China’s insurance industry has imposed a ban on selling low-cost policies covering Covid-19 infections as it tries to avoid huge payouts and disputes from the coming wave of lawsuits stemming from Beijing’s relaxation of strict zero-Covid policies.
Waterdrop, China’s largest third-party online insurance platform, this week shelved all policies related to Covid-19, while a popular product from China Continent Insurance pays up to Rmb1,500 ($215) to policyholders who test positive for Covid. No longer available in search listings.
Similar low-cost Covid policies from Alibaba and Tencent-backed ZhongAn Online P&C Insurance and medium-sized Yong An Insurance have also been removed from current product offerings.
These measures reflect fears of financial stress in the future. The sector’s average solvency ratio, a key measure of an insurer’s ability to service its debt, stood at an adequate 212 percent at the end of September, according to official data. However, uncertainty over outstanding liabilities for sold Covid policies is casting a shadow over the sector.
“It’s a prudent move for insurers to take products off the shelves . . . before bringing out new forms of these products at reasonable prices,” Moody’s analyst Kelvin Kwok said. Chinese insurers may have noticed what happened there and moved quickly before the spike in confirmed cases.
A rapid increase in infections has forced at least four Thai insurers into bankruptcy after suffering losses from overselling low-cost Covid policies. Taiwanese insurers are receiving more than $1bn in claims this year from premiums.
China paid out only Rmb439mn for Covid-related policies in mid-May, when infections were relatively under control, according to data from the Insurance Association of China. This represents a small fraction of China’s insurance industry’s net assets of Rmb27tn.
However, the Quick exit from zero-covid policies The risk model for such products is changing, and disputes over rejection of claims or cancellation of policies are expected.
“There is a lot of uncertainty in the interpretations of policy terms, and the coverage offered by Chinese insurers is very nuanced and strict,” said Kwok, adding that there is a lack of published data to assess the true impact on insurers.
“I want to have a policy that pays payouts until I test positive,” said Bob Min, a self-employed worker in his thirties. “It seems like a high-return investment because I’m sure I’ll get it.”
Min is considering a request for an “isolated” policy he bought from ZhongAn earlier this year. The policy provides subsidies to those affected by Covid. “The regulations are not clear, so I have the opportunity to argue for higher payments,” Min said.
A local insurance regulator in Beijing has successfully sought approval for several insurers to stop selling certain Covid-related products. “It is difficult for them to remain profitable even with a substantial increase in premiums,” the official said.
The sector’s regulatory body, the China Banking and Insurance Regulatory Commission (CBIRC), did not immediately respond to requests for comment. In a December announcement, CBIRC’s Beijing branch urged insurance groups to speed up the creation of affordable insurance policies to protect people from the associated costs of severe symptoms and deaths from Covid-19.
“The regulatory mandate is that insurers must offer insurance products targeting areas that are not adequately covered by public funding, but that does not mean they are asking insurers to bear more risk in paying out,” Moody’s said.
“It’s a business decision,” said a senior manager of a medium-sized insurance company. “We can come back with new policies that specialize in covering the costs of Covid-induced medical problems or deaths.”
“But with massive infections coming, we can’t afford countless payouts to those who test positive.”