There has been fast expansion in the China market in online term life insurance sales, with premiums more than tripling from 2018 to 2020.¹ This was largely contributed by the growth of online insurance and the increasing acceptance of people buying insurance online. Similar to the development of online health insurance, online term life insurance was designed to meet the protection needs of the younger generation and has achieved boosted sales with its simple features, affordable premiums and easy application process.

Gen Re has supported the development of online term insurance since the beginning of its expansion period. We regularly conducted claims and experience analysis for our online term insurance portfolio. We collected data from direct insurers to analyse experiences in full (data not truncated due to its reinsurance arrangement). The data covers period from 2017 to 2022. Our study investigated into claims and A/E (Actual versus Expected) ratios of the mortality experience against China’s Industry Mortality Table.

Key findings from the analysis

• Younger consumers seek term life protection
  Online term life insurance has a young client base with more than 80% of policies issued for insureds aged 18 to 40. People aged 50 to 60 contributed only a small portion. The average age at issue is around 30 years old.
• Consumers from more developed regions show higher acceptance
  Almost half of policies were purchased by consumers from first-tier and new first-tier cities.² In contrast, the population of these cities accounts for around 20% of the total population.³ As a result, the average sum assured at issue is around USD 146,000, which reflects a higher affordable level of mortality protection from the online channel, as compared to those sold via the agency channel (around USD 36,000).
• Selection effect is observed in mortality experience of online channel
  From A/E ratios by durations, selection effects are visible in early years and selection period is longer than expected. How long this selection period would last is subject to further observation due to limited exposure accumulated for later durations.
• Mortality experience varies significantly among insureds aged 18 to 40 and 41 to 60
  The proportions of claims at age of 41 to 50 and 50+ are significantly higher than those of the corresponding policy exposure, indicating that the risk of the elderly is relatively high. A/E ratios of insureds aged 41 to 60 are much higher than those aged 18 to 40, regardless of gender, duration and city tiers. The age variation is higher than we observed in the agency channel. But the “authentic” age variation in A/Es is subject to further observation on the wearing-off of selection.
• Do women really live longer than men?
  The incidence of men is significantly higher than that of women. The ratio of incidence of men to women is about 3:1.
• Regional and economic factors affect mortality experience significantly
  China is a diversified market in terms of biometric risk, driven by the varied lifestyle and living environments in its different regions. A/E ratios are lower for first-tier and new first-tier cities, being 50% lower than the portfolio average. And A/E ratios increase the higher the city tier for less developed cities. This variation by economic development or region is similar for men and women and for different age bands, occupations and other important factors.
• Claim reason analysis and interesting pattern of claims occurrence
  Looking into the reasons for claims, the ratio of accidents to non-accidents is about 1:3. The most common reasons of accidental claims are traffic accidents, falls from heights and drowning. The most common reasons of non-accidental claims are cancer, sudden death and suicide. Out of all claims, sudden death accounts for 15% and suicide accounts for 11%.
  
  The proportion of claims in the first year of issue is the highest among all years, with largest number of occurrence during 90 to 180 days after policy issue (after the waiting period of 90 days). Another spike of claims arises in the third policy year.
• Trend of claims and mortality experience and the impact of COVID‑19
  We examined the calendar year and issue year trend of the first-year A/E ratios to avoid the uncertainty of selection period. A very initial observation is that the first-year A/E ratios, although fluctuating, show an upward trend in the study period for both men and women. This could be greatly contributed by more policies issued to insureds aged 40+ along the years. It is also found that the average claim amount gradually increases from 2018 to 2022, in line with the increases of average sum assured.
  
  No obvious impact from COVID‑19 was observed in the experience, probably due to the “Zero-COVID” policy implemented during the study period.

The meaning of claims analysis is to identify risks through actual case practices, and to continuously improve the risk control measures in operation and product design. We should be cautious by looking at each of the experience factor separately because several factors have a material impact on mortality experience at an aggregate level.

Endnotes

1. Term life Insurance Market White Paper Report 2021, jointly published by Huagui Life Insurance and the University of International Business and Economics of China. The report can be downloaded from: https://www.huaguilife.cn/hgcms/Services/AttachDownLoad.jsp?id=4341, last accessed on 16 March 2023.
2. The Chinese city tier system is an unofficial classification of Chinese cities. First-tier and new first-tier cities comprise most developed areas of the country.
3. According to the latest seventh population census