A Study On The Transition Of Property Insurance Companies' Profit Model In China

Banking, securities and insurance are the three major industries in Chinese financial system. Their growth has been rapid but uneven in the 60 years since the founding of P.R.C. The insurance industry is still behind from the other two. The rapid development of the insurance industry has an extremely important role on promoting the harmony of our financial system. The development of insurance industry depends not only on the market environment, but also closely on the profit model. Every day, a large number of corporate are failure which is lack of profit model in the market. An appropriate profit model plays an important role to the development of the insurance industry as well as the insurance company. Therefore, the company must study the profit model. At present, the research of the life insurance companies' profit model is more than that of the property insurance companies. Be based on the balance of the development of insurance industry, the author study the profit model of the property insurance companies. Hope that it can help to promote the development of the insurance industry in China.Since the resumption of Chinese insurance industry, it had experienced monopoly profit model stage and the scale model profit model stage and the product profitability profit model stage. In the monopoly profit model stage, the market had a little of insurance company, they can obtain the monopoly profit. But the monopoly profit model is spontaneous, with hidden and ambiguity and be lack of flexibility. At this time, the property insurance company whose products are scarcity, are mostly profit from state-owned enterprise and lack of profitability point,they sell product by the way of direct sales and branches. In the scale model and product profitability profit model stage, the model elements are characterized by diversify earnings target and products and distribution channels. The company depends on the brand effect and branch barriers, but their product innovation is still insufficient. However, the profit and operations are not satisfactory in this stage. Therefore, the author carries out a detailed analysis of the need of the profit model transformation in the partⅣ.First, there are internal factors for the transformation. The first is that the economies of scale model are not obvious, through the establishment of the cost function. The reason is that the compensation payments and management fees are much higher than that of neighboring countries. The second is that analysis the structure of kinds of insurance using SCP theory. The author uses concentration to measure the market structure, with CRn index to measure the concentration. The concentration of property insurance market is as much as 80% by calculating. Many insurance companies have emerged a series of vicious competition, so that squeeze the profit margins cost. The third is that analysis the operations and the profitability. The combined ratio and the cost rate remains high, leading to the high overall costs, and benefits of underwriting is not a fundamental improvement. The major source of profit for insurance companies is investment income. Chinese capital market instability led to the instability of investment income. Second, there are external factors of transformation of the profit model. The first is that the increase of demand and the bargaining power of product holders raised new challenges. The second is the new pressure come from the improvement of regulation. The third is the competitive pressure. The author summarizes their strengths, weaknesses, opportunities and threats using SWOT analysis.Insurance companies face so many problems, in order to increase the profitability of insurance companies and the industry, they must look for a new profit model imminent in current. Therefore, some problems should be solved in the new profit model construction process. One, the key to cultivation of core competitiveness is repositioning of products and services. Two, insurance companies should controlled the key chain in the value chain to create the leading-edge cost. Three, they can find new profit target through customer micro-segmentation. Four, they can improve underwriting business and develop intermediary business to expanse the profit points. Five, they should enhanced the cooperation with professional insurance intermediaries to increase direct sales channels. Six, they should formatted the earning barriers. However, the new profit model can not be completed overnight by someone, it should repeated by theorists and insurance companies in a long time. Hope that the recommendations have a guiding role to find a new profit model.