China Observer - China’s Insurance Industry Undergoes Major Downsizing, Shutting Nearly 2,000 Branches
The Chinese insurance industry is experiencing a severe downturn, marked by the closure of numerous branch offices and a sharp decline in the number of insurance agents. Critical illness insurance has become prohibitively expensive, while medical insurance is so cheap that it's unprofitable to sell. This has led to a polarization in the market, with some channels like bank assurance thriving, while others struggle. The personal insurance channel is particularly affected, with commissions dropping significantly.
The industry is also facing a talent influx from other sectors, including highly educated professionals, due to economic pressures and layoffs in other industries. This has increased competition within the insurance sector, putting pressure on existing employees and leading to a challenging work environment. Despite these challenges, some companies like China Post Life have managed to increase their revenue, although profitability remains an issue. The economic slowdown in China has exacerbated these issues, with many people opting out of medical insurance due to rising premiums and stagnant wages, further straining the system.
Key Points:
- Critical illness insurance is too expensive, while medical insurance is too cheap to be profitable.
- The number of insurance agents in China has drastically declined, with over 8 million agents lost in recent years.
- Economic pressures have led to an influx of highly educated professionals into the insurance industry, increasing competition.
- China Post Life increased revenue but faced significant losses, highlighting profitability challenges.
- Rising premiums and stagnant wages are causing many to opt out of medical insurance, straining the system.
Details:
1. 🏦 Polarization in the Insurance Industry
1.1. Challenges in Critical Illness Insurance
1.2. Trends in Medical Insurance Pricing
2. 📉 Challenges in Personal and Intermediary Channels
- Insurance commissions have significantly dropped, requiring the sale of three policies to earn what one policy used to bring, indicating a need for increased efficiency and alternative revenue strategies.
- The personal insurance channel, aimed at individual risks, is struggling, suggesting a need for innovation and new product offerings to attract individual clients.
- The bank assurance channel is experiencing growth, contrasting with the personal insurance channel, underscoring a potential opportunity for synergy between personal and bank assurance channels.
- Intermediary channels are experiencing extremes: some are completely dried up, while others are overwhelmed with opportunities, pointing to a need for balanced resource allocation and targeted marketing strategies.
- Only 1% of content creators control 99% of the traffic, highlighting the competitive nature of attracting attention, necessitating unique value propositions and differentiation strategies.
- High-profile clients are increasingly difficult to attract as they perceive even the safest bets to have exhausted their resources, indicating a need for building trust and showcasing long-term benefits.
3. 🎥 Industry Veteran's Perspective on Current Struggles
- China's insurance industry is undergoing significant turbulence, marked by numerous branch closures and a decline in the number of insurance agents. This indicates broader systemic issues within the market.
- The challenges are not confined to insurance alone but are symptomatic of broader market difficulties affecting multiple sectors.
- Insurance agents are increasingly considering alternative livelihoods due to the unsustainable market conditions, which points to a need for industry restructuring.
- Despite these challenges, insurance agents are pressured to maintain an appearance of success, highlighting a cultural difference in dealing with industry hardships compared to other sectors where struggles are more openly acknowledged.
- There has been a dramatic shift in the earnings distribution within the industry, moving from the 80/20 rule to a scenario where only 2% of agents are thriving, while 98% are struggling. This highlights a growing inequality and the need for strategic intervention to support the majority of agents.
4. 📊 Decline in Insurance Branch Offices and Agents
- Over the past 5 years, insurance companies in China have scaled back their branch networks, resulting in over 10,000 closures, according to a report by the 21st Century Business Herald.
- The reduction in branches is part of a broader trend towards digital transformation within the industry, aiming to reduce operational costs and improve efficiency.
- Companies are encouraged to innovate and diversify their service offerings to adapt to the changing market dynamics.
- The closures reflect a strategic shift in resource allocation favoring digital platforms over physical locations, which is expected to enhance customer engagement and streamline processes.
5. 📉 Continued Decline in Intermediary Agencies and Workforce
- 1,984 Insurance Branch offices shut down in 2024, reflecting a significant trend in the industry.
- Annual closures included 971 in 2020, 2,197 in 2021, 309 in 2022, and 265 in 2023.
- Despite a slight decline in closures in 2023 and 2024, the overall figures remain alarmingly high, indicating ongoing challenges for intermediary agencies.
6. 🏢 Struggles and Strategies of Major Insurance Companies
- The number of Professional Insurance intermediary agencies steadily declined over five years, from 2,642 in 2019 to 2,566 in 2023.
- A significant decline in life insurance agents was observed, with numbers falling from a peak of 9.12 million in 2019 to 2.81 million by 2023, undoing a decade of growth.
- The number of active insurance agents may have dropped below 1 million, indicating a massive workforce reduction in the industry.
- Economic downturns and technological advancements have contributed to workforce reductions, necessitating strategic shifts.
- Insurance companies are increasingly adopting AI and automation to streamline operations and offset workforce losses.
- Regulatory changes also pose challenges, requiring companies to adapt by investing in compliance and training.
- Strategies such as personalized customer engagement have improved customer retention and helped mitigate workforce impacts.
7. 💸 Economic Impact on Medical Insurance and Public Perception
7.1. Workforce and Performance Challenges at Ping An Life
7.2. Financial Impacts and Public Perception at Ping An Bank
8. 📉 Declining Profitability in Property Insurance Companies
8.1. Declining Profitability in Property Insurance Companies
8.2. Performance of Bank-Affiliated Life Insurers
9. 💰 Economic Pressures and Insurance Opt-out Trends
9.1. Economic Challenges Facing China
9.2. Insurance Opt-out Trends
10. 👩🎓 Influx of Skilled Professionals into a Challenging Market
- The cost of Resident medical insurance in Jiangsu is at least 380 Yen ($52) per person per month, creating financial strain for rural families.
- Over the past 20 years, the cost of Resident medical insurance has surged from 10 Yen to 380 Yen, while the average wages of migrant workers have grown by only 24%.
- Many individuals are withdrawing from medical insurance to conserve cash for immediate needs, leading to decreased consumer activity and a weakened economy.
- A significant portion of rural families prioritize immediate savings over insurance, risking financial ruin if a severe illness occurs.
- The Chinese insurance industry faces increased competition and widespread layoffs, despite an influx of highly educated professionals from prestigious universities and other struggling industries.
- In 2023, 26% of the insurance workforce had a bachelor's degree or higher, with a notable increase in agents aged 35 and older.
- The influx of skilled professionals has raised the overall quality of the insurance workforce but also increased performance pressure due to low base salaries and high bonuses.
- In 2024, less than half of college graduates in China received job offers, with only 33% employment for those with master's and doctoral degrees.
- Over one-third of young graduates could be unemployed, with the full extent of the issue remaining uncertain.