China's insurance market growth to stabilize in 2019, UBS predicts

China’s insurance market is expected to see stabilizing growth in 2019 and traditional insurers will embrace more growth opportunities, despite multiple potential disruptions from tech giants, UBS said on Tuesday.

The global investment bank said that China's insurance sector remains under-penetrated, as the premium penetration — while catching up from around 3 percent to less than 5 percent from 2007 to 2017 — is still much lower than that of major economies.

Besides, a high proportion of out of pocket medical expenses could be a potential addressable market for commercial health insurance, according to UBS. Data showed that in 2016, the average Chinese had to shoulder around 32 percent of total medical expenses on their own, although the country has established a nearly universal social insurance system.

Kelvin Chu, an insurance analyst at UBS Investment Research, noted at a media briefing that insurance is a “people business” and traditional insurers can give full play to their strengths in this regard thanks to a widening customer base and their strength in upselling.

Currently, the agency channel remains the most effective channel for selling protection in China, while in the long term smaller insurers could potentially scale up and gain market share through third party online brokers, the investment bank predicted.

Nonetheless, traditional insurers are not without pressure, as more and more new entrants and competitors are eyeing market share. Internet giants, in particular, are reshaping China’s insurance industry by partnering with conventional players on product distribution, product innovation and financial service offerings.

For example, contributions from protection-oriented products to underwriters’ online life premiums have more than tripled since 2016, while accident and health insurance contributions to online property and casualty premiums has also jumped, Chu added.

Also, hotly-debated mutual life insurance plans are posing great pressure on their margins. UBS explained that compared to conventional insurance plans, policyholders may be paying 30 to 80 percent less premiums for Ant Financial's Xianghu Bao, given the similar client base.

Xianghu Bao is a mutual aid plan launched by Alibaba’s financial affiliate Ant Financial Serviced Group in 2018 October, which allowed its members to enjoy free protection for critical illnesses, as long as they meet certain credit requirements.