The Application Of Financial Products Pricing Method In Non-life Insurance Pricing

In the sector of non-life insurance in China, the rising number of insurance companies have led to increasingly fierce competition within the industry, thus the price competitions of insurance products has become the most competitive means. Therefore, whether to have a reasonably accurate pricing method which can timely meet the needs of development has become the key to success or failure for the insurance companies.Traditional non-life insurance pricing methods were conducted simply from the perspective of insurance business and didn't take into account the investment behavior of insurance companies. As a result, its evaluation of investment selection and effectiveness were powerless. As for the spread of risk, the only approach taken is to increase the premiums, which will undoubtedly disappoint the insurance applicants. For the pricing of the new non-life insurance products, the lack of adequate historical data would make it impossible to decide on a comparatively accurate price. So the traditional non-life insurance pricing methods has become unable to meet the needs of modern insurance pricing work.Financial non-life insurance pricing method is the transformation and innovation for the insurance business philosophy, which can guide the investment activities of the insurance companies in the capital markets, and its evaluation of investment income has a much more definite competitive advantage than that of the traditional pricing method. In the diversification of risk, it can make a comprehensive consideration of the risk of insurance company investment activities in the capital markets to develop a more accurate and reasonable additional rate, which will lowered the risks of insurance business and meanwhile, will not pose threat to the enthusiasm of the insurer due to the high premium. For the new insurance product (such as environmental liability insurance) pricing, the financial non-life insurance pricing is less dependent on historical data than the traditional method, therefore they can develop a more accurate price.Financial non-life insurance pricing method has become the main pricing method of non-life insurance industry in Western developed countries, which is still at an early stage in China, but it will become the main non-life insurance pricing method in the future. Therefore, the research for this method is an important theo retical issue for the insurance industry in China.This article is divided into three chapters:The first chapter is the basic theory of traditional non-life insurance pricing methods, which is divided into three sections:Section I is the meaning and functions of non-life insurance. Firstly, the definition of non-life insurance is given. And then from the four aspects of premium determination method which are the possibility of occurrence of large claims, the period of insurance and insurance management stability,we will analyze the difference between non-life insurance and life insurance. The functions of non-life insurance include basic functions and derived functions. The basic function is to spread risk and compensation for the loss-; the derived functions include financing, Loss Prevention, and redistribution of social wealth; Section II is the features of non-life insurance pricing which are Predictivity and Comprehensive Reflection, highlighting its features to the general merchandise pricing; Sector III describes the traditional methods of non-life insurance pricing and their limitations. After introducing the main pricing methods—the pure premium method and the loss ratio method, we can find that the traditional non-life insurance pricing methods can only deal with the possible large claims by increasing the insurance premium, this would undoubtedly hurt the insurance initiative and could not disperse risk effectively. Meanwhile, the traditional methods are much dependent on the historical insurance data so it can not develop a more accurate price for the new types of insurance product. At last, it can not achieve the combination between the insurance pricing and insurance investment. Chapter II is the analysis of financial non-life insurance pricing methods, which is divided into three sections. Section One concerns with the background and significance of the financial non-life insurance pricing methods. The so-called financial non-life insurance pricing method is the integration of insurance economy and financial economy. Against the background of highly developed financial markets, it does not only make risk distribution capabilities to meet the risk transfer needs, but also has the function to raise funds to meet the insurance operators in financial intermediation demand for insurance. It has achieved insurance funds by increasing the premium income, and also stresses the importance of investment in capital markets, access to capital gains to achieve the enhancement of business profits. It is a link between capital market and the insurance market. It caters to the current process of integration of modern financial services, promotes the development of the insurance investment, and reduces the underwriting risk. Section II is the Capital Asset Pricing Method, whose main characteristic is taken into account the risk of insurance investment and expected return on a more reasonable and accurate calculation of the additional rates. Section III is the Option Pricing Method, the core idea of this method is to regard the insurance as a kind of put option, to reduce their reliance on historical insuranee data for the emerging non-life insurance (such as environmental liability insurance) to develop a more accurate price.The third chapter deals with the difficulties in the application of financial non-life insurance pricing methods in China and the countermeasures, which is divided into two sections. In the specific application process of Financial non-life insurance pricing method, many factors are to be considered, but the development status of insurance industry in China is still having some problems which are in the macro-economic conditions and national development policies, such as the low use of insurance funds and the strict supervision to the financial institutions. They will limit the application of financial non-life pricing method in China to a certain extent. Therefore it is necessary to pave the way for the development of its various aspects, such as broadening the capital market investment options, appropriately relaxing the supervision of financial institutions, guiding the market to fully play its role in the economy, making the formation and reality matching supply and demand prices of insurance products, and promoting the healthy and orderly development atmosphere for the insurance industry in China.