China Life Case Solution And Analysis, HBR Case Study Solution & Analysis of Harvard Case Studies

QUESTION-1 Exhibit 4 provides the economics of three of China Life’s primary products.

Which of these is most suitable for the rural population CIRC is targeting? Why?

Chinese Insurance Regulatory Committee (CRIC) for the development of the country encouraged local insurance companies to tailor make product targeting the rural and poor people of The Republic of China. China Life being a state-owned entity where the government held 69% stake was encouraged by the offer that CRIC had presented to the insurance companies, which were willing to pursue this market. It was only because of CRIC’s persuasion that Su Hengxuan, the Vice President of China Life Insurance Company had set up a team to create a business case regarding microfinance for this market.

The goal identified by CRIC for micro life insurance in this market was so beneficial that even low-income population would find it attractive, such a product should have sufficient insurance coverage, easy to understand terms, easily availed claims and most importantly low premiums, as it was believed that these products would be able to reduce the poverty levels.

Most products offered by the insurance companies also provide a savings component. There are three products that have remained the most popular for China Life and these are as follows:

WHOLE LIFE POLICIES
ENDOWMENT POLICIS
TERM POLICIES

WHOLE LIFE POLICIES

A policy that covers the entire life of the individual person is termed as the Whole life policy. The customer holds the option to decide the payment duration for this policy that it would be either, a lump sum payment after 5 years, 10 years, or 20 years, which is the longest period up for offer. If the customer wishes to pay in 20 years then 7, 820 RMB would paid per year providing coverage of 100,000 RMB.

ENDOWMENT POLICIS

An Endowment insurance policy is not only an insurance for the individual but it is also a saving plan, as the individual would be paying the premium upon the policy but would receive the premium back once the policy period has ended. Under the Endowment policy, the customer has to pay 7, 100 RMB per year under the 20 year plan, which provides coverage up till 80 years of age of the customer.

TERM POLICY

A term policy is the most inexpensive policy out of the three options and it only provides coverage for a limited time period usually 20 years. In addition, it provides no coverage and once the policy expires, so the term policy provides the same d100,000 RMB coverage with annual payments of 380 RMB for 20 years.

BEST POLICY FOR POOR & RURAL AREAS

Even though all around the world Endowment and Whole life policies are the most popular policies but considering the low income and less understanding of insurance for the target market of China Life Endowment policy, it would be the most beneficial for this segment as it not only provides insurance but also acts as an retirement plan and goes up to the age of 80 whereas; payments are to be made only for 20 years, which not only covers the individual but also the family.

The concern regarding Endowment is that it is not the most cheaply costing as RMB 7100 per year are charged considering 81% of households earn less than RMB 4000 in 2007, which means that this policy will not be affordable, which makes term option the only acceptable option in this segment on the basis of cost but on the bases of benefits, development and coverage, Endowment is the best policy for this market.

For your chosen product, how would you adapt it for the rural consumer?

Endowment is the most suitable product for this market but to make it sell in the market, the company needs to make it more affordable for this segment. The solution to such a problem can be solved by creating an option, which would be a hybrid of the Endowment policy and the Term policy, which makes it affordable and provides coverage up to the age of 80 years of 100,000 along with repayment of premium but it does not provide facilities of full coverage and death coverage. With these adjustments, the product is sure to be a success in the market.

How much annual premium should the policy charge?

With the survey conducted by CRIC in 2007, over 10, 000 households in 8 provinces held the largest rural population with relatively low income and it was seen that 81% of households in 2007 earned less than RMB 4000 with 52% that is RMB 2000. This means that the most appropriate and acceptable premium over the policy would be RMB 1000, which makes it acceptable for majority population.

How much coverage should it provide?

The coverage should be kept constant to ..............

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