Chinese insurers to benefit from bancassurance rule-lift

The removal of the rule is seen to increase premium growth.

Fitch Ratings suggests that the removal of the restriction limiting Chinese insurers from cooperating with more than three commercial bank branches will significantly benefit life insurers, particularly those with stronger brand recognition. 

The National Financial Regulatory Administration lifted this restriction on 9 May, originally imposed in 2010 to address competition issues.

This change is expected to enhance opportunities for life insurers to boost premium growth, especially in saving-type products, as bancassurance remains a key driver of new business sales. 

According to the Insurance Association of China, premiums from bancassurance and postal channels grew by 14.4% in 2023, outpacing the 6.2% increase in individual agent business. 

Listed insurance groups' life insurers reported premium increases ranging from 8% to 38% from their bancassurance channels.

“We believe major insurers with reputable brand names and stronger partnerships with bank branches across the country will be in a better position to further expand their bancassurance business after the relaxation of the restriction on bank co-operation,” Fitch Ratings said.

“However, smaller insurers with weak brand recognition and heavy reliance on the bank channel will become less competitive because of the regulatory limit imposed on commission fees for the bancassurance business in August 2023. They can no longer acquire business by paying excessive commissions to banks. This may impair their new business volume and earnings as a result,” it added.

To mitigate negative expense margins, insurers are required to report commission fees, structures, and caps to ensure they do not exceed actual rates. 

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This regulation aims to curb irrational commission costs, which had previously escalated due to intense competition among insurers.

Despite some challenges, such as declines in regular-pay premiums in early 2024, bancassurance is expected to continue growing, supporting the reform of agency channels amid a reduction in the number of agents in the life insurance sector. 

Savings-type products remain attractive in China's low-interest environment, contributing to the expansion of bancassurance.

Listed life insurers have seen robust growth in the value of new business (VNB), driven by bancassurance, with margins improving notably in recent quarters. 

“Insurers will continuously focus on generating profitable business from the bank channel, as their margins widened in 4Q23 and continued to improve in 1Q24. The transformation of higher-value business from bank and postal channels became evident from the 32% increase in first-year regular premium income in 2023, while single premiums declined by 8%,” the ratings agency said. 

“We believe differentiation in product features and services provided to policyholders, training offered to sales team in banks as well as a shift towards more diversified products are the key factors for insurers to attain healthy growth in their bancassurance business.” Fitch Ratings concluded.