Why Can Blockchain Technology Transform China’s Insurance Industry
In a recent academic speech in PBC school of Finance, a joint school initiated by People’s Bank of China and Tsinghua University, Wei Yingning, the former Deputy Head of China Insurance Regulatory Commission (CIRC)has said that the internet-based insurance mode actually didn’t transform the insuring business mode and to do so Blockchain technology could be the leverage in the coming years.
Mr.Wei: Blockchain can transform China’s insurance industry
Mr. Wei was not only the then Deputy Head of CIRC, but also the former Deputy Head of Insurance Department of PBOC. He is now professor of several prestigious universities including PBC school of China and China’s Renmin University. His particular identity makes his words worth noting. This article is going to probe into China’s current insurance status to see from what perspective can blockchain transform insurance industry.
According official statistics from CIRC, the gross insurance premiums of China have increased from 0.45 trillion RMB in 2005 to 2.43 trillion RMB in 2015 with an average growth rate of 17%. The total assets of insurance industry have reached 12.36 trillion RMB in 2015 with annual average growth rate of 20% in the past decade. The rate of return of the whole industry was 7.56% in 2015, All these has made China the third largest insurance company in terms of scales. Countries it surpassed are Germany, France and UK and China is projected to surpass Japan soon.
But better measures for the state of a country’s insurance industry are penetration, the ratio of gross premiums to GDP, and density, the average premium averaged on total population. In 2015, the penetration rate in China is 3.6% and density is 1678 RMB per person, less than half of the world average level. The goal of Chinese government (see the official document) is to increase the penetration to 5% and density to 3500 RMB per person by 2020. The goal is far from modest considering 1.4billion population. But there are 4 reasons why China see great opportunities for its insurance industry to grow.
First, the insurance industry in China is in a growing period. Insurance industry will grow faster when the average GDP is between 5000 to 10,000 dollars based on the cases in developed countries. Lower than 5,000 USD means people do not have extra money for insurance and higher than that means the industry is going to be mature. China’s average GDP in 2015 is 8,016 USD.
Second, the huge market demand. There are more than 10% of 65-year-old people in its total population. The faster than expectation aging population of China has made elders life the most pressing problem to solve. The increasing demand for insurance is obvious.
Third, preferential government policies. Insurance companies can have tax exemption and the premium all allowed to invest more areas like senior care center or other health-care industries.
Lastly, technology innovation. The internet insurance mode has greatly expanded to sales channels and diversified the insurance products. With help of the great number of internet users, insurance companies now can sell the various products like flight-delay insurance online. Salesman can settle commission online. Companies like Tencent and Alibaba can use data they possess from their messaging app and payment tool to tailor-made insurance products to users.
But all these will not transform the insurance industry: Huge amounts of money are for managing the clients’ profiles. Reports that insurance companies sell clients information to real-estate companies alike are commonly seen. The indemnity process is still long due to repeated identity and accident checks. There are even cases almost every year where the beneficiaries killed the insured to distort insurance claims. Till now there are no way to fundamentally change the situation except to hire more people to handle the cases, which increases greatly the costs of the industry.
Professor Wei clearly understands the potential of blockchain when he said blockchain technology can be the one that transform the insurance company. Blockchain can let people get rid of the need to trust and rely a third party to store the identity, shorten the claim process by automating the processes with smart contract and prevent insurance fraud by immutable and traceable data. Furthermore, the flow the premiums will also become transparent and people will be more willing to trust the insurers.
China’s insurance industry really pins its hope on blockchain for faster development.