These types of personal insurance products are all taken down, Interest rate before the end of the month | expense rate | product
On the 19th, a reporter from Shanghai Securities News learned that various insurance companies have recently received guidance from regulatory windows to delist life insurance products with a predetermined interest rate higher than 3% before the end of the month.
The so-called predetermined interest rate refers to the interest rate used for pricing life insurance products, which is essentially the rate of return promised by insurance companies to customers. Unlike other financial products such as bank wealth management, the investment return rate of life insurance products can be adjusted according to the market. The term of life insurance products usually lasts for several years or even decades, and once the predetermined interest rate is set, it cannot be adjusted and has a rigid redemption attribute.
The current situation in the insurance market is that the predetermined interest rate for insurance products is relatively high, resulting in high rigid costs for insurance companies to operate. Based on this, at the end of March this year, the Life Insurance Department of the former China Banking and Insurance Regulatory Commission organized a symposium with insurance industry associations and multiple insurance companies to understand the debt cost situation of the life insurance industry. The delisting of high reserve rate products in this round is a policy adjustment made by regulatory authorities after understanding the industry situation.
Behind the policy adjustment, the risk of interest rate spread loss faced by the industry is increasing.
Insurance industry insiders have stated that in order to enhance product competitiveness, some life insurance companies have adopted more aggressive pricing strategies in recent years, issuing high predetermined interest rate products, such as life insurance products with an IRR of 3.5%, to maintain a high level of debt costs for life insurance companies.
However, due to market fluctuations and other factors, the return on investment of insurance companies is showing a downward trend. Under the increasing pressure of investment returns covering policy costs, the risk of interest rate spread loss has emerged, posing challenges for insurance companies to match their assets and liabilities.
"In the past two years, many insurance companies have maintained product settlement interest rates of 4% to 5% to support their short-term sales targets." Zhou Jin, a partner at PwC China Financial Industry Management Consulting, told reporters that since last year, the capital market has performed poorly, and the comprehensive investment return on insurance industry funds is less than 2%. The problem of industry interest rate inversion is significant, further exacerbating the risk of long-term spread loss.
Lowering the predetermined interest rate is the most direct way to solve this problem of interest rate inversion. The reporter learned from relevant channels that, according to requirements, starting from August, the pre order interest rate for new life insurance products will generally be lowered. Among them, the upper limit of the predetermined interest rate for ordinary and dividend life insurance products has been adjusted to 3% and 2.5% respectively, and the minimum guaranteed interest rate for universal insurance cannot exceed 2%.
The new product is ready to be in place. Industry insiders told reporters that since regulatory investigations, insurance companies have been preparing new products for over three months. Currently, many insurance companies have filed new products with regulatory authorities, and it is not a problem to launch and sell them in August.
Dividend insurance may become mainstream in the industry. According to feedback from multiple chief actuaries, many companies have reported dividend based products, including products with different predetermined interest rates of 2%, 2.5%, etc.
"In the past two years, dividend insurance has somewhat faded out of the market, but in the future low interest rate environment, dividend insurance is a product that can effectively resist the risk of spread loss." An assistant to the president and chief actuary of a state-owned insurance company said that the investment side returns are currently declining. If the product side is matched with traditional products with higher fixed interest rates, the risk of spread loss is relatively high. The fixed interest rate of dividend insurance is relatively low, which brings less asset allocation pressure to insurance companies; At the same time, consumers can also share the operating results of insurance companies.
Insurance companies should also strengthen expense management. A chief actuary of an insurance company told reporters that actuarial pricing of insurance products not only involves predetermined interest rates, but also includes indicators such as additional fee rates, which comprehensively determine the pricing level of the product. Therefore, in addition to reducing the predetermined interest rate, insurance companies should also control indicators such as additional expense rates to avoid "hitting the nail on the head" and failing to achieve the effect of reducing debt costs.
How does this indicator affect product pricing? The chief actuary mentioned above told reporters that according to the pricing formula for insurance products, the additional fee rate is positively correlated with the premium price. Lowering the additional fee rate can lower the premium price. A few years ago, some insurance companies set the additional fee rate to 0 and lowered the premium price to the floor price in order to improve product competitiveness. This means that insurance companies not only fail to make money when selling products, but also incur operating losses, which is known as "fee difference loss" in the industry.
Regulatory authorities will closely monitor the cost levels of insurance companies. The reporter learned from relevant channels that regulatory authorities have stated in their window guidance in April this year that the assumption of the additional fee rate used by insurance companies for new product filing should be consistent with the characteristic of "high in the front and low in the back" of life insurance business expenses. The setting of the first year's additional fee rate should be reasonably matched with the first period premium to prevent the risk of excessive incentives in the first year. Regulatory authorities will also increase their supervision of the authenticity of insurance company fees, and take corresponding regulatory measures once violations are discovered.
