In the English-speaking world, relatively little is known about microinsurance in China. What is the market like? How is microinsurance defined in China? Poverty in China is mainly concentrated in rural areas, where over 500 million people reside. What role is microinsurance playing in achieving China's target to eliminate rural poverty by the year 2020?
Our team had similar questions when we began working in Shaanxi province to develop microinsurance and broader risk management solutions for rural, low-income populations as part of an International Fund for Agricultural Development (IFAD) funded project. Connecting with experts and practitioners along the way has helped answer these questions and fill gaps in our knowledge. One expert on rural microinsurance in China is associate professor Yi Yao (Kitty) from the Department of Risk Management and Insurance at Peking University. We recently sat down with her to capture her insight on microinsurance in China, its link to rural development and poverty alleviation, and what the next 10 years might look like for the market.
Q&A with rural microinsurance expert Dr. Yi Yao (Kitty)
Q: You have done extensive research into the topic and are clearly an expert in microinsurance. What inspired you to explore this area of work?
A: The Chinese word “economy” originated from a famous idiom called “经世济民” (jīng shì jì mín), which suggests that a prosperous society is not only about the commercial aspects but also the financial well-being of everyone being looked after. Microinsurance (insurance for the lower income people with premiums related to the level of risk) to me is a perfect case in point that reflects this concept – striking a balance between a social-driven outcome as well as creating a sustainable business. I trust that microinsurance is able to make an impact on those who are in need in our society whilst being financially sustainable. For microinsurance to succeed, we must innovate from all aspects, whether that is distribution, claims, or risk assessment. Moreover, through working in this field, I have had the privilege to meet many practitioners who are serious, passionate, creative, and persistent.
Q: You have recently published a book titled “Microinsurance: Progress in theory and lessons from practice.” What message do you hope for your audience to get from it?
A: There has been a great amount of research done on microinsurance practices globally, but the voice of microinsurance is still relatively small in China. I hope that my book can be a useful resource and tool to those who are interested in this topic in my country. I also believe that as pioneers to this field in China, we must promote the current developments within the microinsurance field, and more importantly, how microinsurance can be a potential contributor to solving poverty challenges experienced in our country.
Q: Can you provide some examples of successful microinsurance products that have reached rural low-income populations in China? What do you think makes a microinsurance product successful in the Chinese context?
A: There are two successful cases that I would like to mention: the first is the Wangcang Model (Sichuan province) and the other one is the Huangmei Model (Hubei province).
The Wangcang Model was an initiative jointly implemented by China Life Insurance and Wangcang County Government as part of the “poverty alleviation microinsurance” pilot program in mid-2011. The product offered was a bundled term life and accident insurance with micro-loans. We saw quick penetration of this product with low-income population.
The Huangmei Model was supplemental health insurance offered in conjunction with the government’s New Rural Medical Scheme by China Pacific Life Insurance Company.
The similarity between the two successful models mentioned above is the essential partnership with government. In the Wangcang case, China Life managed to cooperate with the government starting from day one. The coverage rate (number of people covered divided by the total population) of microinsurance was even written in the government official’s annual working plan and was given 5% proportionate importance in its year-end promotion evaluation. As a result, the government officials were fully motivated in promoting this product.
The Huangmei case, as a supplemental cover to the public scheme, has been of great importance as a support to the public scheme. In the China context, the government’s involvement is a must in microinsurance, at least for now. This is especially true for micro health insurance and agricultural insurance. Moreover, public-private partnership is a key to success in microinsurance.
Q: In the last decade, China – the world’s second largest economy – experienced tremendous growth, but millions of people continue to live below the poverty line, particularly in rural areas. How do you see microinsurance (both public and private insurance) playing a role in the development of the country, especially in rural communities?
A: Poverty in China largely refers to the rural populations who are concentrated in remote and mountainous areas. By the end of 2018, there were still 16.6 million people under poverty line. The Chinese government is now attaching an unprecedented high-level emphasis on poverty eradication. There is a strategic plan to achieving poverty elimination by 2020. As a result, much of the attention regarding microinsurance has moved to poverty reduction insurance, i.e., public insurance protection for poor households where premiums are paid for by the government (inclusive of universal health, micro-accident programs, and premium subsidies for certain crops). These protections play an important role in the development of rural communities, and I am certain we will see great benefits to be reaped for these rural poor households.
Q: How do you see commercial microinsurance fitting into the current poverty alleviation drive from the Chinese government?
A: Whilst public insurance is currently dominating in the pro-poor segment, I do not believe that this is the status in the long run. When poverty is eliminated by 2020, I believe that there will be more space for commercialized microinsurance products to fit in. After all, the government cannot subsidize premium forever.
Q: What are some of the emerging trends and promising innovations that you are seeing in microinsurance sectors in China?
A: We see that poverty reduction insurance has been working hand in hand with technology, making it part of its product. A case in point is fraud detection. An insurance company can access the same information via both the poverty reduction insurance and public health scheme, and thus management costs can be reduced by applying the same auto fraud detect system. We have been seeing effective examples of driving the cost down dramatically in schemes in Ganzhou, Jiangxi province.
Q: Do you see the Chinese central government and the regulator as supportive of microinsurance innovations and development? What is unique about the Chinese microinsurance market compared to other markets you have researched?
A: Government plays a vital role in China. In China, we have a limited amount of community-based microinsurance and few mutuals. Most major insurance companies are state-owned or controlled. At this stage, microinsurance is not a profitable business in China, and therefore needs to be supported and carried out by these major insurers (as opposed to grassroots organizations).
As to the regulator, in general they are open to microinsurance and innovations. For example, the bar for establishing a mutual company targeting agricultural sector and the low-income population is much lower than in the general case. But with the merger of China Insurance Regulatory Commission (CIRC) and China Banking Regulatory Commission (CBRC) into China Banking and Insurance Regulatory Commission last year, the direction of future reform is still unclear at this moment.
Q: What’s next for microinsurance in China? With the massive disruptions triggered by insurtech players in the Chinese online ecosystems, how do you see microinsurance evolving in the next 10 years?
A: New technology is strong in China and is shaping people’s behavior rapidly. With the rapid development of Alipay and Wepay in the last five years, now in many cities in China, people don’t carry their purses anymore. Cell phones are everything. It’s possible that certain innovations could boost microinsurance for certain lines, but still it’s difficult because the target populations are not exactly the ones who are familiar with technology changes. I think there is still a long way to go, especially given the recent merger of CBRC and CIRC, and microinsurance is clearly not the top priority at this moment.
The MIC@M is working in Shaanxi as part of a grant for the UN’s International Fund for Agricultural Development (IFAD) titled “Managing risks for rural development: Promoting microinsurance innovations.” We will continue to share knowledge and information from this project on our blog and social media channels. For more information on IFAD's work in insurance and risk management, click here.