Liberalizing Interest Rates’ Impact On The Competitive Position Of The Life Insurance Company

For life insurance, interest rate marketization can fully increase competitions, pricing autonomy and the independence of life insurance company. Interest rate marketization will prompt assumed interest rate liberalization of life insurance, which means insurance products play a bigger role in regulating the market.Interest rate liberalization accelerates much more than ever before after releasing inter-bank rate in 1996. Until June 8 in 2012, government has further liberalized financial institutions deposit and lending interest rates of Renminbi between a floating range. After July 20, 2013, government liberalized lending rate control in an all-round way. All these provide a good basis for assumed interest rate market reform for insurance company. After august 1, 2013, China Insurance Regulatory Commission issued "the notice of ordinary matters about insurance rate of ordinary life insurance from China Insurance Regulatory Commission." After August 5, 2013, cap of assumed interest rate(2.5%) which is executed for 14 year on ordinary life insurance finally broken, then life insurance companies can own the insurance product pricing.In the current competition, the liberalization of assumed interest rate may also enable small-sized life insurance companies or foreign life insurance companies to obtain greater price competition;For large insurance companies, due to the small differentiation of products, it is bound to let large insurance companies reduce its advantages and increase the cost. On the contrary,If lift the control over insurance rates, large insurance companies will rely on the existing dominant position and relatively abundant capital accumulation to form relative monopoly on the industry through regardless of the cost of low-priced products to seize the market.Based on the perspective of life insurance premiums, this paper study the competitive position of life insurance companies by dividing the insurance industry into Chinese life insurance companies and foreign life insurance companies. In Chinese life insurance companies, we divide it into large and small-sized Chinese-funded life insurance companies according to the market share ratio. We study premium income, GDP, interest rates and other data from 2005 to 2015, then use the multiple regression equation by adding the dummy variables D1 which represents the embodiment of the assumed interest rate reform after August 1,2013. The paper studies the impact of interest rate reform on Chinese life insurance market by theoretical and empirical analysis. Finally, we find that assumed interest rate liberalization will reduce the competitive position of Chinese life insurance companies, on the contrary, it can improve the competitive position of foreign life insurance companies. Wherein the assumed interest rate liberalization will reduce the competitive position of large-sized Chinese life insurance company and enhance the competitive position of small-sized life insurance companies. The impact of interest rates on small-sized life insurance company and foreign conmpany are not significant. The others are negatively correlated with the interest rate.The paper has two innovations. First of all, on the point of view of innovation, the paper divides life insurance companies into large-sized Chinese-funded life insurance companies, small-sized Chinese-funded life insurance companies and foreign life insurance companies. What’s more, on the innovation of the empirical analysis, the paper introduces the dummy variable D1 which means the implementation of the assumed interest rate after August 1, 2013 to analyze and offer a proposal.