Insurance Industry's 'National 10 Articles' 3.0 Released!

After a decade, the insurance industry is once again welcoming a new top-level design blueprint.

The State Council recently issued the "Several Opinions on Strengthening Regulation, Guarding Against Risks, and Promoting High-Quality Development of the Insurance Industry" (hereinafter referred to as the "Opinions"), which includes ten specific recommendations, making systematic planning and arrangements for the reform and development of China's insurance industry over the next 5 to 10 years.

This is the third edition of the insurance industry's "National Ten Articles" following those in 2006 and 2014.

Looking at the overall goal, the "Opinions" clarify: by 2029, a preliminary framework for high-quality development of the insurance industry will be formed, with a steadily expanding coverage, increasingly comprehensive protection, continuous improvement in services, robust and balanced asset allocation, sufficient solvency, and effective governance and internal controls.

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The insurance regulatory system will be more robust, with significantly improved regulatory capabilities and effectiveness.

By 2035, a new pattern of the insurance industry will be essentially formed, characterized by a complete market system, rich and diverse products and services, scientific and effective regulation, and strong international competitiveness.

In the industry's view, the new "National Ten Articles" compose a concerto of strict regulation, risk prevention, and development promotion, which plays an important guiding role in the insurance industry's full play of the insurance protection function, enhancement of protection capabilities and service levels, and service to the construction of a financial powerhouse and Chinese-style modernization.

Strict regulation has always been a solid backing for the stable development of the insurance industry.

The "Opinions" emphasize strict regulation with teeth and edges, from four dimensions: "strictly controlling the access to the insurance market," "strict continuous supervision of insurance institutions," "seriously rectifying illegal and irregular behaviors in insurance," and "effectively preventing and resolving risks in the insurance industry," ensuring comprehensive coverage and no exceptions in regulatory governance and risk disposal.

Xu Xian, the director of the Risk Management and Insurance Department at the School of Economics, Fudan University, pointed out that the new "National Ten Articles" clearly take "strong regulation and risk prevention" as the main line of the industry; in the overall requirements, the expression has changed from "insisting on improving regulation" in 2014 to "insisting on strict regulation"; at the same time, four out of ten articles emphasize regulation and risk, with a much larger proportion of content than the previous two editions of the "National Ten Articles."

These changes have made a practical response to the "National Ten Articles" pointed out by the Third Plenary Session of the 20th Central Committee of the Party, which called for "implementing various measures to prevent and resolve risks in key areas such as real estate, local government debt, and small and medium financial institutions."

"Compared with ten years ago, the chaos and corruption issues in the insurance industry have been more concentratedly exposed in recent years, with various contradictions and risks intertwined.

It can be said that governing industry chaos and preventing various risks are the prerequisites for achieving high-quality development."

Xu Xian said that, in particular, the new "National Ten Articles" start from people, giving priority to a series of issues in the internal governance and operation of insurance companies, making clear explanations on matters such as the appointment and performance of management personnel, shareholder qualifications and behavior, and the classification and grading of sales personnel, which are more to the point than the previous two editions of the "National Ten Articles."

Mao Qingqing and Yao Zeyu, researchers at CICC, believe that "development" is not contradictory to "strong regulation and risk prevention," and that "strong regulation and risk prevention" are important safeguards for high-quality development.

In the past, the market often assessed the impact of regulation on industry development through the "loosening" and "tightening" of policies.

The above team believes that it is more reasonable to view its impact from the understanding and professionalism of the policy towards the industry's operation.

Since the establishment of the National Financial Regulatory Administration, policies such as "integrating reporting and action," and lowering pricing interest rates have timely and effectively improved the industry's improper competition and resolved potential interest rate risks.

Based on the changes in the internal and external environment faced by the industry after a period of rapid development, the current policies related to "strong regulation and risk prevention" will be an important safeguard for the industry to move towards high-quality development.

The non-bank financial team of Dongwu Securities pointed out that for areas of high market concern such as the hidden worries of interest rate differential losses and the risk transformation of small and medium insurance companies, the new "National Ten Articles" propose to strengthen duration and interest rate risk management, improve the insurance asset risk classification system, and consolidate the quality of assets and liabilities; to strengthen product fee supervision to comprehensively reduce the comprehensive liability cost; to propose for the first time "to study and improve the policy payment mechanism linked to risk," providing a breakthrough for the revision of the "Insurance Law" to break the rigid payment; to propose to expand the sources of risk disposal funds, support qualified enterprises to participate in the reform and risk transformation of insurance companies, and improve the mechanism for the insurance guarantee fund to participate in risk disposal.

For institutions with high risks and no ability to continue operating, to confiscate financial licenses and enter bankruptcy liquidation procedures according to law, also pointing to the determination to achieve risk transformation.

Release opportunities in the old-age financial market.

By the end of 2023, China's elderly population over 60 years old will exceed 290 million people.

With the further acceleration of the growth rate of the elderly population, population aging has become the most prominent development issue faced by China and will pose a significant challenge to economic and social construction for a considerable period in the future.

To this end, from the central financial work conference at the end of last October to the first document issued by the General Office of the State Council at the beginning of this year, the promotion of old-age finance has been placed in an important position.

The "Opinions" point out that actively develop the third-pillar pension insurance.

Vigorously develop commercial insurance annuities to meet the diverse pension security and intertemporal financial planning needs of the people.

Encourage the development of new products and exclusive products suitable for the personal pension system.

Support pension insurance companies to carry out commercial pension business.

Promote the development of exclusive commercial pension insurance.

Enrich insurance products, services, and insurance fund support methods adapted to the silver economy.

Promote the coordinated development of the insurance industry and the elderly service industry in accordance with the law and regulations.

This is also the first time that the promotion of the development of commercial insurance annuities has been mentioned in the top-level design.

Wang Xiangnan, deputy director of the Insurance and Economic Development Research Center of the Chinese Academy of Social Sciences, said that the development of commercial insurance annuities requires insurance institutions to improve their ability to resist economic cycle risks and enhance long-term wealth management levels, and also needs to guide the insured to form a mentality that focuses on long-term and stable returns.

Regarding the specific development methods, Wang Xiangnan suggested: first, to provide commercial insurance products in the third-pillar pension insurance system; second, to promote insured people to purchase commercial pension insurance with basic pension insurance and enterprise (occupational) annuity account funds.

In terms of personal pension, the system has been in place for nearly two years since its implementation.

Looking at the coverage rate, among the 16-64-year-old population in 36 pilot cities, the number of account openings is 60 million, accounting for 22.6%, higher than the 20% level in the United States.

"Considering that the third pillar of the U.S. pension has been established for 50 years, and China has only been piloting for more than a year and a half, this is already a very good result.

In all countries, coverage rate is the key to the success or failure of the pension third pillar, and without coverage rate, there will be no subsequent issues."

Zheng Bingwen, director of the World Social Security Research Center of the Chinese Academy of Social Sciences, said.

However, while delivering a good answer at the starting stage, issues such as "hot account opening and cold payment" in personal pensions have gradually emerged.

If calculated at 12,000 yuan/year, the payment scale of 60 million people is nearly 200 billion yuan, but the actual amount is only 50 billion yuan, with a huge gap.

In Zheng Bingwen's view, one of the important reasons for the low payment scale is the low yield of pension funds.

If this continues, the third pillar will be nominal.

Therefore, it is necessary to deepen reforms both inside and outside the system.

Specifically, system external reforms mainly aim to prosper the capital market, especially in the era of low interest rates, relying on fixed income, savings, and insurance products is difficult to obtain returns; in terms of system internal reforms, it is suggested to further expand the range of pension financial products, break the old traditional concepts, and it is also possible to consider issuing products with higher yields such as national large and medium-sized projects to the third pillar.

In addition, due to China's vast territory and complex and diverse natural environment, various disasters are prone to occur frequently, the "Opinions" also propose to adhere to the principle of government promotion and market operation, and explore the establishment of multi-channel and multi-level catastrophic insurance protection mechanisms.

"With the development of the economy, China's catastrophic insurance penetration rate is expected to further improve, which will help the insurance industry to continue to play the role of 'economic ballast stone' in natural disaster events."

Liu Chunlin, the underwriting director of property insurance business in Greater China of Munich Re, said that currently in China, individuals and small and medium-sized enterprises still have a relatively weak awareness of the risk of low-frequency disasters and natural disaster insurance, which requires the government and the industry to work together to promote risk awareness education, and deepen the market's understanding of natural disaster exposure, climate change impact, and potential risks.

Emphasize the "service" attribute of the insurance industry.

This year, the term "patient capital" has been frequently mentioned.

As a representative of medium and long-term funds and patient capital, insurance funds play an important role in activating market circulation, promoting market development, and enhancing the intrinsic stability of the market.

The "Opinions" propose to focus on major national strategies and key areas, serve the construction of scientific and technological innovation and modern industrial systems, and give play to the advantages of long-term investment of insurance funds.

To cultivate real patient capital, promote a virtuous cycle of funds, capital, and assets.

Increase investment in strategic emerging industries, advanced manufacturing, and new types of infrastructure to serve the development of new quality productive forces.

Guide insurance funds to support scientific and technological innovation, venture investment, rural revitalization, and the development of green and low-carbon industries.

Liu Hui, vice president of China Life, said that he will adhere to a long-term investment layout, give play to the advantages of long-term capital and patient capital of insurance funds, practice the concept of long-term assessment, carry out counter-trend investment and cross-cycle allocation in a timely and appropriate manner.

Pay attention to risk factors when everyone is optimistic, and look for marginal benefits when everyone is pessimistic, actively buy high-quality stocks that have fallen out of cost-effectiveness, focus on the direction of high-quality economic transformation and development, and serve the development of new quality productive forces.

Qin Hongbo, vice president of New China Insurance, also said that he will follow the direction of the country's industry, including areas supported by the state, focus on industry leaders, adhere to a high dividend strategy, actively optimize the equity investment structure, and strive to achieve more in the strategic asset allocation of patient capital in the future.The data disclosed by the National Financial Regulatory Administration shows that by the end of June this year, insurance companies provided insurance coverage of 60 trillion yuan for scientific and technological research and development, achievement transformation, and promotion applications.

By the end of July, long-term equity investments by insurance funds amounted to 27 trillion yuan.

Xu Xian stated that, compared to the previous two versions of the "National Ten Articles" which extensively described the development goals of various insurance types and the role of each category, the new "National Ten Articles" ("Opinions") further transcends the industry perspective, examining the industry's goals and opportunities from a larger context.

It refines and summarizes the main targets of action into two categories: "serving people's livelihood security" and "serving the real economy."

This reflects an accurate understanding of the functions of the insurance industry and highlights the close connection and deep integration with the "five major financial articles."

Among them, the essence of "serving people's livelihood security" lies in promoting the integrated development of production and services, that is, the key development direction of the insurance industry in the new era, "product serviceization, service productization," to further enhance the sense of gain for the insured and improve the level and quality of insurance coverage.

The key to "serving the real economy" is to leverage the advantages of long-term investment and patient capital of insurance funds to provide a solid backing for the country's major strategies, key areas, technological innovation, and modern industrial systems.

Yang Fan, General Manager of Beijing Paipai Network Insurance Agency Co., Ltd., also believes that the insurance industry, as an important part of the financial system, will further strengthen its ability to serve people's livelihood and the real economy.

This will not only help to enhance the social value of insurance products but also promote the deep integration of the insurance industry with the real economy.

"Encouraging innovation in products and services will help the insurance industry better meet the diversified needs of the market and consumers, especially in the fields of catastrophe insurance, pension insurance, and health insurance.

Continuously advancing high-level opening up and deepening reforms in key areas will bring new development opportunities for the insurance industry and promote domestic insurance companies to enhance their international competitiveness," said Yang Fan.