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Economy

Life insurance pricing mechanism liberalized

1
2015-09-29 10:46China Daily Editor: Wang Fan

The insurance regulator on Monday fully liberalized the pricing mechanism for life insurance products, aiming to encourage more market-driven competition among insurers.

The new policy, to be implemented on Oct 1, will allow insurers to set up their own interest rate for dividend-paying life insurance products, which previously was capped by the regulator at around 2.5 percent.

The latest move marked the completion of the pricing reform of the country's life insurance products. The regulator has already liberalized interest rates for term and universal life insurance products.

Wang Zhichao, deputy director of the life insurance department at the China Insurance Regulatory Commission, said the latest interest rate reform will likely reduce premiums for dividend-paying life insurance by more than 15 percent and will substantially boost the attraction of such products for customers.

"The goal is to give the pricing power back to the companies, to encourage more competition and to form a market-driven pricing system," Wang said.

Products that offer interest rates higher than 3.5 percent will remain subject to regulatory approval, according to the CIRC.

Industry analysts said that the pricing liberalization will likely increase the operating costs for life insurers as competition will lead to higher interest rates for their products.

"It will also add more pressure on the overall investment returns of insurers," said Wang Guojun, an insurance professor at the University of International Business and Economics.

The average investment returns for dividend-paying life insurance products have been around 5.3 percent, according to the regulator.

Total premium of the country's life insurance sector reached 615.8 billion yuan ($96.7 billion) in the first seven months of the year, said the regulator.

 

  

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