Chapter 1 Industry Overview
The insurance industry is an important part of the economic system, and its main function is to provide risk management services. This industry reduces the potential for financial loss by insuring individuals and companies against a variety of risks that they may face. These risks may include property damage, illness or injury, or even death.
Insurance companies create a risk pool by collecting premiums to protect against possible future losses. When the insured person has a risk event promised by the insurance company, such as accidental injury or property loss, the insurance company will give it a certain amount of economic compensation according to the provisions of the insurance contract.
The industry is generally divided into two main segments: life insurance and non-life insurance. Life insurance mainly includes protection against risks such as life, death and disease for individuals. Non-life insurance includes various types of insurance such as vehicle, home, and corporate liability.
In addition, the insurance industry also includes reinsurers, insurance brokers, insurance agents and other insurance-related service providers. Reinsurance companies mainly provide insurance companies with risk transfer and diversification services, while insurance brokers and insurance agents are responsible for selling insurance products and services.
The global insurance industry as a whole is showing a steady growth trend. Douglas Insights predicts that by 2030, the compound annual growth rate (CAGR) will reach 3.5%. The major insurance revenue generating regions include North America, Asia Pacific (including China and India), and Western Europe, which together account for the majority of the global revenue. North American insurers are impacted by the increased costs of environmental hazards such as hurricanes and wildfires, while also facing the challenges of rising interest rates and lower investment returns. However, insurers in the Asia-Pacific region will experience strong growth due to increased demand from emerging economies such as China and India. Insurers in Western Europe will see higher revenues from life insurance products due to increased demand from an aging population, but they may face challenges related to Brexit negotiations, which could affect investor confidence and reduce overall demand for financial services.
Figure insurance operation structure
Source: Asset Information Network Qianji Investment Bank
In China, insurance is divided into personal insurance and property insurance, and the institutions are classified as the State Administration of Financial Management, the self-regulatory organization Insurance Industry Association and the Insurance Asset Management Association, and the operating companies are life insurance companies, property insurance companies, and reinsurance companies, etc., intermediaries The company has insurance brokers and insurance agents, insurance adjustment companies, insurance exchanges, etc.
Figure traditional classification of insurance
Source: Asset Information Network Qianji Investment Bank
The China Banking and Insurance Regulatory Commission announced the operation of the insurance industry in 2022 on January 28, 2023. Overall, the original premium income of the insurance industry for the year was 46.96 trillion yuan, a year-on-year increase of 4.6%. The property insurance business and life insurance business achieved original premium income of 12.71 trillion yuan and 34.25 trillion yuan respectively, a year-on-year increase of 8.9% and 3.1% respectively. In the personal insurance business, the original premium income of life insurance and health insurance both increased by 4.0% and 2.4% respectively, while the original premium income of personal accident insurance decreased by 11.3% year-on-year.
In 2022, the quality and efficiency of the insurance industry serving the economy and society will be improved, and the insurance protection function will be further strengthened. The insurance industry underwrote about 55.38 billion policies, a year-on-year increase of 13.3%, and realized an insurance amount of nearly 136.787 trillion yuan, a year-on-year increase of 12.6%.
In terms of company type statistics, the original premium income of property insurance companies in 2022 will be 14.87 trillion yuan, a year-on-year increase of 8.7%. Except for accident insurance, the original premium income of other types of insurance has achieved positive growth. Among them, the growth of home insurance is the most significant, up 67.3% year-on-year, agricultural insurance up 24.9%, health insurance up 14.7%, liability insurance up 12.8%, auto insurance up 5.6%.
In terms of personal insurance companies, the original premium income realized in 2022 will be 32.09 trillion yuan, a year-on-year increase of 2.8%. The original premium income of life insurance and health insurance increased by 4.0% and 0.1% year-on-year, respectively, while the original premium income of accident insurance decreased by 14.4% year-on-year.
Notably, the 2022 figures show that the insurance industry is returning to its original core. The new premiums for the investment funds of policyholders of life insurance companies and the new premiums for independent accounts of investment-linked insurance both decreased significantly, with a year-on-year decrease of 13.2% and 68.2% respectively.
Chapter 2 Business Model and Technology Development
2.1 Industry chain
The industrial chain of the insurance industry can be roughly divided into the following links:
- Insurance product design and pricing: This is the very beginning of the industry chain, including the design and pricing of insurance products. Insurance companies need to conduct a lot of risk analysis and statistical research to determine the coverage and premium price of insurance products.
- Insurance Sales and Marketing: This segment includes marketing insurance products to potential customers through various channels such as through insurance agents, insurance brokers, direct sales, online sales, etc.
- Insurance underwriting: When a customer purchases an insurance product, the insurance company needs to evaluate the customer's risk, decide whether to accept the underwriting, and determine the terms and price of the insurance.
- Insurance claims: When an insurance event (such as an accident, disease, disaster, etc.) occurs, the insurance company needs to process the customer's claim, including assessing the loss and determining the amount of compensation.
- Reinsurance: In order to diversify risks, insurance companies usually transfer part of the risks to reinsurers. Reinsurance companies play the role of risk transfer and stabilization of the insurance market in the industrial chain.
- Investment management: The premium collected by insurance companies will be invested to obtain income when no insurance event occurs. Therefore, investment management is also an important part of the insurance industry chain.
All of the above links are inseparable from various service supports, including IT system support, customer service, legal and compliance support, human resource management, etc.
It should be noted that with the advancement of technology, the industrial chain of the insurance industry is changing. For example, the application of digitization and big data technology makes the pricing and sales of insurance products more accurate, and the insurance claims process is more efficient; and the rise of insurance technology (Insurtech) companies is also challenging the traditional insurance industry chain, introducing new Business model and service model.
Figure industry main concern indicators
Source: Asset Information Network Qianji Investment Bank
Figure new business value structure split
Source: Asset Information Network Qianji Investment Bank
Figure insurance industry marketing strategy
Source: Asset Information Network Qianji Investment Bank
Value of Figure Insurance Group
Source: Asset Information Network Qianji Investment Bank
Sales company: three elements of channel/product/customer In terms of sales, insurance companies used to rely more on channels, such as vigorously building individual insurance channels, etc., but now rely more on product design and innovation. In the future, driven by consumption upgrades, the value of individual customers will increase , Insurance companies will focus more on customer value.
Map channel/product/customer three elements
Source: Asset Information Network Qianji Investment Bank
Operating companies: high-quality management forms a premium. Under the rough development model in the past, scale wins, but now insurance companies focus on quality. For example, the increase in per capita production capacity is greater than the increase in the number of salespersons. The importance of management and secondary development of customers is increasing, and customer migration Create more value, and companies with better management will have more stable performance growth and can enjoy a value premium.
Investment companies: Diversified investment structure The investment structure of the insurance industry is more diversified.
Capital companies: Capital strategic management. Insurance companies pay attention to the strategic management of capital and the growth of embedded value. As a unique indicator of "net assets" of insurance companies, the steady growth of embedded value means the growth of the insurance company's capital strength and the improvement of its ability to resist risks.
Key Drivers of Embedded Value Growth
Source: Asset Information Network Qianji Investment Bank
2.2 Business model
The business model of the insurance industry basically involves collecting premiums, investing them to generate income, and then paying compensation in the event of a claim. Here are some key steps:
- Insurance Sales: Insurance companies sell insurance products to customers through direct sales, brokers, agents, etc. Customers can choose to purchase various types of insurance, including auto insurance, home insurance, life insurance, health insurance, and more.
- Premium Collection: When customers purchase insurance, they are required to pay premiums to the insurance company on a regular basis (usually monthly or annually). These premiums constitute the main source of income for insurance companies.
- Risk assessment: Insurers need to assess the risk they are willing to take and how much premium they need to charge for it. This often involves complex statistical analysis and modeling.
- Investment activities: Insurance companies usually invest the premiums received in different assets (such as stocks, bonds, etc.) to obtain investment income. This is another important source of income for insurance companies.
- Compensation payment: When an insurance event (such as accident, disease, natural disaster, etc.) occurs, the insurance company needs to pay compensation to the customer according to the terms of the insurance contract.
- Profit and loss management: An insurance company is profitable if its investment income and premium income exceed claims and operating costs. Conversely, if claims and operating costs exceed investment income and premium income, the insurance company loses money.
It is worth noting that with the development of technology, the business model of the insurance industry is also changing. For example, through big data and artificial intelligence technology, insurance companies can conduct risk assessment and pricing more accurately, and provide more personalized products and services. In addition, more and more insurance companies have begun to sell insurance products online to provide a more convenient customer experience1.
The profit model of insurance companies is driven by two wheels. Premium income and investment income have become the driving force for the company's performance. The profit-making effect of insurance premium income will be able to resist the impact on net assets caused by the decline in investment income. The risk is due to the characteristics of the high proportion of equity assets. When the market undergoes a deep adjustment, the profit-making effect of premium income cannot be reflected.
Figure insurance business model
Source: Asset Information Network Qianji Investment Bank
2.3 Technology Development
The insurance industry is undergoing profound changes in which technological developments play a key role. The following are some of the key technology trends impacting the insurance industry:
- Data analysis: Data is the lifeline of the insurance industry. Data analysis can help insurance companies better understand customer needs, predict risks and optimize pricing strategies, which has had a major impact on the insurance industry.
- Blockchain technology: As a decentralized database technology, blockchain can improve the transparency of the insurance business, while reducing costs and improving efficiency by automating the claims and payment process.
- Artificial Intelligence (AI) and Machine Learning (ML): These technologies are being used to automate claims processing, risk assessment, and customer service, reducing costs, improving the customer experience, and streamlining operations.
- Internet of Things (IoT): By gathering data about policyholder behavior and circumstances, IoT technologies are changing the way risk is assessed and insurance is priced.
- Insurtech: This refers to start-up companies that apply innovative technologies to improve the efficiency of the insurance industry. These companies are driving innovation in the insurance industry and helping larger insurers innovate through the use of new data analytics tools, customer relationship management platforms, and automation tools.
Diagram of the Technical Dimensions of InsurTech
Source: Asset Information Network Qianji Investment Bank
These technological trends are changing the way the insurance industry operates, making it more customer-centric and providing the industry with more opportunities for growth and innovation. However, although these technologies bring many opportunities to the insurance industry, they also bring new challenges, including how to protect the privacy of customer data, how to deal with the rapid development of technology, and how to carry out effective risk management and other issues.
2.4 Policy Supervision
The administrative supervision department of the insurance industry is the State Administration of Financial Supervision and Administration, and the self-regulatory organizations include the Insurance Association of China and the Insurance Asset Management Association.
From a global perspective, the basic form of self-regulatory organizations in the insurance industry is the insurance industry association or the insurance industry association. It is an organization organized and voluntarily participated by various insurers.
policy
- In September 2015, the China Insurance Regulatory Commission announced the "Interim Measures for the Administration of Internet Insurance Business" to regulate the Internet insurance market and escort its healthy and sustainable development.
- In July 2019, the China Insurance Regulatory Commission issued the "Notice on Relevant Issues Concerning Strengthening the Governance Mechanism of Insurance Companies during the Preparatory Period", encouraging insurance companies to use Internet technologies such as big data and cloud computing to innovate insurance products, transform business models, and optimize business processes to make them more effective. integrate into and serve the development of the Internet economy. .
- In November 2019, the China Banking and Insurance Regulatory Commission issued the "Measures for the Supervision and Evaluation of Corporate Governance of Banking and Insurance Institutions (Trial)", which evaluated the corporate governance of banking and insurance institutions from eight aspects.
- In January 2020, the "Guiding Opinions of the China Banking and Insurance Regulatory Commission on Promoting the High-Quality Development of the Banking and Insurance Industry" issued by the China Banking and Insurance Regulatory Commission clearly stated that by 2025, the financial structure will be more optimized and a multi-level, wide-coverage, and differentiated bancassurance will be formed. institutional system.
Chapter 3 Industry Valuation, Pricing Mechanism and Global Leading Enterprises
3.1 Comprehensive financial analysis and valuation methods of the industry
Comprehensive financial analysis is an important means to evaluate the company's financial status and operating efficiency. For insurance companies, such analysis usually includes the following aspects:
- Income and profit analysis: including the analysis of insurance premium income, investment income, profit, etc. Analysts look at whether the insurance company's total revenue is growing, whether profit margins are stabilizing or improving, and the company's expense efficiency. In addition, for insurance companies, investment income is also one of the important sources of income, so the rate of return on investment is also an important evaluation indicator.
- Solvency Analysis: The solvency of an insurance company is the key to its long-term survival and development. Solvency analysis focuses on the liabilities and net assets of an insurance company, and the matching between assets and liabilities. In addition, the reserve adequacy of an insurance company is also an important factor in evaluating its solvency.
- Risk management analysis: Insurance business is essentially risk management. Analysts will focus on the insurance company's risk management strategy, including how it evaluates and prices risk, and how it spreads risk through means such as reinsurance.
- Liquidity Analysis: Insurance companies need sufficient cash flow to pay policyholders for claims and surrenders. Therefore, analysts pay attention to the cash flow situation of insurance companies, including the timing and amount of cash inflows and outflows.
- Profitability analysis: This is usually done by looking at financial ratios such as net profit margin, return on investment, return on total assets, etc.
Each insurance company may have its specific business model and risk management strategy, so it is necessary to consider the company's specific circumstances when conducting comprehensive financial analysis. At the same time, the financial status of an insurance company will also be affected by external factors such as the macroeconomic environment and regulatory policies, which also need to be considered in the analysis.
Figure Comprehensive Financial Analysis
Figure Industry Valuation and Historical Comparison
Source: Qianji Investment Bank iFinD
Valuation methods of the insurance industry can choose price-earnings ratio valuation method, PEG valuation method, price-to-book ratio valuation method, price-to-cash ratio, P/S price-to-sales ratio valuation method, EV/Sales market-to-sales ratio valuation method, RNAV weighted valuation method, etc. Net asset valuation method, EV/EBITDA valuation method, DDM valuation method, DCF discounted cash flow valuation method, NAV net asset value valuation method, etc.
3.2 Industry Development
The global insurance industry is a large and growing industry covering various types of insurance products and services.
- Market size and growth: The global insurance market is huge and its value is usually measured in terms of original premium income and insurance contract value. According to forecasts, the global insurance market will maintain steady growth in the coming years. This is primarily driven by the growing middle class and rising insurance awareness in emerging markets.
- Regional distribution: The global insurance market shows different developments in different regions. Key insurance markets include North America, Europe and Asia Pacific. The Asia-Pacific region has experienced strong growth over the past few years, especially in emerging markets such as China and India. The insurance markets in North America and Europe are relatively mature, but still maintain steady growth.
- Technological change: The global insurance industry is undergoing digital and technological innovation. Technologies such as big data analysis, artificial intelligence, and the Internet of Things are being widely used in the insurance business to improve the efficiency and quality of risk assessment, claims processing, and customer service.
- Product Diversity: The insurance industry provides various types of insurance products, covering property insurance, life insurance, health insurance, auto insurance, travel insurance, etc. Different insurance products meet people's different risk protection needs, as well as their needs for investment, pension and education.
- Sustainability and social responsibility: The global insurance industry is increasingly focusing on sustainability and social responsibility. Insurance companies are actively participating in efforts to tackle climate change, promote sustainable investment, and support social welfare undertakings.
- Regulation and Compliance: The insurance industry is subject to stringent regulatory and compliance requirements across the globe. Regulators supervise and supervise insurance companies in terms of capital adequacy, risk management and consumer protection.
China's insurance industry has developed rapidly over the past few decades, becoming one of the largest insurance markets in the world.
- Market size and growth: China's insurance market is huge, and demand for insurance continues to grow as people's awareness of risk protection increases and the middle class expands. China's insurance market has maintained a high growth rate in the past few years, and it is expected to maintain stable growth in the future.
- Policy support: The Chinese government has been committed to promoting the development of the insurance industry and has issued a series of policies and regulations to support and regulate the development of the industry. Policy support includes relaxing market access for foreign-funded insurance companies, encouraging the development of innovative products, and strengthening supervision.
- Technological innovation: China's insurance industry has made important progress in technological innovation. The popularity of the Internet and mobile technology has made online insurance sales and claims settlement more convenient and efficient. Technologies such as big data analysis, artificial intelligence, and blockchain are also widely used in the insurance business, improving capabilities in risk assessment, product pricing, and customer service.
- Diversified products: China's insurance market provides a wide range of products and services, including property insurance, personal insurance, health insurance, auto insurance, agricultural insurance, etc. With the improvement of people's income level and the enhancement of risk awareness, different types of insurance products have been widely demanded.
- Insurance channel innovation: The innovation of insurance sales channels is also promoting the development of China's insurance industry. In addition to the traditional channels of insurance agents and banks, the rise of new channels such as Internet platforms, mobile applications and direct sales models has provided consumers with more choices and convenience.
- Driven by financial technology: The development of financial technology (FinTech) has had an important impact on China's insurance industry. The emergence of insurance technology companies (InsurTech) has brought new opportunities and challenges to the insurance industry through innovative technologies and business models.
- Sustainable Development and Social Responsibility: China's insurance companies are increasingly focusing on sustainable development and social responsibility. Insurance companies actively participate in social welfare undertakings, promote sustainable investment, and support environmental protection.
The development of China's insurance industry still faces some challenges, such as the improvement of risk management capabilities, the strengthening of compliance and supervision, and the establishment of customer trust. However, with economic growth, increased awareness of insurance, and the advancement of technology, China's insurance industry is expected to continue to develop rapidly and provide individuals and businesses with more effective risk protection and financial protection.
3.3 Driving factors
- Return on equity investment: From the perspective of investment, the investment targets of insurance companies are mainly fixed-income assets and equity assets.
- Interest rate: The rise in interest rates brought about by the improvement in economic expectations will help insurance stocks get out of the independent market.
- Industry policy dividend: If the policy dividend can bring a decisive inflection point to the investment side and liability side of insurance companies, it will easily trigger an independent market.
Figure driving factors of insurance company stock price
Source: Asset Information Network Qianji Investment Bank
3.4 Competition Analysis
According to the "Insurance Institution Legal Person List" published by the China Banking and Insurance Regulatory Commission on March 20, 2023, as of the end of December 2022, there are 237 insurance institution legal persons that have registered with the China Banking and Insurance Regulatory Commission and have relevant information disclosed. Among them, there are 13 insurance group (holding) companies, 1 policy insurance company, 88 property insurance companies, 7 reinsurance companies, 75 life insurance companies, 10 pension insurance companies, 7 health insurance companies, and 33 asset management companies , and 3 others.
Figure insurance industry research system
Source: Asset Information Network Qianji Investment Bank
Life insurance companies: The market structure of life insurance companies has changed a lot. Under the market background of stricter supervision and increased competition, the requirements for the company's core competitiveness have increased, and the degree of market concentration has declined.
Property insurance companies: The market competition pattern of property insurance companies has not changed much, and the degree of industry concentration is still relatively high.
Figure Insurance premium income growth chart
Source: Asset Information Network Qianji Investment Bank
Figure Long-term protection products have the highest rate of new business value
Source: Asset Information Network Qianji Investment Bank
Figure retail business is the core driver of profit (Taking Ping An as an example)
Source: Asset Information Network Qianji Investment Bank
Analysis of Porter's Five Forces Model
Existing competition in the industry: The overall competition pattern of the insurance industry is still stagnant at a relatively low level of competition for business and market.
Potential entrants: The insurance industry is known as a sunrise industry and is valued by domestic social capital. Many diversified financial institutions want to get a share of the insurance industry. In recent years, after nearly 20 insurance companies have been approved by the China Insurance Regulatory Commission, there are still more than 200 Companies are waiting in line. According to the theory of financial institutions and market development, while industry capital continues to gather, the possibility of financial risks is also increasing. The entry barriers of the insurance industry are also constantly increasing, so potential entrants pose little threat to the insurance industry.
Substitutes: On the one hand, insurance products are regarded as a means of investment and financial management, including bank deposits and various investment financial products can be used as substitutes. On the other hand, as a safeguard mechanism, China's population is aging day by day. There are no highly competitive alternatives in the insurance industry.
Bargaining power of suppliers: The market structure of oligopoly in the insurance industry has gradually been broken, and the current degree of domestic monopoly is relatively low. As an industry that provides services and contractual products, it does not require too much input of material elements, that is, it does not require material resources. The market is always in a buyer's market where supply exceeds demand, and suppliers have weak bargaining power.
Bargaining power of buyers: On the one hand, the main buyers of insurance products and services are the general public. Although due to the improvement of living standards and family economic conditions in my country in recent years, the awareness of insurance has continued to increase, but the vast majority of consumers are interested in insurance products. The lack of professional knowledge prevents finding the insurance product that best suits individual circumstances, which reduces the bargaining power of buyers to a certain extent. In the insurance business, buyers are relatively active.
3.5 Important participating enterprises
Every year, Brand Finance, a leading brand valuation consultancy, tests the 5,000 largest brands and publishes more than 100 reports ranking brands across all industries and countries. 100 of the world's most valuable and powerful insurance brands are included in the annual Brand Finance Insurance 100 rankings.
Among the top 10 global insurance brand values in 2023, the top three are China Ping An, Allianz and China Life.
Chapter 4 Future Outlook
The insurance industry is undergoing profound changes, not only from digital transformation, but also from factors such as severe market conditions, high demands from consumers, and innovations from new market participants. These changes not only bring challenges, but also provide new opportunities and sources of growth for the insurance industry.
Modern consumers are very different from their parents and grandparents, and their needs, knowledge and expectations have grown exponentially over the past decade. The deep integration of technology into our daily lives has created a new type of consumer: the digital native. The insurance industry must prioritize digital experiences to adapt to this change.
By 2024, according to Deloitte's forecast, 33% of insurance premiums will come from brand new products. This means that the insurance industry is rapidly shifting from product-driven to service-driven, providing consumers with a comprehensive experience. This also means that advanced technologies such as artificial intelligence, Internet of Things and big data are rapidly maturing and will play an important role in the future development of the insurance industry.
The culture of the insurance industry is also shifting from tradition to innovation. To fuel their digital transformation initiatives and meet the demands of modern consumers, insurers are today early adopters of the latest technologies. The entry of digital-first insurers and tech giants into the insurance space has been one of the forces driving a shift towards innovative thinking across the industry.
Personalization is the key word of the future. Laser-focused personalization capabilities emerge as the new competitive advantage for customer acquisition and retention in 2021 and beyond. From the moment a potential customer lands on an insurance company's website, insurers need to leverage the vast amount of user data they have to enhance the customer experience. In the digital world, offering personalized, just-right offers is a major driver of conversions.
Customer interactions with insurance companies have become a customer journey. Insurers must deliver engaging, personalized journeys every step of the way to build deeper customer relationships. We are entering a new era of innovation and giant technological leaps in the insurance industry.
Cover Photo by Robert Collins on Unsplash