Source: International Finance News
Regulatory crackdown on "fast-return" life insurance products.
On 10 month 15 day, the International Finance Daily learned from industry sources that regulators recently issued a notice titled "Notice on Conducting Investigation and Rectification of 'Quick Return' Products" (hereinafter referred to as the "Notice") to personal insurance companies. The notice requires that, in principle, no new products be filed whose cash value at the end of the third policy year exceeds the premiums paid. Existing products with similar issues should, in principle, be voluntarily discontinued.
This rectification comes at a critical time as insurers prepare for the 2027 "January 1st" sales push. In recent years, bancassurance has become a key driver of premium growth in the life insurance sector. "Fast-return" products, which appeal to customers' desire for quick capital recovery, have emerged as a strategic tool for some insurers aiming to boost premium volume. With these products facing imminent discontinuation, insurers now face increased uncertainty as they gear up for the new fiscal year.
Industry experts view this rectification not as simply reducing the supply of "quick-return" products, but as standardizing competitive practices that rely on short-term payback periods. A more balanced approach would allow products to address genuine customer needs while requiring insurers to bear corresponding pricing costs and risk management responsibilities, ensuring alignment between product promises, customer demands, and the company's risk capacity.
"Long-term insurance sold as short-term" carries hidden risks.
Reporters learned that this inspection and rectification primarily targets "fast-return" products such as ordinary and participating endowment insurance developed by certain industry companies through bancassurance channels, with premium payment periods of 3 years and coverage periods of 6 years (i.e., "pay for 3, insure for 6").
Regulators identified during product compliance reviews that certain products artificially understate actuarial expense assumptions and offer rapid cash value return. Some insurers are leveraging these products to inflate premium volumes, creating "long-term insurance sold as short-term" risks.
In fact, while the above product is nominally a long-term life insurance policy with a coverage period of 6 years, its cash value exceeds the total premiums paid by the end of policy year 3. If the customer surrenders the policy after paying premiums for 3 years, they can recover their principal and potentially earn a return.
For consumers, the sooner the cash value catches up to premiums paid, the higher the potential recovery rate upon surrender at a given time. This helps alleviate concerns about funds being locked in for too long and is a key reason why such products are more readily accepted by customers at bank branches.
However, the sales pitch of quick capital recovery conceals multiple risks.
Zhu Junsheng, a professor and postdoctoral fellow in applied economics at Peking University, stated in an interview that: First, product pricing, fee structures, and investment return assumptions lack prudence, undermining long-term profitability.
Second, customers may mistakenly view cash value growth as a guaranteed maturity payout, overlooking factors such as the termination of coverage upon surrender and the opportunity cost of capital.
Third, if the product liability terms and cash flow characteristics do not align with the asset allocation strategy, concentrated surrenders or rapid business growth could increase pressure on liquidity and asset-liability management.
Long Ge, Deputy Director of the Center for Innovation and Risk Management at the University of International Business and Economics, told reporters that these "quick-return" products exhibit short-term funding characteristics on the liability side but require long-term fixed-income and non-standard assets on the asset side to fulfill guaranteed policy benefits. This naturally creates a maturity mismatch—short-term funds invested in long-term assets. In a declining interest rate environment, the guaranteed returns promised by policies become difficult to honor. A surge in surrenders could trigger liquidity risks for insurers, leading to adverse spreads on both interest and expenses.
Discontinue sales of "Three-Year Principal Return" products
To strengthen insurers' primary responsibility for product management, shift business mindsets, and establish sound principles in operations, performance, and risk prevention while curbing无序 competition, the Notice requires that, in principle, no new products with cash values exceeding premiums paid at the end of policy year 3 be filed. Existing products previously filed that exhibit similar issues should, in principle, be voluntarily discontinued.
For companies facing genuine liquidity challenges, the Notice requires a comprehensive assessment of liquidity gaps, development of an orderly cleanup and compliance plan in consultation with regulators, strict control over business scale based on the principle of "spending within means," and setting deadlines for product sales suspension and rectification.
The Notice also specifies that all companies must conduct thorough product self-inspections and strictly implement the "reporting and execution alignment" requirements. Key areas of focus include verifying the scientific rigor and reasonableness of actuarial assumptions for existing products, such as surrender rates and expense ratios. Additionally, companies must fully assess cash flow pressures under scenarios of bidirectional interest rate fluctuations.
The notice states that regulators will take enforcement actions—including regulatory interviews, orders to rectify, suspension of product filings, and administrative penalties—against companies that recklessly pursue scale at the expense of fair market competition, in order to safeguard a competitive and orderly marketplace.
However, Zhu Junsheng noted that whether the cash value exceeds premiums paid in the third year can serve as a regulatory indicator to identify specific risks, but it should not be the sole criterion for assessing product safety or customer value. Products with later break-even points are not necessarily safer, nor do products with earlier break-even points necessarily carry operational risks.
He believes that with prudent pricing, reasonable assessment of fees, lapses, investment returns, and cash flow arrangements, and adequate capital and liquidity management capabilities, fast-return designs can serve as a form of differentiation. "What truly matters is whether the early cash value is built on sustainable pricing, whether liabilities align with asset allocation, and whether the company can continue to meet its obligations under adverse scenarios."
Bank-Insurance Channel Shifts to Value-Based Competition
Notably, this inspection and rectification coincides with the critical phase when insurers are preparing for their 2027 "Red Opening" campaign.
In Zhu Junsheng's view, regulators chose to conduct inspections around the launch of the "January boom" for three key reasons: First, to prevent problematic products from expanding rapidly during the peak season. The fourth quarter is a critical window for insurers to plan their business for the upcoming year. Without early regulation, "quick-return" products could leverage selling points like rapid principal return to surge in volume, intensifying short-term scale competition and increasing future surrender rates and liquidity management pressures.
Second, correct product competition distortions and prevent "long-term insurance sold as short-term." Some products overemphasize early cash values, shifting the competitive focus from coverage benefits and long-term value to break-even speed. This can lead consumers to overlook key factors such as the insurance term, surrender charges, and termination of coverage. Regulatory clarity on product design boundaries helps steer products back toward a long-term operating logic.
Finally, guide the industry from a scale-driven model to a quality-focused one. A strong "start of the year" can intensify short-term premium growth pressure, prompting some companies to rely on "quick-return" products to boost scale. Regulatory rectification at this critical juncture aims to prevent short-term growth from undermining long-term operational capability, and to encourage the industry to place greater emphasis on product pricing, asset-liability matching, and sustainable development.
Long also believes that "quick-return" whole life insurance products are the most effective tool for volume growth in bank-insurance channels during the "New Year's Opening." The sales pitch is: "3-year payback, 6-year maturity." Regulators removed the trigger for volume expansion before the start of 2027, forcing bank-insurance channels to shift toward long-term annual premiums, participating policies, and protection-focused products.
So, what impact will this rectification have on insurance companies?
Rongge assessment indicates that short-term new premiums for bank insurance and "opening season" sales volumes will face pressure. With the principle of halting sales of existing "fast-return" products, small and medium-sized insurers focused on bank insurance business are experiencing dual pressures on their own cash flow and intermediary income from bank channels.
"In the long run, bancassurance will shift from selling wealth management alternatives to long-term asset allocation. Top insurers can withstand and adapt to this change, while smaller institutions that fail to transition as expected risk being gradually marginalized," said Long Ge.
Zhu Junsheng believes that for companies relying on "fast-return" products like "deposit 3 return 6" to achieve a strong start to the year, product adjustments and suspensions could impact customer conversion, channel momentum, and premium growth. However, the extent of this impact depends on each company's product mix, reliance on specific channels, and ability to supply replacement products.
"Previously, some products competed mainly on payback speed and short-term returns," said Zhu Junsheng. After the rectification, insurance companies need to place greater emphasis on aligning products with customer needs. Banks should also reduce their focus on single return metrics and enhance product explanation, suitability management, and long-term customer service capabilities.
