and funds) to boost dividend payouts. For example, the proportion of investments in stocks and funds has risen from 15.38% at the end of last year to 15.53% in the first quarter of this year, with an emphasis on high-dividend stocks (such as banks and infrastructure companies).
- Higher requirements for insurance companies: They must balance assets and liabilities effectively and manage accounting classifications across different asset classes. Leading companies with substantial capital and strong equity investment capabilities are better equipped to adapt to these changes.
Conclusion
Dividend-based insurance products are a valuable tool in the low-interest-rate environment, but they are not a panacea. Insurance companies need to control their reliance on them and ensure that customers understand the risks and returns involved. Only those who can balance stable returns with risk management will thrive in this market trend.