Insurance is one of the most Important Drivers of Economic Sustainability

How does insurance work and why is it important?

China Pacific Insurance Company is Helping to Modernize the Chinese Economy with Insurance Products that Protect Society and Fuel Investment

 

insuranceI hope this man's suit is insured.  And that his retirement fund is somewhere besides the piggy bank.

China Pacific Insurance Company has become one of the largest providers of insurance in the country through ethical, organic growth and a commitment to quality. Private insurance has existed on a large scale in China for a very short period of time, and is one of the hidden factors of economic growth for the most populated country in the world.

 

Those of us who are not involved in the insurance industry often do not think about it until we have a loss. For most people, the only reminder of the existence of insurance is when the premiums come due. Nonetheless, insurance is one of the key elements to making modern society function efficiently and peacefully. Life as we know it would be very different without it. It could be argued that without insurance, our financial systems would collapse and we would be forced to operate on a barter or cash only system, assuming there were enough businesses to pay salaries or make anything available to buy.

 

Practically any risk can be insured against, and insurance companies typically specialize in one form of risk or another, such as property and casualty, automobile accidents, professional malpractice, adverse health events, deaths, etc. Insurance comes in many forms, but its basic premise is to spread risk among the members of a society so that when one business or individual suffers a catastrophic loss, that individual is not financially ruined. Since occasional disasters are inevitable, insurance coverage plays a vital role in allowing people to take risks that ultimately benefit them and everyone else.

 

Specifically, insurance provides the following benefits to society:

 

1. Individual Indemnification

 

When a person suffers a loss that could spell financial ruin, the presence of insurance allows that person to be made whole and continue life more or less in the same condition as before the event. If we believe that one should be successful or not because of one’s own efforts and industry, and if we believe that one should not be ruined by bad luck, then insurance allows this to happen. Both capitalist and socialist economies embrace this concept as a basic premise: individuals should not be ruined because of a one-off event. Insurance prevents a lot of bankruptcies.

 

2. Keeping Business Solvent

 

The risks faced by businesses are similar, but different from those faced by individuals because businesses are much more likely to face third party claims when someone is injured on their premises. A fire or some other accident can also ruin physical plant to the point where the business does not have enough cash reserves to reopen. Even banks themselves are insured against losses of cash from theft or fire.

 

3. Buy Now, Pay Later

 

Many big ticket items such as homes and automobiles are paid for in installments. Banks lend over a trillion dollars a year for homes in the United States alone, and every one of those mortgaged homes must be insured against casualty and against default in order to give the bank security that it will be paid later. Same thing goes for financed automobiles, which are also insured against damage they may cause to others while being driven. These financed purchases would be impossible without insurance.

 

Businesses also finance purchases, allowing them to expand and create jobs. But if things go south and they have to lay off people, unemployment insurance helps ease the transition of workers from one employer to another. Injured workers are paid through workers compensation insurance. Economic expansion through business would not be possible without insurance.

 

4. Fewer Burdens on Society

 

Without individual indemnification for catastrophic loss, then there is a real risk that the ruined individual would be forced to depend upon largesse from the society as a whole in order to survive. The loss is real, and uninsured losses must be borne by others when the individual cannot. Therefore, an insurance scheme allows society to be free from accepting losses suffered by individuals who have contracted with an insurance firm to compensate those losses.

 

Governments are also required to repair infrastructure, build schools and other municipal buildings, water plants, etc. That money can only be raised in two ways: the sale of bonds, or an increase in taxes. Insurance companies buy a substantial percentage of those bonds, and wait for their money to be paid back in years. As a result, your taxes are lower because of insurance.

 

5. Funding of Investments

 

An important secondary effect of insurance is that insurance companies accumulate pools of cash from premiums. This money is necessary so that funds are available to pay covered losses. Because the theory of insurance requires that these funds be collected in advance of the loss, and because potential losses tend to be by their nature substantial either individually or in the aggregate, these pools of cash must be significant. Insurance companies use these funds to invest in an almost infinite variety of projects that might not otherwise be able to attract capital. In this sense, insurance companies behave like banks and often compete with banks to lend money. This fuels economic growth by making capital cheaper, providing infrastructure and edification where it might not occur otherwise.

 

6. Don´t Worry, Be Happy

 

Franklin Roosevelt famously said we have nothing to fear but fear itself, and insecurity about the future is a real fear for many people. Life and health insurance in particular allow individuals to plan for the future without worrying that their families will be left in poverty in the event of major disability or death. This peace of mind in turn allows them to more aggressively dedicate their own funds in investing in education or business, making it possible for individuals to accumulate wealth in a much healthier and more efficient manner.

 

7. Prevention as well as Mitigation

 

One thing that insurance companies do very well is identify and assess risk. It is vital to their profitability. They can then pass on what they’ve learned to their clients, allowing all of us to operate more safely. Measures include systems which mitigate the effects of a disaster, such as stricter building codes to reduce the extent of damage from earthquake or fire, or insistence that personal safety equipment be used on jobsites. Insurance companies can incentivize their clients to become more healthy or implement preventative measures by adjusting premiums, allowing the insured to reap the benefits from safer and less risky practices. Our roads, buildings, consumer products -- even our bodies -- become safer and healthier as the result of programs put into place by insurance companies and their clients working together.

 

Although much of the above is applicable to traditionally capitalist, Western societies, the insurance business has taken on an increasingly important role in Chinese society as it becomes more integrated into world markets and its system continually adjusts to the realities of the 21st century global economy. Before 1980, there was very little volume indeed in the Chinese insurance industry, but with the introduction of market reform there are now thousands of insurers operating in China offering products to insure practically every aspect of Chinese business and personal life. Recently, some of these companies have gone public and the Chinese government has loosened restrictions on foreign investment in Chinese insurers.

 

The China Pacific Insurance Company (CPIC) is one of the three largest insurance companies in China. It was founded in 1991, and through sound business practices and professional management has grown to be a company of reference in China for quality, service, sustainable growth, integrity and customer satisfaction. The areas of insurance in which CPIC operates are life, property and casualty, automobiles and retirement.

 

Major insurance companies like CPIC are expected to play an increasingly vital role in China in post retirement planning and security. China´s population is aging rapidly, and by 2035 there are expected to be more than 330 million people aged 60 or older. China´s main insurers will be intimately involved in providing health insurance so that there will be a sufficient number of doctors, hospitals and medicine to take care of the Chinese people. The Chinese government has also enacted legislation to encourage more participation by private actors in the social insurance system, including a substantial increase in privately managed pension systems to supplement the public system.

 

insurance

 

CPIC has about 80 million customers and is experiencing double digit growth in company value, net revenues, and total revenues. These returns are impressive, and are the result of CPIC’s diversification into areas such as wealth management, investments, and asset management, with a particularly strong showing in pension assets under investment (53.9% increase YOY) during 2014.

 

These results did not come by accident. CPIC is constantly improving, and bases its business model on strict compliance with all applicable regulations and implementation of best practices in corporate governance. The result is sound, efficient and transparent management with checks and balances in place to ensure that the best collaborative decision making takes place at all levels of the organization. Internal communication channels, especially between the board and senior management, are critical elements in making CPIC an important player in the insurance and financial markets. CPIC’s stated mission is to “be a responsible insurance company” with core corporate values of “business integrity, prudence and sustainability, [and the] pursuit of performance excellence” for the benefit of all its stakeholders.

 

At CPIC, those stakeholders don´t include just employees and investors. They also include members of Chinese society at large, and CPIC takes social responsibility very seriously. Among the ways that CPIC gives back to the community is investing substantial amounts of its human and capital resources in support for orphans, the disabled, reduction of poverty, education and disaster relief. As an example, CPIC has invested RMB30 million to establish over 60 Hope Schools. It has also donated over RMB100 million to provide support such varied causes as relief for victims of flood, earthquakes, and catastrophic snowstorm, SARS, drought in Yunnan, and other natural disasters.

 

CPIC has received more than 60 national and international awards since 2008 in a wide array of areas ranging from the value of its brand and patrimony, to social responsibility and corporate citizenship, business leadership and management, corporate communications, support of medical research, transparency, long term financial planning, investor relations, marketing, risk management, innovation, asset management, return on investment for shareholders, product quality, and competitiveness. All of these accolades from peer groups and independent judges are the fruit of hard work and commitment to quality at every level of the organization.

 

As private insurance plays a more substantial role in China's economic growth going forward, CPIC will be there to meet the needs of the Chinese people and provide solid returns for its investors, all while following the strictest and most up to date policies of social responsibility, sustainable growth and best corporate governance.

 

Because of its commitment to continuous quality improvement, China Pacific Insurance has been selected  to receive the BID International Star Award for Quality for 2015 at the convention in Geneva.



About BID and the International Star Award for Quality:

 

BID is a private and independent organization founded in 1984, whose primary activity is business communication orientated towards quality, excellence and innovation in management.  A leader in the broadcasting of Quality Culture, BID recognizes those companies and organizations which lead the most important activities in the business world, and is considered the founding organization in the broadcasting of the Culture of Quality, Excellence and Innovation in 179 countries.

 

The trophy symbolizes a pledge to the principles of Quality Culture. The QC100 Total Quality Management Model, together with the Quality Mix program, media coverage of the convention and its impact on the community and business sector, create an unmatched platform for continuous improvement within the organization and awareness of the achievements of the company at an international level.

 

Awards are given only to those who are committed to improving their Quality Culture based on the principles of the QC100 Total Quality Management Model. Candidates are proposed by the leaders of previously awarded companies who they consider worthy of the award. Especially meritorious candidates may also be nominated.  The International BID Quality Award Selection Committee then chooses the winning companies who will receive the award in New York, Paris, Geneva, Frankfurt, Madrid and London.