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Building a great life insurance industry in China. CIRC China life insurance summit. November 11, 2010 Shenzhen. CONFIDENTIAL AND PROPRIETARY Any use of this material without specific permission of McKinsey & Company is strictly prohibited. 2005. 2009. 2010.

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Building a great life insurance industry in China


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    1. Building a great life insurance industry in China CIRC China life insurance summit November 11, 2010 Shenzhen CONFIDENTIAL AND PROPRIETARY Any use of this material without specific permission of McKinsey & Company is strictly prohibited

    2. 2005 • 2009 • 2010 • First edition promotes the importance of a vibrant Life industry in China

    3. 2005 • 2009 • 2010 • Second edition press release argues for sustainable long-term industry development

    4. 2005 • 2009 • 2010 • Last year’s summit highlights • Potential of life products to increase peace of mind, lower savings rates, and stimulate GDP • Levers promoting LTSP penetration • Consumer education • Tax incentives • Next generation bancassurance • Product channel innovation • Quality agency force

    5. 2005 • 2009 • 2010 • Summarize importance of life insurance to China • Reflect on where Life Industry is in its journey • Offer ideas on role of industry, regulator, and government in accelerating growth

    6. 2005 • 2009 • 2010 • Summarize importance of life insurance to China • Reflect on where Life Industry is in its journey • Offer ideas on role of industry, regulator, and government in accelerating growth

    7. 1. Importance of life industry to China • Promote peace of mind and social harmony while government builds social safety net • Promote financial strength of emerging mass affluent market • Accelerate development of health and retirement markets as country ages • Contribute to lower savings rate and higher consumption to stimulate GDP growth • Generate long-term capital to fund infrastructure

    8. 2005 • 2009 • 2010 • Summarize importance of life insurance to China • Reflect on where Life Industry is in its journey • Offer ideas on role of industry, regulator, and government in accelerating growth

    9. 2. Where is China life industry in its journey? Industry Products Customer focus Channels Economicfocus

    10. 13 Industry Future rapid market growth in coming 5-10 years Life insurance penetration, 2008 Premium percentage in GDP,% “Semi-mature” market Taiwan HK Korea “Start-up” market Japan Singapore Philippine China (2015) India Malaysia China “Mature” market Thailand Indonesia GDP per capita $ 1,000 SOURCE: Swiss Reinsurance, Sigma: World Insurance 2007; team analysis

    11. Products Stage 1 Stage 2 Stage 3 • Basic protection (life, accident) • Basic savings – fixed income • Indemnity health • Mass market

    12. Products Stage 1 Stage 2 Stage 3 • Sophisticated life products – UL, endowment, second to die • Savings products with variable components • Corporate life, pension and health • Basic retirement products • Mass and mass-affluent products

    13. Products Stage 1 Stage 2 Stage 3 • Sophisticated fixed and variable annuities • Medical reimbursement • Individual and group disability • Wide range of investment vehicles and guarantees for corporate pensions • Long-term care

    14. Channels Stage 1 Stage 2 Stage 3 Agency/Broker Large, mass, high-churn, sell family and friends

    15. Channels Stage 1 Stage 2 Stage 3 Agency/Broker Disciplined best- practices model with focused centralized servicing and technical support

    16. Channels Stage 1 Stage 2 Stage 3 Agency/Broker • Top agents exit to create broker and financial advisor firms • Practice models for mass affluent offering financial planning, asset management

    17. Channels Stage 1 Stage 2 Stage 3 Bancassurance Low-value-added commodity products

    18. Channels Stage 1 Stage 2 Stage 3 Bancassurance Insurer provides value-added sales and marketing

    19. Channels Stage 1 Stage 2 Stage 3 Bancassurance Financial partnership and bundled products

    20. Channels • Other channels • Corporate • Affinity • Internet

    21. Economic Focus Volume Economic contribution • Stage 1

    22. Economic Focus Volume Economic contribution • Stage 2

    23. Economic Focus Volume Economic contribution • Stage 3

    24. Customer Focus Stage 1 Stage 2 Stage 3 All about the policy

    25. Customer Focus Stage 1 Stage 2 Stage 3 More explicit management of renewals frequently leveraging centralized support

    26. Customer Focus Stage 1 Stage 2 Stage 3 Integrated customer management leveraging customer databases, product initiatives over life stages, cross-selling

    27. 2. Where is China life industry in its journey? Industry Products Customer focus Channels Economicfocus

    28. 2005 • 2009 • 2010 • Summarize importance of life insurance to China • Reflect on where Life Industry is in its journey • Offer ideas on role of industry, regulator, and government in accelerating growth

    29. 3. Accelerating industry development – companies • Strengthen foundational pillars • Financial disciplines • Performance management • Talent • Channels • More disciplined value-added models • Broaden and experiment • Differentiated geographic and customer segment models • Product management disciplines – design, pricing, risk, economics • Corporate strategy – focus resources on core

    30. 3. Accelerating industry development – regulator • Protect solvency – trust-based business • Encourage innovation in products and channels • Continue to broaden investment options with controls • Raise producer quality standards for more sophisticated products • Encourage/reward foreigners for innovative models • Incent sale for LTSP • Encourage market research on consumer attitudes and behaviors

    31. 3. Accelerating industry development – market research initiative • Major market research effort to develop fact-based understanding of • Drivers of consumer savings behavior • Customer insurance purchase triggers and experience • Customer attitudes toward risks, advisors, and financial institutions • Linkages between insurance and savings • Approach • In-depth qualitative interviews to understand attitudes and behaviors • Survey of approximately 4,000 consumers • Understand differences by socioeconomic and geographic segments • Synthesis to determine key drivers of insurance purchase and industry implications

    32. 3. Accelerating industry development – government • Build awareness on link between • Public and private sector protection programs • Link between insurance and savings rates • Explore tax incentives where impact on purchase rates is high • Explore broadly based education initiative on risk, insurance products, and personal finances

    33. 2005 • 2009 • 2010 • Summarize importance of life insurance to China • Reflect on where Life Industry is in its journey • Offer ideas on role of industry, regulator, and government in accelerating growth

    34. ` Government looking to private sector for safety net High GDP growth Mass affluent market growing Aging population Healthy balance sheets Early stage of development Future of China life insurance industry