Recently, there has been news in the insurance industry about a “rate cut” for products. The predetermined interest rate for some dividend insurance policies has dropped to 1.5%, which is lower than the 2.0% upper limit set by the regulatory authorities in October last year. The predetermined interest rate is a key factor in pricing insurance products. Its reduction means that the returns of savings-type products will decrease, while the prices of protection-type products may rise. Industry insiders say that the predetermined interest rate may further decline in the future.
According to the “Notice” issued by the China Banking and Insurance Regulatory Commission, the predetermined interest rate of insurance products will be linked to the market interest rate and adjusted dynamically. Currently, the upper limit of the predetermined interest rate for ordinary insurance is 2.5%, for dividend insurance it is 2.0%, and for universal insurance it is 1.5%. If the research value of the predetermined interest rate falls below 2.25% for two consecutive quarters, the industry will face an overall reduction. Experts predict that due to the continuous decline in market interest rates, the research value may further decrease in the third quarter, triggering the adjustment mechanism.
The guaranteed interest rate of insurance has changed frequently in response to market conditions. In the 1990s, the guaranteed interest rate once reached 7% – 10%, but it dropped to 2.5% in 1999 due to the central bank’s interest rate cuts. After the market-oriented reform in 2013, the upper limit of the interest rate for ordinary products was raised to 3.5%, but it fell back to 3.0% in 2019. Starting from September 2024, the upper limit of the interest rate for ordinary products was reduced to 2.5%, while dividend insurance and universal insurance were respectively lowered to 2.0% and 1.5%, entering historical lows.
Although a decline in interest rates helps to reduce the risk of insurance companies’ spread losses, it also weakens the attractiveness of their products. In the first quarter of 2025, the income from life insurance premiums decreased by 0.3% year-on-year, and the premiums for life insurance decreased by nearly 1%. The promotion of floating income-type products such as dividend insurance has faced difficulties, and some salespeople still tend to emphasize “guaranteed income”, which further increases the sales difficulty compared with bank deposits.
Experts suggest that insurance companies should enhance the development of floating return products and innovate non-rate-sensitive products. However, market acceptance still needs to be improved. Industry insiders call for narrowing the interest rate gap between dividend insurance and ordinary products in subsequent adjustments, in order to balance consumer demands and the stable development of the industry. In the face of a low-interest-rate environment, the insurance industry needs to re-examine its market positioning and adapt to the new asset allocation logic.
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