Insurers' new initiative: shrewdness or folly?

Everyone hails the idea of innovation in the financial sector, but at what point does ingenuity become folly?

China's insurance regulator may be trying to define that line. Last month, it banned sales of widely watched smog insurance products a week after they were introduced. The regulator said it wanted to prevent financial innovation from becoming too far-fetched.

The ban targeted Ping An Insurance Co and China Life Insurance Co, which both introduced policies to compensate holders for smog-induced illness or smog-ruined holidays.

Some of the policies offered compensation for respiratory illness and lung cancer. Others promised payments if air pollution levels rose a certain amount above designated standards in specified cities.

For example, for a premium fee of 10 yuan (US$1.61) on Ping An's outlet on WeChat, a popular mobile instant messaging service, people in Shanghai could get a minimum 150 yuan payout if the official Air Quality Index rose above 100 for at least three days in the week ended April 7.

The China Insurance Regulatory Commission said it took action to shutter the products after finding that they differed in substance from the lodgings on prices and polices filed with the regulator. It also pointed out that the policies resembled gambling more than true offers of protection.

"The products go against the principles of insurance, which is to protect people from potential risks," an unidentified commission official was quoted as saying by the official Xinhua news agency. "Companies are encouraged to innovate, but they cannot stage public stunts to win market,"

It was the second time in a month that the watchdog has interceded against insurance products with a fanciful look.

In February, it suspended Chang An Property & Liability Insurance from selling a policy on the Internet in Beijing that promised a payout to policyholders who successfully obtained a plate in the capital's car-license lottery system. Normally only one in every 100 applicants wins a plate from the system.

New products

The smog and car lottery policies are but two examples of the lengths that insurers are willing to go in trying to buttress their ailing industry and attract more customers. Policies have also been offered to compensate people who couldn't see the Mid-Autumn Festival moon because of cloudiness, for people hit by an unexpected divorce and for women who accidentally became pregnant on Valentine's Day. All three policies were allowed to proceed without regulatory interference.

The recent change of mood by the insurance regulator may be sending a signal that insurers need to return to more conventional definitions of innovation, analysts said.

"We have to applaud the innovation awareness of insurance companies as they take note of a changing society and environment," said Tuo Guozhu, an insurance professor with Capital University of Economics and Business. "But some products have been introduced in haste and appear immature."

He said that air pollution is an emotive public issue, but it is too early for smog insurance because the causal relationship between foul air and various diseases remains unclear.

An official of a joint venture insurance company, who declined to be identified, said executives have always been hesitant about putting forth more "fanciful products" because they distract from the company's core businesses.

He admitted, however, that fanciful products do attract public attention and raise awareness of the industry.

Public stunts may be just a means to an end as insurers experiment with the Internet.

For example, by selling the smog insurance on its WeChat platform and through cooperation with Ctrip.com, an online tour operator, Ping An said it was aiming to promote its multi-channel sales strategy that would cover web users not only on computers but also on mobile phones.

Chen Hui, an actuary Chang An Property & Liability, told a forum in late March that innovation should be used to promote insurance awareness among the general public, and the Internet provides a shortcut to sell products, serve customers and acquire user data.