Addressing Middle Class Anxieties: The International and Insurance Angle

Editor's Notes

1. Addressing Middle Class Anxieties: The International and Insurance Angle. Presented at the China Development Forum 2017. Economic Summit, 18th March 2017. Parallel Session 2, 11:00 – 12:00 noon. Venue IV, Tackling the Anxieties of the Middle-Income Group. Dr. Mark Konyn, Group Chief Investment Officer, AIA Group.
2. Slide 2. Disclaimer.
3. Slide 3. Outline. It is a pleasure to be here today. In my brief talk, I will cover four points. The International Context. The middle class in China should be viewed through an Asian, rather than American or Latin American lens. AIA has conducted extensive surveys of the middle class across Asia and they are relatively happy and new to middle class wealth. Insurance within the Asian context is developing as a means to relieve middle class anxiety as it provides peace of mind and financial planning skills. The insurance market in China will continue to develop on a positive trajectory, as it has elsewhere in North Asia.
4. Slide 4. International Context. The idea of China being stuck in a “middle income” trap is popular among economists both here in China and overseas. China’s development trajectory, however, per the two slides above from Professor Wing Thye WOO, is consistent with the North Asian pattern of rapid growth, followed by stable growth in real incomes, as opposed to the more classic “middle income trap” pattern of stagnant income growth seen in most of Latin America. The middle class in China is the first generation to enjoy relatively high, middle class levels of wealth, similar to the rest of North Asia where the middle class is also relatively young, being first, second or third generation middle class, whereas the middle class in Latin America or the US or UK has been well established for several generations. Thus, the appropriate lens through which to view China’s middle class is an Asian one.
5. Slide 5. AIA Asian Middle Class Survey. AIA, a regional life insurer based exclusively in Asia, has conducted a series of survey of middle class values in the region in an attempt to understand their concerns about wealth, health, financial goals, and well-being. The two charts from the studies above show that China’s middle class is very similar to the rest of North Asia, specifically Hong Kong, Taiwan and Korea in terms of goals in life. Moreover, China’s middle class, being relatively younger, is more confident in its new found wealth.
6. Slide 6. Insurance: A Means to Relieve Middle Class Anxiety. Our survey research, however, did reveal middle class anxieties in China. Many of them had to do with concerns about the future which was reflected in relatively high levels of precautionary savings among Chinese households. As with the rest of Asia, much of these savings are deployed in low-yield, short –term bank deposits, which do little to address middle class concerns, let along help develop China’s financial services industry. Insurance has four roles to play for a first generation middle class society like China. 1. It encourages investment through its provision of financial security. 2. It mobilizes savings directly and deploys them in long term investments consistent with a life insurer’s liability profile. 3. It eases the middle class dilemma (how will my family cope financially in the future). 4. It allows investments to become more productive raising the wealth of the accumulating middle class. All of this functions like a self-perpetuating virtuous circle. And to be honest, the virtuous circle could lose a little kick-start to promote innovation and competition.
7. Slide 7. China Insurance Market: Optimistic Outlook. From the perspective of an Asian life insurer, the outlook for China’s middle class is quite positive. Looking at international data, we can see China as following the regional trajectory of increasing demand for life insurance as more and more people enter the middle class. To maintain this pattern of growth, however, China should consider the rest of the North Asian experience. Fair market competition and a relatively open insurance market has helped those economies grow their insurance market and, consequently relieve middle class anxieties while also developing the financial services industry. China’s life insurance industry continues to be shielded from international competition. This prevents leading global companies from introducing innovative new products from other markets. But, it also unnecessarily shelters Chinese domestic firms from global competition such that they are ill prepared to expand abroad. In conclusion, while the Chinese middle class is relatively secure in its wealth, health, and well-being, it will continue to see an increase in demand for life insurance protection. Opening up the insurance sector would promote the industry as a whole as well as its ability to meet anxieties facing China’s growing middle class.