"Rebirth," Dividend Critical Illness Insurance
```
As the market’s pendulum swings into a low interest rate cycle, the entire insurance industry is quietly undergoing a profound paradigm shift.
Weapons that were once set aside are returning to the “game table” under the dual summons of regulation and market forces.
After a 22-year hiatus, participating critical illness insurance may be approved for launch again.
This is not a simple product comeback, but a strategic breakthrough that concerns the survival logic of the industry.
The regulator’s latest “opening”, like a stress test, is forcing insurance companies to adopt a “new script”, as the old effortless profit model is no longer sustainable.
A silent reshaping has already begun: the “experiment” surrounding critical illness insurance will affect the direction of China’s insurance industry transformation in its next phase.
Participating Critical Illness Insurance May Return to the Stage
On September 30, the National Financial Regulatory Administration issued the “Guiding Opinions on Promoting High-Quality Development of Health Insurance,” further deepening reform plans for various insurance subcategories.
There is one expression in this document that has attracted considerable market attention:
“Support for insurance companies with good regulatory ratings to conduct participating long-term health insurance business.”
In response, major sell-side research institutions have interpreted that, under the backdrop of low interest rates combined with medical insurance reform, health insurance products are expected to usher in a second surge, and participating critical illness insurance will make a comeback.
This brings up a question: What is participating critical illness insurance?
Critical illness insurance is similar to “emergency cash compensation” and is not for reimbursing medical expenses. Instead, if you are unfortunately diagnosed with a “specified major illness” as defined in the policy (such as cancer), the insurer pays out a lump sum.
Ordinary critical illness insurance has a fixed coverage amount, while the “soon-to-reappear” participating critical illness insurance adds a “dividend” feature: if the insurer performs well, it returns part of the profit to policyholders as dividends. Dividends are generally not paid out directly as cash, but are used to increase your coverage amount.
Other analysis points out that the revival of participating critical illness insurance is not accidental. In recent years, with the continuous updating of disease incidence rates, gradual unification of actuarial pricing standards, and ongoing improvement of sales and information disclosure systems, the foundation for this product’s “comeback” has been laid.
Banned in 2003
Looking back: Mainland China saw its first critical illness insurance product as early as 1995, initially covering only 7 major illnesses, and it was not sold as a standalone product, but bundled with life insurance. A year later, critical illness insurance officially became an independent product.
From its inception, critical illness insurance in China came with participating financial attributes. This was related to the historically high deposit interest rates at the time, with added financial features to enhance appeal for the new product.
Around the year 2000, major insurance companies launched critical illness products in quick succession. Due to a lack of unified pricing standards and disease incidence data, there were significant differences in product pricing, definition of diseases, and claims conditions among different companies.
In May 2003, critical illness insurance saw a “mandatory return”: the former China Insurance Regulatory Commission (now merged into the Financial Regulatory Administration) issued the “Actuarial Rules for Individual Participating Insurance,” clarifying that participating insurance can be offered only in whole life, endowment, or annuity forms, and insurers cannot design other product forms as participating insurance.
This move meant health insurance was prohibited from having participating features, putting a “pause” on participating critical illness insurance, which then converted to a pure protection type.
By 2007, the critical illness insurance market underwent another significant upgrade: under regulatory guidance, the China Insurance Association and the Chinese Medical Doctor Association jointly released the “Norms for Disease Definitions in Critical Illness Insurance,” unifying the definitions of 25 major illnesses (covering about 95% of cases), and required insurers to strictly adhere to these standard descriptions.
This marks the completion of the basic regulatory framework and standardization of Chinese critical illness insurance from product design, definition to supervision, entering a new stage of standardization and regulation.
Rising Interest Rate Spread Risk
In reality, the revival of participating critical illness insurance is closely connected to the current profit dilemma faced by insurance companies.
The core risk for the life insurance industry now is: rising interest rate spread loss. Simply put: the money insurance companies “make from investing” is barely enough to cover what they “promised the clients.”
Dr. Li Jian of Huatai Securities analyzes: “Currently, the yield on 10-year government bonds has dropped to about 1.9%, and the listed insurers’ average net investment yield has declined to 3.0% at the end of H1 2025, with the current guaranteed liability cost around 3%. Net investment yield is gradually approaching the rigid cost line.”
This professional explanation, in layman’s terms, means: insurers invest client premiums, earning about 3% per year; but many older policy sales promised clients a return close to or even above 3%. It’s like a factory where the raw material costs 3 yuan, but the finished product only sells for 3 yuan—almost no profit margin and tremendous operational pressure.
“Killing Two Birds with One Stone”
According to Dr. Li Jian: with the low interest rate trend, insurers can resolve interest rate spread pressure by either lowering liability cost (reducing returns promised to clients) or broadening profit sources (finding new revenue streams).
Thus, developing participating critical illness insurance has become a “two birds with one stone” response strategy.
From the insurer’s perspective, critical illness insurance with dividends delivers dual benefits: sharing part of the investment volatility risk with customers, reducing payout pressure for insurance companies; using dividends allocation to enhance the product’s appeal, giving it “selling points” similar to wealth management products.
This upgrades critical illness insurance from a “fixed-term deposit” to a “guaranteed wealth management” product. The principal (basic sum insured) is absolutely safe, while returns (dividends) fluctuate with the market, offering opportunities for higher gains.
Not All Smooth Sailing
However, the path to selling participating critical illness insurance is not all smooth sailing.
Ge Yuxiang, an analyst at Zhongtai Securities, points out two major challenges:
First, “With multiple rounds of pre-set interest rate cuts, the leverage ratio (sum insured/premium) for critical illness insurance keeps decreasing, making sales more difficult.”
Second, “Compared to the current 2.0% pre-set interest rate for traditional insurance, at a pricing rate of 1.75% for participating insurance, the premium for participating critical illness insurance will be higher than that for regular critical illness insurance.”
Put simply:
Investors have to pay more: due to pricing rule changes, for the same coverage, choosing participating critical illness insurance means a higher premium.
Trust becomes a bigger challenge: consumers are likely to feel it’s “not cost-effective” at first glance, and salespeople must clearly explain the relationship between “paying more premium” and the “potential future growth in coverage.”
This “experiment” surrounding participating critical illness insurance will test insurance companies’ product design, sales, and investment capabilities, and will inevitably influence the direction of China’s insurance industry transformation in the next phase.
Risk Warning and DisclaimerThe market involves risks, investment requires caution. This article does not constitute personal investment advice and has not taken into account individual users’ specific investment objectives, financial situation, or needs. Users should consider whether the opinions, views, or conclusions in this article are suitable for their particular situation. Investments made based on this article are at one’s own risk. ```