Recently few reports published China’s Central Bank has been experimenting with the idea of a digital currency for the past decade, and it is widely expected that a Chinese CBDC will be developed in time for the release of its alternative to the USD, known as the “digital yuan”. If you want an entirely automated trading platform, you can visit the website https://yuan-paygroup.com/; you will get all the advanced trading features here.
People widely believed that China’s Central Bank Digital Currency would become operational in 2020; however, the currency was published in 2021. The questions raised by central bank-controlled digital currencies relate to whether this would provide transparency and control to its financial sector, maintain stability in its economy, and enable China’s overarching central planner, the PBOC, to exert influence on all economic activity. In addition, this post provides insight into how a user in an insurance industry environment might use a digital yuan.
The insurance industry of china:
Insurance is a vital financial service that protects individuals and businesses from significant financial risks. The industry is an essential component of the social and economic fabric. It offers a range of products and services that enables individuals and organizations to protect themselves against potential losses and meet their financial goals.
Insurance provides a means to pool individual risk so people can spread their exposure beyond the limits of their pockets. The industry involves both public players and private companies. According to China’s Insurance Regulatory Commission (CIRC), there were 166 insurers in China as of 31 December 2017, with total assets worth RMB 3.2 trillion. CBDCs in China:
With the introduction of the CBDC, there could be potential benefits to China’s insurance industry. For example, a CBDC could allow insurers to manage risks better and enhance their ability to share information on clients’ financial health, allowing greater transparency.
Therefore, CBDC implementation would support healthy business practices, enabling organizations to make better investment decisions. A CBDC can also significantly improve transparency and control for Chinese regulators due to its use in real-time settlement, which allows regulators to easily access the entire transaction history of all transactions done through a CBDC. A central bank-issued digital currency would also support economic activity and improve the monetary policy transmission mechanism.
How could the Chinese digital yuan be used in the insurance industry?
China’s insurance industry is becoming more innovative, and the growing use of information technology (IT) is helping to create more efficient business models and related services. To strengthen the development of its insurance service, China’s central bank has taken up the initiative by launching a digital asset platform to facilitate modern financial service infrastructure. In addition, the PBOC Digital Currency Research team aims to leverage blockchain technology so that all participants will have equal opportunities to develop their applications based on this infrastructure.
Digital Yuan can decrease banking fees in insurance transactions:
The insurance industry is one of the most cost-efficient platforms for transactions. However, due to the fees that banks charge, this sector is slowly gaining prominence as a more efficient channel for financial services than traditional banks.
Digital yuan will help to reduce the costs incurred by insurers and their clients. In the process, it will create a more efficient environment where insurance companies can give better service to their clients at lower costs. In addition, the digital yuan can also increase competition in the insurance industry because it will allow private companies to offer insurance services similar to big financial institutions while lowering their expenses and access barriers like security clearance requirements or regulatory restrictions, ultimately leading to lower prices of insurance services.
Digital Yuan can decrease contractual failure:
A contract must be completed within the agreed period to avoid an insurance company losing out on future business. This phenomenon is known as a contractual failure, whereby a potential loss is missed or not captured due to delays in processing and timely payment of premiums.
The solution to this problem is achieved through a CBDC, which is capable of implementing an intelligent contract system that automatically settles obligations between insurers and their clients in accordance with pre-agreed rules. The advantages of digital yuan for insurance contracts can involve pre-agreed payments for monthly premiums and immediate settlement after a claim is made, thereby reducing the risk of non-payment.
Digital Yuan will decrease fraud and corruption in the insurance industry:
Insurance fraud has become increasingly common in China. The high level of fraud in insurance has been attributed to the fact that it costs less to commit fraud than to pay for insurance premiums, which is a significant obstacle for insurance companies.
The introduction of digital yuan can help to decrease the cost of fraud and improve the overall financial transparency at insurance companies by allowing individuals and organizations to verify insurance transactions through various sources of information, such as transaction history, regulatory records, and online registrations. It could also reduce the risk of collusion between insurers by making it easier for consumers and members of the public to acquire information about insurance companies. Digital currency would also enhance transparency between insurers and consumers, creating more effective market competition.
Digital yuan will be more secure than paper money:
A significant benefit of digital currency is that it can reduce fraud and identity theft cases that often occur when customers use cash to buy goods or services. This advantage will be especially beneficial in the insurance industry, where clients must provide sensitive personal information to ensure they receive good service.
Implementing the CBDC is expected to promote the development of new business models and services and improve their overall functionality. In addition, the advantages of the digital yuan will allow insurers to provide a better service at lower costs, thereby creating a more efficient environment for insurers.