Insurance Industry Shows Progress in Cost Reduction and Efficiency Increase (AI Translation)

【周刊提前读】保险业降本增效有成绩 降费进入深水区

In response to persistent low interest rates, the insurance industry has been instructed by regulators to adopt "Bao Xing He Yi," or the "report and execute as one" policy starting September 2023. This regulatory measure aims to ensure that the pricing of life insurance matches the assumptions filed with authorities, thereby cutting excessive channel expenses. This initiative especially targets excessive expenses in life insurance via methods like reducing commission rates by around 30% and saving significant amounts like 120 billion yuan in 2024 alone. [para. 1][para. 3]

The reform, initially focused on bancassurance channels, will be expanded to cover intermediary and personal agency channels—often leading to challenges, such as differing fee levels in non-auto insurance practices hindering uniform implementation due to embedded department interests. Despite successful commission reductions, full enforcement, especially concerning individual agents, remains challenging due to regulatory ambiguities. Some industry changes, such as companies prioritizing channel profits over customer returns through tactics like "high surcharge + low customer return" product strategies, have caused unfair competition concerns. These new regulatory measures exemplify the proactive stance regulators are taking against insurance market malpractices. [para. 4][para. 5]

Regulatory efforts in Hong Kong mirror those in China, with local authorities planning to cap first-year commissions for participating savings policies at 65% amid rising rebate misconduct and sustainability issues. The policy, introduced in 2018 within the auto insurance industry, sought to curtail pervasive high commission rates and falsehood-ridden practices like bogus expenses. While initial skepticism emerged, implementation has proven effective, with regions such as Qingdao, Guangdong, and overall in the life insurance industry reporting significant reductions in operating expenses and commissions. In 2024, these cuts led to a 21% drop in new policy premiums through bancassurance channels, showcasing the far-reaching impact of these policies on the industry. [para. 6][para. 8]

While insurance companies are successfully slashing expenses, some banks, reliant on intermediary fees, are observing revenue declines. Cases like China Merchants Bank and Postal Savings Bank of China highlight significant drops in insurance-related income. Despite these challenges, the insurance industry's uniform commission strategy, affecting brokerage and agency channels more severely than bancassurance channels, underlines the transformative impact on the broader market. However, the personal agent channels still face limited intervention, which illustrates an area needing guidance and standardized regulations from authorities. [para. 9][para. 10]

This regulatory effort, driven by the need to reallocate profit structures between banks and insurance entities, marks a decisive shift towards high-quality development in the industry. Regulatory leaders emphasize historical overcharge issues in bancassurance channels to justify current reforms aimed at fortifying industry sustainability. Complementary developments in Hong Kong reveal similar concerns, with authorities suggesting a 65% commission cap on participating savings policies, signaling a collective drive toward congruity in commission practices. [para. 11][para. 12][para. 13]

In an evolving regulatory landscape, new trends appear, such as the shift from scale-focused strategies towards prioritizing sustainable development through interest rate adjustments and channel benefits alignments. However, there remain concerns that consumer returns may decline, given the significant variations in customer returns and surcharge differences reported in the market. Additionally, some institutions face ongoing unfair competition issues, potentially employing cost allocations as circumvention tactics against strict regulatory controls. [para. 14][para. 15]

Ultimately, while aiming for "report and execute as one" expansion into non-auto insurance sectors, industry insiders suggest initiating changes within specific policies like liability insurance to forestall undue market upheavals. Hence, ensuring a smooth regulatory transition requires addressing diverse non-auto insurance products, given their cross-departmental influences and varying economic implications. [para. 16][para. 17]