1. Understanding the Changing Life Insurance Market in China Walter H
Understanding the Changing Life Insurance Market in China Walter H. Zultowski, Ph.D. WZ Research + Consulting, LLC SOA Life & Annuity Symposium May 19, 2014
Good afternoon
Welcome to our session entitled “Understanding the Changing Life Insurance Market in China
In this session we will share the results of a consumer survey conducted in China, and sponsored by the Society of Actuaries

2. IV. Market Segmentation Results V. Application of the Research
I. Background
II. Methodology
III. General Findings
IV. Market Segmentation Results
V. Application of the Research
Our presentation will comprise five parts
First, we’ll share a little of the context in which this research was conducted
Second, you’ll hear about how the research was specifically conducted
Third, we’ll discuss some of the general findings
Fourth, we’ll discuss the market segmentation results, and
Finally, we’ll talk about how this research can be applied in the marketing function

3. I. Background
First, a brief discussion of the context in which this research was conducted

4. The economy of China has changed dramatically
Growing middle class
Greater urbanization of the population
Concurrently, life insurance is changing
Traditionally, discussion of death was taboo
Most life insurance was endowment, savings-oriented products
Largely sold through banks
The life insurance business is changing
Emergence of death-protection products
Expansion of distribution channels
Simply put, the economy of China has changed dramatically in recent decades, and continues to change. Two manifestations of this change have been a growing middle class and greater urbanization of the country’s population
With the discussion of death traditionally taboo in the country, life insurance was once primarily a savings-oriented product, and largely sold through banks
But today the business is changing with more death protection-oriented products appearing in the market, and a wider range of distribution channels available to the consumer to purchase the product 4

5. Purpose of the research
Document the changing life insurance business in China
Apply market segmentation methods to understand today’s life insurance consumer in the country
A “First of Its Kind” such study in China
Up until now most life insurance market research has been census data and/or general attitudinal research
The purpose of this research was to document this changing life insurance business in China, and to understand some of the general attitudes and behaviors of today’s consumer of life insurance in the country.
More importantly, to identify different segments of the life insurance consumer. For it is suspected that, in a changing environment for life insurance, there will be different groups of consumers at different places of this change continuum. Understanding them, and being able to direct different products, messages, and distribution channels to them will be essential in effectively marketing to them.
We are also told that this is the first of its kind such research in China. Most market research to date has been based on census-type data, or is general attitude and behavior research. This is the first market segmentation study to be conducted in China. 5

6. This research was commissioned by the SOA, and funded by:
The International Section
The Marketing and Distribution Section
The Research Expanding Boundaries Pool
It was in this context that this research was commissioned by the SOA, and generously funded by the three sources shown here. 6

7. II. Methodology
So, let’s begin by telling you a little bit about the research itself

8. 1,989 completed surveys across 16 cities
18 minute, online questionnaire
Horizon Research (Beijing) conducted the data collection using their on-line panels
Mathew Greenwald & Associates conducted the data analysis
Data collected between December 6-15, 2013
The survey utilized in this study in this study was completed by just under 2,000 families across 16 cities in China.
It was administered on-line and took approximately 18 minutes to complete, and the data were collected in December of last year.
Horizon Research in Beijing conducted the fieldwork among members of its consumer panels, and the data was analyzed by Matthew Greenwald & Associates in Washington, DC. 8

9. Families selected for the study were: --Married couples -- Age 25 – 50
-- At least one child, age 0 – 18
-- Annual household income between RMB 60,000
and RMB 360,000 (Roughly 10,000–60,000 USD)
Since this was intended to e a study of the young, middle market, participants were selected with the following demographic characteristics.
Also, to ensure that there would be interest in the product category, participant households had to have an “insurable interest” in that household. This was defined either as a spouse and/or a child. 9

10. Cities Represented Beijing Shanghai Chengdu Sheuzen Chongquing
Shijiazhuang
Dalian
Tianjin
Guangzhou
Wuhai
Hangzhou
Xiamin
Jinan
Xi’an
Nanjing
Zheugzhou
Surveys were completed by approximately 125 families in each of these 16 cities
These cities were selected specifically to represent various sized metropolitan areas and geographic regions (i.e., east and middle/west)
This also enabled us to study geographic differences in the results 10

11. Caveats to the Research
An attempt was made to differentiate life insurance as a protection-oriented product from a savings-oriented product
Term “death benefit life insurance” was used
Didn’t differentiate as well as had been hoped because endowments typically have a death benefit component
Could have been some confusion in the respondents’ minds which may have washed out some of the results
[Read comments on the slide] 11

12. III. General Findings
Before diving into the market segmentation results, here are some general findings that emerged from the study.

13. How important is purchasing death benefit life insurance becoming to…
Your Community?
Your Children? 5% 6%
67%
27%
62%
First, we clearly confirmed that life insurance is undergoing change in the country.
As shown here, better than 6 out of 10 indicate that the concept of life insurance -- for death protection purposes -- is increasing in their community and will become more important to their children. 13

14. How important is it for a family to purchase death benefit life insurance to protect loved ones in the event of the insured’s death?
A similar finding emerges when we ask them about their attitude regarding the importance of life insurance for death protection purposes.
26% 14

15. “I use life insurance primarily for saving money.”
Strongly Agree
13%
Agree Somewhat
33%
Neutral
Somewhat Disagree
17%
Strongly Disagree 4%
46%
Yet despite the attitudes shown on the previous slides regarding the increasing role of life insurance as a death protection product, nearly half of our respondents state that they still use life insurance primarily for saving money.
Moreover, a full third are neutral regarding this statement.
Chinese middle market consumers may understand that the role of life insurance is changing and will continue to change in the future, but they haven’t necessarily internalized this change yet when it comes to their own views and behavior. 15

16. Life Insurance Ownership
Percentage Owning…
Any Individual Life Insurance
72%
Endowments
62%
Death Benefit Life Insurance
46%
As shown here, 7 out of 10 young, middle market families report owning some type of individual life insurance.
Not surprisingly, ownership of savings-oriented endowments is significantly greater than protection-oriented life insurance. 16

17. Attitudes Toward Death Benefit Life Insurance
“Your family has enough death benefit life insurance in the event that you or your spouse dies”
Consistent with their ownership percentages, we also find that less than 20 percent are very confident that they have enough protection-oriented life insurance.
A large percentage says that they’re “somewhat confident,” although this is probably an over-estimate of their level of confidence.
Approximately 4 out of ten say that they’re not confident. 17

18. Attitudes Toward Death Benefit Life Insurance (cont’d)
“Which of the following best describes how you feel about the total amount of death benefit life insurance coverage your household currently has”
You have much more than you would like 6%
You have a little more than you would like
30%
You have the right amount
38%
You have a little less than you would like
14%
You have much less than you would like
You have no insurance and are comfortable with that 4%
Don’t know 2%
We find similar results when we ask them how they feel about the adequacy of the death benefit life insurance in force in their household.
Again, we suspect that those saying “the right amount” may be an overestimate as many might not know what is an appropriate amount. 18

19. Future Purchase Intentions
“How likely are you to purchase more death benefit life insurance coverage in the near future?”
62%
Perhaps, most importantly, a vast majority recognize that they need more death benefit life insurance coverage.
This is a very encouraging finding regarding the future of life insurance in the Chinese middle market.
23% 4% 19

20. Observations From the General Findings
The life insurance business in China is changing, and will continue to become more diversified
There is significant opportunity for future life insurance sales
Consumers are not homogeneous in their attitudes; they are all along this change continuum
To effectively market to them in terms of product, messaging, and distribution methods, companies need to be able to identify different groups and approach them accordingly
Thus…the need to segment the market
[Read the items on the slide] 20

21. IV. Market Segmentation Results
Hopefully, having convinced you of the need to employ market segmentation to fully understand today’s life insurance consumers in China, let’s discuss the results of our segmentation analysis.
But first, a quick word of how we went about this analysis.

22. Market Segmentation Methodology
K-means cluster analysis
Resulted in the identification of three segments
Respondents classified based on their responses to eight questions
The research employed a standard market segmentation approach called K-means cluster analysis
Briefly put, this is an iterative statistical analysis technique that attempts to assign respondents to a segment whose mean values on each of the eight questions most closely matches the answers given by each of the survey respondents.
The analysis resulted in the identification of three segments, and respondents could be assigned to these segments based on their answers to eight questions. 22

23. Three Segments of Young, Middle Market Life Insurance Consumers in China
33%
Here you see the three segments that emerged from this analysis and their proportions in this market.
We call them “Uninterested,” “Life Protectors,” and “Life Investors.” Let’s look at each of these segments.
26% 23

24. Snapshots of the Three Segments
“Uninterested” (33%)
Least concerned with family’s financial security
Lowest interest and belief in life insurance
Much less likely to own any type of life insurance
Lowest level of financial product knowledge
Lower income; less educated
Here’s a brief snapshot of our three segments.
We call the first the “Uninterested.” As this name implies, they are the least concerned with their family’s financial security and well-being. Not surprisingly, this extends to their attitudes toward, and ownership of, life insurance.
Perhaps, also not surprisingly, they have the least financial resources of our three segments, and have the lowest level of formal education.
By their own admission, they are also the most likely to describe themselves as being “lower income” or “lower middle income” consumers. 24

25. Snapshots of the Three Segments (cont’d)
“Life Protectors” (26%)
Most appreciation for the value of life insurance throughout one’s lifetime
Most likely to buy for security, peace of mind
Most oriented toward the concept of death protection
Also own endowments; have an expanded view of life insurance
Oldest; best educated; more likely female
We call the second segment the “Life Protectors.”
Unlike the “Uninterested,” this segment shows the most appreciation for the value of life insurance across one’s lifetime, and is the most favorable toward the concept of life insurance as death protection.
However, it is important to note that these consumers also own endowments, so it is not an “either-or” situation. It’s just that their views of life insurance have expanded to include the concept of death protection.
Of all our three segments, this is the oldest and best educated. They are also more likely to be female. 25

26. Snapshots of the Three Segments (cont’d)
“Life Investors” (41%)
Own more endowment and death benefit policies than the other segments
Less likely to see life insurance as a part of their life-long planning
Have a broad view of life insurance, but more for “temporary” needs
To borrow against
Business purposes
Pay for a child’s education
Most likely to buy life insurance as a savings vehicle
Demographically between the other two segments; more likely male
The largest of our segments is the “Life Investors.”
Interestingly, this group owns the greatest number of life insurance policies – both endowments and death benefit policies.
They have a broadened view of life insurance, but it doesn’t include death protection.
They view life insurance as serving more “temporary needs,” and are the most likely of the three segments to buy life insurance as a savings vehicle.
Demographically, in terms of income, age, and education, they fall between the other two segments. But they are more likely to be male.
Let’s see how these different segments manifest themselves across various questions in our survey. 26

27. “I use life insurance primarily for saving money.”
% Strongly Agree/Agree
Total (46%)
Perhaps the one question in which the differences between the segments was most pronounced was their attitude regarding the statement; “I use life insurance primarily for saving money.”
Nearly three-quarters of the “Life Investors” agree with their statement, more than double that for the “Life Protectors.”
In fact, the “Life Protectors” are not that different from the “Uninterested” in this regard. 27

28. “Life insurance serves only a temporary need until such time as the kids leave the house or the mortgage is paid off.”
% Strongly Agree/Agree
Total (45%)
Another question in which there is a very large difference between the “Life Protectors” and the “Life Investors” was their attitude regarding whether life insurance serves a temporary vs. a permanent need.
8 out of ten “Life Investors” agree or strongly agree that it only serves a temporary need. Only 1 out of ten “Life Protectors” agree with this statement. 28

29. “It is very important to own death benefit life insurance.”
% Strongly Agree/Agree
Total (34%)
As seen here, the “Life Protectors” are the most likely of the three segments to say that it is very important to own death benefit life insurance.
Only one-third of the “Life Investors” share this attitude. 29

30. “Your family has enough life insurance in the event that you or your spouse dies.”
% Very/Somewhat Confident
Total (59%)
Interestingly, the “life Investors” have more confidence that they have enough life insurance in the event of their death or that of their spouse.
This is in spite of the fact that they say that death benefit life insurance isn’t as important to own as do the “Life Protectors.”
One possible explanation is that the Life Protectors have a more realistic appreciation for what comprise an appropriate amount of life insurance for death protection. 30

31. “Thinking about the last time you purchased individual life insurance, was the amount you purchased based primarily on….”
Total = 65%
In general, affordability tends to trump coverage needs in consumers’ purchase decision-making.
However, as seen here, affordability is much more of a factor to the “Life Investors.”
“Life Protectors” are more likely than “Life Investors” to say that they bought based on need.
Total = 33% 31

32. “Are either you or your spouse covered by one or more life insurance policies that were…
Total = 51%
As discussed earlier, the life insurance marketplace in China has changed such that the agent distribution channel plays a much greater role in life insurance distribution than in the past.
While both the “Life Protectors” and the “Life Investors” buy from both agents and banks, “Life Protectors” are the most likely to buy from agents, while “Life Investors” are the most likely to buy from banks.
Total = 36% 32

33. V. Application of the Research
Finally, let’s discuss how this research can be utilized to improve the efficiency and effectiveness of life insurance marketing in China.

34. Application of the Research
Collect responses to the eight questions:
Asked by agents
Asked by a call center rep
Answered by prospect on a website
Categorize prospects into the three segments
Develop different strategies, messaging, and products for each segment
[Read the above]
Finally, here are some thoughts as to how each of the segments can be marketed to differently. 34

35. Marketing to the Segments
“Uninterested”
A significant challenge
Role of education
Basic term life insurance protection
Need to address trust, and safety/security of life insurance companies
First, the “Uninterested” are a significant challenge, but can’t be totally ignored given that they are the second largest market segment.
If any hope of reaching this market, the key would seem to reside in education, convincing them of the value and piece of mind that life insurance can provide.
Toward this end, the most appropriate product would likely be basic term life insurance.
However, companies need to address issues of trust and life insurance company safety and security, for the “Uninterested” have a low image of the life insurance industry. 35

36. Marketing to the Segments (cont’d)
“Life Protectors”
Targets for existing coverage “check-ups” and updates
Targets for new products
Market to female decision-makers
Consider marketing to them online or thru call centers
“Life Protectors” embrace the concept of protection-oriented life insurance, but do not feel financially secure and express a need for more life insurance. Thus, they are obvious candidates for periodic “check-ups” and updates of their existing coverage.
With their positive attitudes toward the life insurance industry, they are also good candidates for new life products. They express an understanding of term life insurance, but less so for permanent and unit-linked products. Remember that they also are the highest income segment.
The fact that “Life Protectors” are more likely to be female, this segment might be ripe for a woman’s marketing initiative, as have been launched by companies in other countries.
Finally, “Life Protectors” are as willing to use online resources for information regarding life insurance as they are agents. Given this better education, they may be candidates for online marketing. 36

37. Marketing to the Segments (cont’d)
“Life Investors”
Disturb them regarding the need for death benefit life insurance
Position life insurance as the “bedrock” of a financial plan
Target with a better trained agency force
Do a better job of targeting online
“Life Investors” are already engaged with the life insurance industry; they simply have a different perception as to the use and role of life insurance.
One strategy is to “disturb” them regarding the role of life insurance over one’s lifetime, perhaps as the “bedrock” of a financial plan.
They are not disposed to working thru agents, although a majority of them agree that death benefit life insurance is least sold by an agent. This is perhaps more a reflection of the current agency force in China. Perhaps this segment can be reached thru a better trained agency force.
Finally, given their younger age, it’s surprising that they aren’t the most disposed to using online resources about life insurance products and costs. Perhaps companies have yet to figure out what resonates with these consumers online. 37

38. |
In closing, it’s exciting to have completed the first-of-its-kind market segmentation study in China.
Results of this research should provide companies with a tool that helps them increase the efficiency and effectiveness of their marketing efforts, allowing them to tap into the great opportunity that exists in this market.