China's life insurance market has taken a big step forward in its scientific approach to management and standardisation with policy premiums based on an official mortality table. The recent order by the country's chief financial regulator, the People's Bank of China, that life insurers base their premium calculations for new policies on the country's first life insurance mortality table, became effective from June. The industry has been concerned about the fairness and transparency of premium calculation. Deputy general manager of the Tai Ping Life Insurance's Hong Kong branch, Li Zhenghuai , said: 'We need to have a standard mortality table if we are to strengthen the supervision and self-discipline in the industry.' The premium calculation based on the new mortality table would be more reasonable and scientific, he said. Mr Li is the former head of the actuarial department of mainland insurance monolith People's Insurance Company of China, the parent of Tai Ping, responsible for compiling the table. The table was completed last year, based on an observed period between 1990 and 1993, and laid the foundation for the development of the life insurance actuary system in China, he said. Based on more than eight million policies, the study showed the average life expectancy of a man was 73.6 years and 77.7 years for a woman. This compared with 72.01 for the mixed category of male and female in the Japanese mortality table, which China used previously. Mr Li said the life expectancy for both sexes in the new table was about five years longer than that shown in the country's 1990 census, as policy holders were usually city and town dwellers whose health and living conditions were better than residents in rural areas. Most policy holders in China were better off and would take out endowment plans which contained a savings element. Mr Li said using this table would see an average of 20 per cent cut in premiums for term plans, which require the insurer to pay policy holders upon their death, and hence the mortality rate had a heavier weighting in premium calculation. Longer life expectancy would mean lower premiums. Mr Li said the new policy might affect the profitability of life insurance companies but the impact would be minimal as the efficiency in investments by those companies would have a greater bearing on its profitability. Term plans, where premium level is more affected by the change, account for a small proportion of total life insurance policies. The change would extend to all old policies from April 1 next year. Mr Li said one of the problems with life insurance companies was the lack of experience and efficiency in their operation and asset management.
