Insurance investment can play the role of ballast in wealth management, China Case 1

If you have an asset, how to manage it well to preserve and increase value? Bank deposits, financial management, trusts, funds? Ever wonder if Insurance investment could be an important option for our wealth management?

On November 10th, at the inauguration ceremony of the China Wealth Management Forum and the Chinese Wealth Management Research Institute of Peking University, Zhou Yanli, member of the National Committee of the Chinese People’s Political Consultative Conference and former vice chairman of the China Insurance Regulatory Commission, delivered a speech on the theme of “Insurance investment helps residents’ wealth management business development”, explaining the status of the insurance industry in wealth management. Functions and functions.

What is the current situation of wealth management in China?

Insurance investment in China has been a significant contributor to the country’s financial landscape. The Chinese insurance industry has experienced rapid growth, partly due to the expanding middle class seeking insurance products for protection and investment purposes. Both domestic and foreign insurance companies operate in China, with various types of insurance products available, including life insurance, health insurance, property insurance, and more.

The Chinese government has been implementing reforms to open up the insurance sector further to foreign investment, aiming to increase competition, improve efficiency, and enhance consumer choices. Additionally, initiatives such as the Belt and Road Initiative have created opportunities for insurance companies to expand their operations and offerings in the region.

Insurance investment in China presents a unique landscape due to the country’s regulatory environment, economic developments, and changing consumer preferences. It’s crucial for insurance companies to navigate these complexities while adhering to local regulations and meeting the evolving needs of Chinese consumers.

With the rapid development of China’s economy, the scale of social and personal wealth has grown rapidly, the demand for wealth management has emerged, and the wealth management market has gradually taken shape, and has experienced the rapid growth of the personal wealth scale of residents in the past 20 years.

Zhou Yanli said that after more than 20 years of development, China has entered the ranks of middle-income countries from low-income countries and is moving towards middle- and high-income countries. Since the first stratification of customers by banks in 2002 and the emergence of wealth management business, domestic wealth management services have also gradually grown.

By the end of 2017, the wealth management market in China’s financial industry exceeded 160 trillion yuan, mainly managed by bank deposits and financial management, Insurance investment and asset management, trusts, public and private equity funds, securities asset management and third-party wealth management institutions.

Financial products cover bank financial management, stock investment funds, equity investment funds, bond investment funds, securities brokerage asset management plans, insurance asset management products, investment insurance, trusts, futures asset management, etc.

In recent years, China’s financial wealth management business is in a new stage of development. Various financial investment tools are emerging one after another, and investment channels are increasingly diversified, which has formed a diversified competition pattern.

How does insurance manage wealth?

The wealth management plan implemented by Insurance investment institutions is generally to meet the financial needs and insurance protection of customers. By designing comprehensive insurance product forms such as portfolios, insurance planning, financial management, etc., it provides professional financial management and insurance services to customers to ensure the property or personal safety of customers to achieve wealth preservation and increase. Value.

Specifically, there are several ways to manage insurance wealth:

First, family wealth management, insurance can provide family members with comprehensive wealth management plans such as health, pension, medical care, education, property preservation, wealth appreciation, etc.

The second is lifelong wealth management. Life insurance products such as term life insurance and life insurance can last for decades or even life, providing people with a full life cycle wealth management plan;

Third, intergenerational wealth management. Many life Insurance investment products enjoy tax preferences, which can realize intergenerational inheritance and seamless connection of wealth.

Insurance wealth management events

In 1999, Ping An Insurance launched the first investment-linked investment insurance.

In 2000, Pacific Insurance (601601, stock bar) launched the first universal insurance.

In 2002, Taikang launched its first banking and Insurance investment product to open the door to cooperation between banks and insurance.

In 2004, the first professional annuity insurance company Taiping Pension was established.

In the visible future, with the accumulation of residents’ wealth, the improvement of risk awareness and the growth of financial demand, insurance is still an indispensable and important role for residents in future wealth management planning.

What are the advantages of wealth management in the insurance industry?

Zhou Yanli said that at present, in China’s financial market, the wealth management of the Insurance investment industry has also been stimulated and promoted by other financial products. The large-scale growth is reflected in the rapid growth of the total asset scale and premium volume of the insurance industry, and the investment proportion of investment in the insurance investment field and capital market has been further liberalized, which promotes Insurance investment. Functions and roles in wealth management markets.

First, the insurance risk protection function realizes compensation for losses.

In the process of wealth management, it is easy to focus on income only, ignore expenditure, focus on benefits, and ignore the risk of loss.

Insurance investment and relation of the pursuit of wealth tends to be very uncertain, and losses often occur. As far as risk management is concerned, the risk protection function of insurance is an essential feature different from other financial products, avoiding huge loss of wealth and abnormal fluctuations, and is an effective wealth management tool.”The pursuit of wealth tends to be very uncertain, and losses often occur.

As far as risk management is concerned, the risk protection function of insurance is an essential feature different from other financial products, avoiding huge loss of wealth and abnormal fluctuations, and is an effective wealth management tool.

Second, the long-term cyclical realization of insurance products to the continuation of wealth.

Asset-liability matching is the management concept and principle of insurance institutions. Wealth management is fundamentally a kind of long-term management based on a cross-period perspective. This “period” refers to the complete life cycle and even intergenerational inheritance. The basic logic of insurance, especially life insurance, is also the dispersion and management of cash flow across time and space. From this perspective, insurance is naturally an effective tool for wealth management.

Third, insurance investment can play the role of “ballast” in wealth management.

The debt attribute of insurance operation determines that insurance companies are more inclined to long-term investment and value investment in investment concepts, so as to penetrate the economic cycle, resist inflation, and achieve wealth preservation and appreciation.

China’s Insurance Law also stipulates that the use of insurance funds must be stable and follow the principle of safety. From the perspective of practice, in recent years, insurance companies have adhered to the concept of steady, prudent and safe value investment, and the asset management ability has gradually improved.

Adhering to the principles of efficiency and liquidity management, insurance institutions have effectively resisted and reduced the adverse impact of economic and cyclical fluctuations on the insurance industry, withstood the test of the complex financial and capital market environment and achieved a good trend of income from the use of insurance funds (2015 to 2017 respectively) It is 7.56%, 5.66% and 5.77%). Insurance investment companies have become important institutional investors in the capital market and important participants in enterprise annuities and occupational annuities. We often say that insurance funds are the “stabilizer” of capital markets.

Zhou Yanli believes that in the field of wealth management, the participation of insurance companies can also play the role of ballast.

How does the insurance industry do a good job in wealth management?

First, it should be able to meet the wealth management needs of different levels of people.

Wealth planning, life planning and family planning provided by insurance can help customers analyze and plan their personal or family future by providing demand-oriented, advisory, low-cost risk protection products and wealth planning services, flexibly and efficiently manage life cycle risks, and meet personal wealth preservation and appreciation needs. Seek to prevent the financial risks of high net worth people and stabilize income expectations.

Second, we should expand the variety of financial products.

Insurance Asset Management Company is one of the few asset management institutions in China that can fully cover equity investment, fixed income, foreign exchange investment, industrial investment and other high-, low-risk business fields. In particular, the fixed-income investment ability should be leading in China. At the same time, the fixed-income investment profit model is also in line with the development trend of the wealth management industry.

Third, the innovation environment and innovation capacity should be continuously improved.

In recent years, in accordance with the requirements of Accelerating the Development of Modern Insurance Service Industry, or the Ten Articles of the New Country issued by the State Council in 2014, the insurance regulatory authorities have actively and steadily promoted the reform of the use of insurance funds.

They have successively launched a series of new policies for insurance investment, expanded the channels for insurance funds, which is conducive to the diversification of insurance investment. Chemical and increased return on investment. At the same time, by promoting the establishment of innovation pilot zones and industrial parks, insurance companies are guided to increase product and service innovation.

The environment of insurance innovation is increasingly optimized and the ability is constantly improving, providing a strong guarantee for the sustainable, stable and healthy development of the insurance industry.

Fourth, insurance products should be able to reasonably reduce the household tax burden.

China’s Tax Law stipulates that the death insurance paid for life insurance products is exempt from the beneficiary’s personal income tax, and the Individual Income Tax Law stipulates that the insurance is not included in the income tax payable. With the continuous improvement of the tax law and tax collection and management system, it is expected that more preferential tax policies will be introduced in the fields of pension and health in the future.

Zhou Yanli said that the wealth management business is an extremely large and potential “big cake”, which needs to be further explored. Therefore, we need to carefully cultivate this valuable market and strive to innovate product and service models for the wealth growth of Chinese residents.

Insurance investment plays a vital role in China’s GDP (Gross Domestic Product), contributing to economic stability, risk mitigation, and financial growth. The insurance sector’s evolution and its impact on the Chinese economy can be understood through various lenses, including its contributions to financial intermediation, risk management, capital markets, and overall economic development.

In recent years, China's insurance industry has experienced substantial growth, reflective of the country's economic expansion and increasing awareness of the importance of insurance products. This growth has significantly influenced the country's GDP by fostering a more robust financial ecosystem.

Firstly, insurance investment in China serves as a crucial financial intermediary, channeling funds from individuals and corporations into productive investments. By pooling resources through premiums, insurance companies accumulate substantial funds that are then invested in various sectors, including infrastructure, real estate, and capital markets. This investment contributes directly to economic activities, spurring development, creating employment opportunities, and fueling GDP growth.

Moreover, insurance serves as a risk-mitigation tool for individuals and businesses. By providing coverage against unforeseen events, insurance enables households to manage risks and uncertainties, encouraging spending and investment. For businesses, insurance safeguards against operational and financial risks, fostering a conducive environment for entrepreneurship and economic expansion. This risk mitigation aspect indirectly contributes to GDP growth by ensuring continuity in economic activities.

The insurance industry’s role in capital markets also influences China’s GDP. Insurance companies invest in a wide range of financial instruments, including stocks, bonds, and other securities. These investments not only generate returns for insurers but also inject liquidity into the capital markets, supporting businesses in their fundraising endeavors. Robust capital markets facilitate corporate growth, innovation, and infrastructure development, all of which contribute significantly to GDP expansion.

Furthermore, insurance investment complements the government’s efforts to drive economic development. In sectors like infrastructure and healthcare, where long-term funding is crucial, insurance capital plays a pivotal role. Insurance companies often invest in long-term projects that align with the government’s developmental goals, further propelling GDP growth by supporting key sectors of the economy.

The evolution of China’s insurance sector has also sparked innovation and adaptation. Insurtech companies, leveraging technology to enhance insurance offerings and distribution channels, have emerged. This technological integration not only improves efficiency within the insurance industry but also facilitates better risk management for individuals and businesses, fostering economic resilience and growth.

In conclusion, insurance investment in China serves as a multifaceted catalyst for economic growth and stability. Its contributions to financial intermediation, risk management, capital markets, and alignment with developmental goals collectively bolster GDP expansion. As China’s insurance industry continues to evolve and innovate, its role in supporting and driving economic growth is poised to remain pivotal in the country’s ongoing economic narrative.

Insurance investment typically contributes to GDP in several ways:

1. Financial Sector Contribution: Insurance companies invest in various financial instruments, including bonds, stocks, and other assets. These investments can contribute to the growth of financial markets and intermediation, indirectly impacting GDP.
2. Risk Management and Stability: Insurance products play a crucial role in managing risks for individuals, businesses, and the economy. By providing protection against various risks, such as health, property, and life, insurance can contribute to economic stability and resilience.
3. Capital Formation: Insurance companies often invest in long-term projects or infrastructure developments, indirectly contributing to capital formation and economic growth.
4. Consumer and Business Confidence: A well-functioning insurance sector can enhance confidence among consumers and businesses, encouraging investment and economic activities.

While insurance investments are an important part of the financial ecosystem and contribute to the broader economy, their specific direct impact on GDP might be more challenging to isolate compared to sectors like manufacturing or services. The growth and performance of the insurance industry in China can certainly influence the overall economic landscape but might not be the primary driver of GDP growth.