The Economist - USA (2022-01-15)

64 Finance & economics The Economist January 15th 2022

EconomicResearch(diw),a think­tankin

Berlin.Evenby 2020 thenumberofGer­

mansinvesting inthe stockmarket was

stilla shadebelowits 2001 level.

Thefdphopesthattheplannedchang­

estothepensionschememightincrease

Germans’familiaritywithstockinvesting.

“TheSwedesreallyaren’tknownasturbo­

capitalisticstockgamblers,”jokesJohan­

nesVogel,theparty’sexpertonpension

politics. The coalition government also

aimstomakeit easierforpeopletosavefor

retirementoutsidetheirstatepension.The

tax­free personal allowance on capital

gainswillrisefrom€800to€1,000a yearin

2023,andthecoalitionhopestolaunchan

inquiryintothecreationofa Swedish­style

public­investmentfund.

Thesechangesalonemightdolittleto

putthepensionsystemonasustainable

footing andmakepensionersbetter off.

That,saysMarcelFratzscherofthediw,

wouldrequirea changetothestateretire­

ment age, as well as labour­market re­

forms.Nonetheless,hereckons,theplans

providea “glimmerofhope”thatthegov­

ernmentrealises,atleast,thatthesystem

needsreform.n

InsuranceinChina

Taming tigers

W

angbinhasgainedtheundesirable

distinction of becoming China’s first

“tiger” of the year. The term refers to a se­

nior  official  ensnared  in  a  corruption

probe  (as  opposed  to  a  “fly”,  a  lower­level

cadre).  Mr  Wang,  the  chairman  and  Com­

munist Party secretary of China Life, one of

the world’s largest insurers, is a big catch.

On January 8th the Central Commission for

Discipline  Inspection,  China’s  corruption

watchdog,  announced  that  he  was  under

investigation for serious violations of law

and party discipline—bywords for corrup­

tion. (China Life said in a statement that it

firmly supported the probe.) 

Conviction  rates  for  high­profile,  pub­

licly  announced  investigations  such  as

this  are  100%.  One  of  the  biggest  tigers  of

finance  so  far,  Hu  Huaibang,  the  former

head  of  China  Development  Bank,  is  im­

prisoned for life. Another, Lai Xiaomin, the

former chairman of a state asset manager,

was put to death.

TheprobeintoMrWang is only part of

China’s long crackdown on insurers. Much

of  that  attention  has  been  warranted.  Not

long  ago  the  fastest­growing  segment  of

the industry, which holds about 25trn yuan

($3.9trn) in assets, was high­risk, high­re­

turn investment products, rather than con­

ventional  policies  such  as  life  and  health

insurance.  Premiums  on  short­term  poli­

cieswere often used by companies to buy

property and trophy assets overseas, lead­

ing to dangerous mismatches between as­

sets and liabilities. 

A whirlwind crackdown starting in 2017

at the direction of Xi Jinping, China’s presi­

dent,  put  a  stop  to  many  of  the  excesses.

The  chairman  of  the  industry  watchdog

was  thrown  in  prison,  and  the  regulatory

body  was  taken  over  by  its  banking  coun­

terpart.  The  chairman  of  Anbang  Insur­

ance, which had gone on a foreign­acquisi­

tion spree lasting several years, was arrest­

ed and his company was bailed out and na­

tionalised, in order to prevent spillovers to

the rest of the financial system.

Regulators have become more stringent

over  time.  Many  high­margin  investment

products  have  been  banned.  And  invest­

ments made by the companies are closely

monitored. As soon as new products prove

popular  and  profitable,  regulators  often

step in to make sure they become less so.

That is starting to make the job of pro­

viding  insurance  harder  to  do.  Products

that cover accidents, for example, were un­

til recently a booming corner of the indus­

try. This came to a halt when new rules re­

quired insurers either to raise their loss ra­

tios (claims as a share of premiums earned)

or  lower  their  premiums.  Vehicle  and

health insurance have also faced more red

tape and have seen a rapid decline in pre­

miums,  too.  Insurers  now  find  it  increas­

ingly difficult to plan for the long term be­

cause “the rules of the game change almost

every  year,”  says  Sam  Radwan  of  Enhance

International, a consultancy.

There have been knock­on effects. Chi­

nese insurers rely heavily on vast armies of

agents to sell products. By 2018 China Life

had  amassed  more  than  2m  agents,  about

the  same  number  as  active  personnel  in

the  military.  Cheap  labourand  ever­fatter

premiums  made  the  industry  incredibly

profitable.  In  2019  the  profits  of  Ping  An,

the world’s largest insurer by market value,

surged by about 40% in a single year. 

Since  then,  however,  agents  have  be­

come hard to hire and retain. Tighter rules

and  shrinking  premiums  have  made  the

job less lucrative for salespeople, who rely

on  commissions.  The  pandemic  has  dis­

couraged  in­person  meetings  and  has

made it harder to make sales. At the same

time,  as  premiums  have  become  com­

pressed,  big  insurers  have  sought  to  sell

higher­value products to wealthier people.

This  requires  skilled  agents  with  a  knack

for  working  with  rich  clients—something

few  companies  have  in  great  numbers,

says Li Jian at Huatai Securities, a broker.

The impact has been devastating. China

Life  has  shed  more  than  1m  agents  since

the  start  of  2018,  with  nearly  half  the  exo­

dus  taking  place  in  2020.  About  700,000

agents left Ping An between 2019 and Sep­

tember  2021.  Overall,  about  30%  of  sales­

people have departed from the industry ov­

er the past three years.

All this has turned a booming industry

into a backwater. China Life’s value of new

business,  a  gauge  of  profitability,  fell  by

19.6%  in  the  first  nine  months  of  2021,

compared  with  the  same  period  in  2020.

Net  profits  were  about  55%  lower  in  the

third quarter of 2021 than they were a year

earlier.  Ping  An  has  reported  similarly

gloomy  results.  The  investigation  into  Mr

Wang has industry executives askingwho

might be next. But that is probablynotthe

only thing keeping them up at night.n

H ONG KONG

A corruption probe is only the latest of insurers’ many woes