'House-for-pension' a new frontier for insurers?

As China plans to pilot "house-for-pension" insurance as an eldercare alternative, insurance companies have expressed hope of forming a new though small territory in a nearly saturated market.

The "house-for-pension" scheme, a Chinese version of reverse mortgages, allows elderly clients to deed their houses in exchange for a certain amount of money every month. They can still reside in the houses until they pass away, when the properties will be auctioned to pay back their loan.

To cope with rising pressures from its greying population, China will begin a two-year pilot program to allow insurance companies in the four cities of Beijing, Shanghai, Guangzhou and Wuhan to tap into the field from next month, according to the China Insurance Regulatory Commission.

Small companies have been among the first to jump on the wagon, hoping their products can win them a share of this new, unconventional market, which is not yet dominated by insurance giants.

A staff member with the Wuhan-based Union Life Insurance told Xinhua the company is busy developing relevant products with the aim of expanding services in the promising old-age insurance sector.

But considering experiences in other countries, the house-for-pension scheme may only be a niche market, he said.

Yang Qun, an executive with the Ping An Annuity Insurance Company, said such products mainly target urban elders with no children and limited means of livelihood. She estimated the number of potential costumers at 600,000 nationwide.

But Yang described the services as lucrative and said her company -- the pension management arm of Ping An Insurance Group, a major player in China's insurance market -- has been "actively" applying for a role in the pilot program.

UNCERTAINTIES

But analysts said the prospects for this novel insurance are still uncertain, which may dent the enthusiasm of insurance companies and render this eldercare solution less appealing to China's senior citizens.

"Around the world, [reverse mortgaging] needs powerful policy back-up," Yang said. "The country must offer preferential terms in legislation and tax, and solve the problem of the 70-year leasehold for real estate."

In China, public land and private properties can be leased for no more than 70 years. When elders pass away, it is possible that the leasehold may not be far off expiration, while the cost of extensions remains unknown.

Yang identified other problems like a lack of eldercare services, which will affect elders' consumer demands (or their wish for deeding their houses to improve quality of life), and uncertainties in the property market.

China has faced an uncertain property market this year, with many predicting a decline in housing prices, which will bring higher risks for insurance companies dealing in reverse mortgages, said Hu Gang, a real estate researcher and professor with Jinan University.

Though elderly clients can be warranted against potential losses in times of plunging house prices, the lack of regulatory clarity may prompt insurers to lower evaluation of clients' houses as well as the amount of loans they give out, Hu said.

Because of Chinese cultural tropes about elderly care, controversy has raged over the house-for-pension scheme since last year, when the State Council introduced the concept.

Even prior to that, financial institutions in several cities had rolled out similar services, but all fared badly. It is believed to have clashed with the nation's tradition of relying on children for elderly care and leaving properties to them for inheritance.

By the end of 2013, the number of people aged above 60 in China stood at 202 million, or nearly 15 percent of the total population. Experts have pointed to the huge market potentials in this area, including elderly care and finance, which have remained largely untapped so far.