(Image source: Visual China)
Blue Whale News, 10 14 (Reporter: Chen Xiaojuan)
Insiders report that regulators recently issued a notice titled "Notice on Conducting Investigation and Rectification of 'Quick Return' Products" (the "Notice") to all life insurance companies. The Notice initiates a special investigation and rectification campaign targeting "quick return" products, requiring insurers to conduct self-inspections of their products by the deadline and submit investigation reports.
The Notice states that recent product regulatory reviews have identified certain companies in the industry offering "quick-return" products, such as ordinary and participating endowment insurance with premium payment terms of 3 years and coverage periods of 6 years via bancassurance channels. These products deliberately understate actuarial expense assumptions and feature short cash value return periods to boost sales volume, creating a risk of "long-term insurance sold as short-term."
In fact, the aforementioned "quick-return" products are nominally long-term life insurance policies with a coverage period of 6 years. However, by the end of the 3th policy year, the cash value exceeds the total premiums paid, effectively "breaking even." Customers can surrender the policy after paying premiums for just 3 years to recover their principal and potentially earn returns. This makes them susceptible to being marketed as short-term wealth management products through bank channels.
However, industry insiders note that there is genuine customer demand for "fast-return" products. Designing such products is not inherently problematic. This does not imply that customers' needs for liquidity and shorter payback periods are unreasonable, nor does it suggest that higher cash value should always be delayed beyond the premium paid. Instead, as customer demands for capital safety, liquidity, and long-term savings become increasingly diverse, insurers must respond through product innovation—while avoiding aggressive strategies and the associated risks.
"The reasonable goal of regulation is not simply to suppress a product's cash value or disregard customers' liquidity preferences, but to prevent insurers from pursuing short-term scale through overly aggressive product design and sales strategies. It ensures that product commitments align with customer needs and the insurer's risk tolerance." — Zhu Junsheng, Postdoctoral Fellow and Professor in Applied Economics at Peking University.
Zhu Junsheng believes that overemphasizing "quick return of principal" as a sales pitch in certain products shifts insurance competition from coverage and long-term value to comparisons of short-term cash values, creating three risks: first, product pricing, expense structures, and investment return assumptions may 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.
The Notice clarifies that, in principle, companies shall not file new products whose cash value at the end of policy year 3 exceeds the premiums paid. For existing products already filed with similar issues, they should be proactively discontinued. Companies facing genuine liquidity constraints must comprehensively assess their liquidity gaps, develop appropriate cleanup and rectification plans, coordinate with regulatory authorities, strictly control business volume based on the "expenditure-to-revenue" principle, and establish a deadline for product discontinuation and remediation.
At the same time, institutions must conduct self-inspections of their products and strictly implement the "reporting and execution consistency" requirements. Key areas to verify include the scientific soundness and reasonableness of actuarial assumptions for existing products, such as surrender rates and expense ratios, and fully assess cash flow pressures under scenarios with two-way interest rate fluctuations. For companies that blindly pursue scale growth and trigger vicious market competition, regulators will take enforcement actions in accordance with the law, including regulatory interviews, orders to rectify, suspension of product filings, and administrative penalties.
Zhou Jin, a Partner in the Financial Services Consulting practice at Tianzhi International, told Blue Whale News that the regulator's decisive actions aim to: 1) Correct some companies' business philosophies by eliminating scale-driven mindsets and impulses, reducing sales misrepresentations caused by product distortion, and mitigating potential asset-liability mismatches; and 2) Advance the implementation of "reporting-action alignment" by strengthening the accuracy of actuarial assumptions such as expense ratios, lapse rates, and investment yields, curbing disorderly competition, and standardizing market order.
Notably, this rectification campaign coincides with the critical window for insurers to prepare for their 2027 "Red Opening" sales season.
Zhou Jin analyzes that the Notice will initially lead to a cooling of sales and short-term premium pain, significantly impacting dominant products and sales strategies during the traditional "New Year's Opening" period. The discontinuation of "quick-return" products will cause a temporary slowdown in premium growth for some insurers. For smaller and medium-sized insurers relying on such products to boost bancassurance scale, this creates immediate pressure to switch products and adjust sales rhythms. In the long run, this move will structurally correct the industry, shifting bancassurance competition from racing to return speed to competing on investment capabilities and service strength. It will also transform the "New Year's Opening" from a scale-driven frenzy to value-focused deepening, while preventing cutthroat competition.
"Regulatory constraints may prompt insurers to reevaluate the design and sales strategies of quick-return products, but this does not mean the market should revert to a model characterized by product homogeneity and an exclusive focus on locking in long-term funds," said Zhu Junsheng. He emphasized that future product offerings and business transformation hinge on shifting from a singular competition based on "speed of return" to a comprehensive competition centered on customer needs, protection value, long-term returns, and risk management.
