W.Bin China has gained the undisputed glory of being the first “tiger” of the year. The term refers to a senior official stuck in a corruption investigation (a “fly”, as opposed to a lower-level cadre). Mr Wang, chairman of China Life and secretary of the Communist Party, one of the world’s largest insurers, made a big catch. On January 8, the Central Commission for Discipline Inspection, China’s corruption watchdog, announced that it was under investigation for serious violations of the law and party discipline – word for corruption. (China Life said in a statement that it strongly supports the investigation.)
The conviction rate for high-profile, publicly declared investigations is as high as 100%. Hu Huaibang, the former head of the China Development Bank, has been sentenced to life in prison. Another, Lai Xiaomin, the former chairman of the State Assets Manager, was sentenced to death.
Mr Wang’s investigation is only part of China’s long-running crackdown on insurers. Much of that attention has been confirmed. Some time ago the fastest growing segment of the industry, with assets of about 25trn yuan ($ 3.9trn), was a high-risk, high-return investment product rather than a conventional policy like life and health insurance. Short-term policy premiums were often used by companies to buy assets and trophy assets abroad, leading to dangerous discrepancies between assets and liabilities.
A cyclone crackdown that began in 2017 at the behest of Chinese President Xi Jinping has stopped many excesses. The chairman of Industry Watchdog was jailed, and the regulatory body was taken over by his banking rival. The chairman of Anbang Insurance, which had been pursuing foreign acquisitions for several years, was arrested and his company was granted bail and nationalized to prevent spillovers in the rest of the financial system.
Over time, regulators have become more stringent. Many high-margin investment products have been banned. And investments made by companies are closely monitored. As soon as new products become popular and profitable, regulators often take steps to ensure that they are reduced.
This makes it difficult to provide insurance. For example, products that cover accidents have been a growing cornerstone of the industry until recently. This ceases when insurers for the new rules either reduce their loss ratio (claim as part of earned premium) or reduce their premium. Vehicles and health insurance have faced more red tape and premiums have also fallen sharply. Insurers now find it increasingly difficult to plan for the long term because “the rules of the game change almost every year,” said Sam Radwan, a consultant at Enhance International.
There are knock-on effects. Chinese insurers rely heavily on a huge force of agents to sell products. As of 2018, China Life has recruited more than 2 million agents, the equivalent of active military personnel. Cheap labor and the ever-thick premium have made the industry incredibly profitable. Ping Ann’s profits in 2019, the world’s largest insurer by market value, grew by almost 40% in one year.
Since then, however, it has become difficult to recruit and retain agents. Stricter rules and reduced premiums make it less profitable for salespeople who rely on commissions. The epidemic has discouraged meetings in person and made sales more difficult. At the same time, as premiums have shrunk, large insurers have sought to sell high-value products to wealthy individuals. This requires skilled agents to work with wealthy clients – some companies have large numbers, says Li Xian of Huatai Securities, a broker.
The effects have been devastating. China Life has fired more than 1 million agents since the beginning of 2018, with nearly half the deportations occurring by 2020. About 700,000 agents left Ping An between 2019 and September 2021. Overall, about 30% of salespeople have left the industry in the last three years.
All of this has become a backwater to a growing industry. China Life’s new business value, a measure of profit, fell 19.6% in the first nine months of 2021 compared to the same period in 2020. Net profit in the third quarter of 2021 was about 55% lower than a year earlier, Ping An reported similarly disappointing results. In Mr. Wang’s investigation, industry officials are asking who could be the next. But that’s probably not the only thing that keeps them awake at night. 3
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This article is published in the Finance and Economics section of the print edition under the title “Taming tigers”.