In recent years, Chinese population is tilted towards older people, and it is very limited for the state to invest in the elderly care facilities. Encouraged by the national policy, many insurance companies have embarked on constructing and operating the retirement community. However, the profit model of these insurance companies is not clear yet, and the return on investment is low, in which China Life is quite typical. Therefore, taking China Life as the research object and Osterwalder’s nine-element theory as a tool, the paper analyzes the existing business model of China Life developing the old-age care communities, and uses the business model canvas to reconstruct a new business model. Finally, the paper presents three management suggestions—that is—joint ventures with professional management institutions, innovative insurance products linked to pension communities, and the securitization of old-age assets. That will provide references for other insurance companies developing old-age care communities.
According to the National Statistics Yearbook, by the end of 2016, China’s total population was about 1.383 billion, of which about 150 million were aged 65 and over, accounting for 10.8% [
The increasingly severe aging situation has intensified the problem of old-age care. More and more elderly people have no choice but institution pension. However, because the facilities and services are not in place, the old people lives in an embarrassed life, even many institutions just hang the signs but there are few old people inside. At present, all major cities in China have built institutions such as nursing homes and old-age homes. The beds in public nursing homes are limited, while private nursing homes or old-age homes are expensive and the environment is very poor. Moreover, these nursing homes or old-age homes only meet the material and physiological needs of old-age people, but pay little attention to their spiritual needs and psychological comfort, which leads to deficiency of structural supply of the old-age institutions.
Encouraged by national policies, many insurance companies are eager to join the army of investing in the pension industry, especially in the development of the old-age care communities. Among them, China Life, as one of the top 500 listed insurance companies in the world, has abundant funds, cooperative relationships with medical institutions, strong customer resources and marketing networks, but lacks management experience in developing old-age care communities. In addition, the profit model is not clear, and poor operation results in low return on investment. If China Life can fully integrate resources and advantages, it will play a positive leading role in the development of China’s old-age care communities.
Therefore, based on the nine-factor theory of business model, this paper analyzes the existing business model of China Life developing old-age care communities and reconstructs a new business model. Combined with the specific practice and nine structural blocks, it enriches the connotation of business model, and exports a new business model canvas for China Life developing old-age care communities, which can provide references for other insurance companies.
The content is organized as follows: the first section is introduction of background; the second section is a literature review on old-age care communities, the connection between old-age care communities and insurance companies, and the business model; taking China Life as an example, the third section analyzes the existing business model of developing old-age care communities; the fourth section reconstructs a new business model, and the last section gives a discussion of specific suggestions.
The American pension community refers to the CCRC-Continuously Cares for the Retirement Community-is defined from an age perspective. The retirement community is a community that meets the needs of elderly people over the age of 50 who do not have children under the age of 18. The residents of this community can enjoy daily life services, perfect care and leisure activities [
The construction of the old-age care communities is of great significance for solving the problem of old-age care in China. Under the background of aging population, the fact that family pension and institutional pension cannot satisfy the needs of old-age care is becoming more and more prominent. Community pension, a novel old-age care mode, is gradually popular with and recognized by
| Old-age care communities | Community Pension Institutions | |
|---|---|---|
| Purpose of the establishment | to provide a better old-age environment and service | to solve the daily care problem of the inconvenient old people |
| Needs level focused on | material and spiritual | material |
| Established institution | investors | government |
| Profit property | profit-making | non-profit |
the elderly. However, the development of China’s old-age care communities is still at the primary stage and has little successful experience for references . There still exists many problems on developing old-age care communities in China. For example, the internal functions of the old-age care communities are not so perfect that the life quality of the elderly cannot be truly improved; the government provides little support and the relevant policy is ambiguous; lacking of the characteristic community pension model adapted to China’s national conditions [
In view of the problems above, the connection between the insurance company and the old-age care communities can achieve a multi-faceted effect. The return rate of insurance companies on long-term investment in real estate is about 6.5%, which is much higher than bank deposits and treasury yields and which is close to stock returns [
There are several major views on the forms of connection between insurance companies and the old-age care communities. Insurance companies invest in the construction of old-age care communities is not only to meet the basic material needs of the elderly, but also to pay more attention to their spiritual needs, therefore, they increase the construction of recreational facilities and treatment facilities in the community. From the perspective of insurance funds application and insurance product functions, it is an active exploration for Insurance companies to develop the old-age care communities. There are five modes for insurance companies to develop old-age care communities, namely, the whole capital mode, the equity cooperation mode, the equity investment mode, the REITs mode, and the mode of issuing real estate investment in fund products [
The concept of business model was first proposed in the 1950s and was widely spread in the business circles in the late 1990s.Until to today, the business model has still been what both academia and business focus on. Drucker, a world-class management guru, once said that the competition between enterprises is not the competition between products, but the competition between business models, which shows that the business model is of high importance. The academia has not yet formed a unified view on the business model. Johnson defines the business model as “a description that a specific business creates and delivers value to customers and businesses themselves” [
In order to study the business model systematically, scholars at home and abroad have proposed different analytical tools and frameworks. Wang Shouyang et al. propose the iceberg theory of business model and the CET@I methodology used for analyzing the tacit knowledge of business models. The core idea is that the business model is a complex system that integrates with the organizational conditions including industry (C), regional environment (E) and technological development (T) [
Osterwalder et al. proposed in Business Model Generation that "business model can be seen as nine blocks consisting of value proposition, customer segmentation, channel access, customer relationship, core resources, key business, important cooperation, cost structure, revenue sources." This paper attributes these elements to four dimensions―products or services, marketing strategy, resource management, and financial capabilities. Based on Osterwalder’s description in the Business Model Generation, a brief description of the nine elements of the business model is shown in
In summary, the current literature mainly focuses on the practical significance of insurance companies developing old-age care communities and the specific
| Four Dimensions | Components | Brief Description |
|---|---|---|
| Products or Services | Value Proposition | The company provides a variety of optional products or services for a specific group of customers, seeking a resonance point to meet the diverse and individual needs of customers. |
| Marketing Strategy | Customer Segmentation | After identifying the target customer groups, the company classifies the customer according to certain conditions. |
| Channel Access | The way that companies approach customers and deliver value propositions to their customers. | |
| Customer Relationships | Companies need to maintain an appropriate relationship with their customers to increase sales. | |
| Resource Management | Core Resources | Real assets, financial assets, intellectual assets or human resources. |
| Key Businesses | Which businesses are needed to support company’s value proposition, channel access, customer relationships, and revenue sources. | |
| Important Partnerships | Companies create a range of partnerships for value activities of clients needed. | |
| Financial Capabilities | Cost Structure | The various cost distributions that companies need to spend in order to operate a business model efficiently. |
| Revenue Sources | Profit mode and the main source of profits. |
mode of construction. It lacks systematic analysis and scientific advice on the business model. Therefore, taking Osterwalder’s nine-element model as a tool and China Life as the research object, this paper systematically analyzes the existing business model of China Life developing old-age care communities, and establishes a more scientific business model.
Through literature consulting and field observations, the existing business model of China Life developing old-age care communities is shown in
It can be seen from
| Four Dimensions | Components | Brief Analysis |
|---|---|---|
| Products or Services | Value Proposition | The “Policy + Entity” mode provides the health services by connecting insurance products and old-age care communities. |
| Marketing Strategy | Customer Segmentation | It aims mainly at old people with higher requirements for the old-age quality. |
| Channel Access | The channel is mainly uses the business outlets and agents to sell. | |
| Customer Relationships | Social reputation and providing pension consultants for the elderly are used to maintain customer relationships. | |
| Resource Management | Core Resources | Steady insurance funds and pension community entities provide a material basis for the stable operation of the aged community. |
| Key Businesses | It mainly sells insurance products linked to the old-age care communities, and offers diversified care services and professional medical services. | |
| Important Partnerships | Networks of partnerships with well-known medical institutions has been established to provide advanced medical treatment for the aged community. | |
| Financial Ability | Cost Structure | It is mainly composed of fixed cost (equipment maintenance, salary) and variable cost (operation management). |
| Revenue Sources | It is from the fees of the purchasing insurance, service fee, and the rental fee of the property. |
old-age care communities is very large and the payback period is long, resulting in poor financial liquidity of insurance companies. A detailed analysis is as follows:
First, the management of the old-age care communities is not in place. Domestic insurance companies developed old-age care communities relatively late, and have not yet had successful business models and scientific management experience for references. Foreign countries and China’s national conditions are different and cannot be “replicated” completely, which increases the difficulties for China Life to develop old-age care communities. Inside, wrong judgments on the macro policies issued, lack of professional management methods and unreasonable allocation of funds will make the old-age care communities more chaotic so that management costs rise; outside, the overall economic trend, the real estate bubble, and the tax policy will bring great pressures to the management of the old-age care communities invested by China Life. At present, the prospects of the pension market are still unclear, and the expenditure on operation and management has been consumed. With the number of old-age care communities increasing, China Life’s expenditure will be more. If the mistakes occur to management, it is very easy to affect the profitability of the old-age care communities.
Second, it is difficult to achieve and enhance customer value. China Life developing old-age care communities cannot effectively satisfy the true value of customers. The first reason is high cost. Insurance companies must invest in building an old-age community. They need to buy land, to build houses, to introduce professional medical care institutions, and equipped with health care facilities. These capital costs have been consumed a lot before the formal operation of the old-age care communities, which has become the most important reason for the high price of the old-age care communities; second, the lack of management talents and experience makes property, personnel and facilities in the community is chaotic, which has caused a lot of inconvenience to the living people. If the management of the old-age care communities is outsourced to a professional agency, the annual fee will be also a large expenditure. Third, the price is relatively high. China Life developing old-age care communities targets customers to middle-income and high-income groups in the initial stage of operation. The entry fee alone is difficult for ordinary people to accept.
Third, the existing business model has a poor capital liquidity. China Life has faced a problem of poor capital liquidity in the process of developing an old-age care community. The main reason is that on the one hand, the funds invested by insurance companies in the old-age care communities is very large, occupying a considerable proportion of investable assets and making the proportion of diversified investment small so that the total cash flow revenue is low; on the other hand, the old-age real estate is greatly affected by the national policy, and it is difficult for internal managers to predict the trend in the short-term and to take the opportunities of investing so that a large amount of funds are faced with loss. In terms of the investment in the old-age care communities, the recovery time is long and liquidity risk is easy to occur.
Based on the problem of China Life developing old-age care communities and China Life’s strategic layout-“great pension, great health, and great capital management”, it is necessary to not only provide elderly care services for residents in the community, but also introduce the health management and asset management to meet their health care and financial needs. Because the idle funds held by the elderly are strongly hoped to maintain value. In addition, in order to realize the good wishes of learning in old ages and giving back to the society, it is imperative to develop skills training and other services. Only in this way can we better enhance customer value.
Developing a series of insurance products and services for old-age care, health management and asset management to meet the diverse needs of the elderly.
Value proposition: China Life should continue the “policy + entity” model-linking insurance products to the old-age care communities. The elderly can purchase the corresponding insurance products to obtain the eligibility of the old-age care communities, and insurance proceeds are used for enjoying the service in the community. However, it is not enough to provide old-age health services for the residents in the community. Their health care and financial needs should also be consideration so that the idle funds held by the elderly can be preserved and value-added.
Through market research, identifying and segmenting target customers, and determining the best marketing channel to contact customers, and maintaining the relationships that can satisfy customers.
Customer segmentation: Based on life quality and physical health condition, China Life developing the old-age care communities can further subdivide customers and provide professional services according to their needs.
Channel access: In addition to business outlets and agent sales, China Life developing old-age care communities can actively seek other channels such as telephone or online sales, regular customers’ recommendation, door-to-door service promotion, and cooperation with related companies.
Customer relationships: China Life can maintain the customer relationships in the old-age care communities by relying on the social reputation of China Life, equipping with healthy and financial advisors, organizing various activities, and training for management and service personnel.
Digging businesses with high relevance to the pension industry as much as possible, extending the industrial chain, and reaching a partnership with high-qualified stakeholders.
Core resources: Except for a steady stream of insurance funds and pension community entities, China Life developing the old-age care communities can also extend the pension industry chain, such as securitize assets and enhance the value of assets.
Key businesses: China Life developing the old-age care communities not only provides basic services such as pension service, insurance sales, medical treatment, but also expands value-added services such as health consultation and asset management, which can increase income sources and meet the diverse needs of the elderly.
Important partnerships: Due to the lack of health management business, asset management business and management experience, it is necessary to establish a network of medical institutions and to reach a long-term cooperation agreement with health consulting companies, asset management companies and operation institutions, thus improving the life quality of residents in the community.
Expanding the business scope as much as possible to increase the revenue sources, while minimizing costs.
Cost structure: The cost of China Life developing the old-age care communities consists mainly of fixed cost (operation and management expenditure, equipment maintenance and repair expenses, personnel salary) and variable cost (operation and management fee).
Revenue sources: In addition to basic premium, meal fees, service fees and other income, they includes property rental income and the income of services such as health consultation and wealth management.
Based on the above and Osterwalder’s business model canvas, the new business model is as shown in
It can be found from
Based on the nine-element theory of Osterwalder’s business model, this paper analyzes the existing business model of China Life developing old-age care
communities. It is found that it mainly has three problems of inadequate management, difficulty in improving customer value and poor liquidity. Therefore, three suggestions can be put forward as follows:
First, China Life can collaborate with professional management institutions. China Life has sufficient financial advantages and a network of medical institutions, but it must also recognize that it has no experience in the aspect of operating and managing old-age care communities. In the early stage, China Life must invest a lot of money in the construction of the old-age care communities. But in order to reduce operational risks and improve the return on investment, joint venture with professional management institutions has become an inevitable choice. Relying on its advanced and scientific experience, the professional management institutions can provide professional services for old-age care communities, which can enhance customer satisfaction, attract more customers, and create sufficient conditions for profit acquisition.
Second, China Life can innovate the insurance products linked to the old-age care communities. Focusing on customer needs, China Life should continuously develop forward-looking financial derivatives linked to old-age care communities, which can help them manage their finances and ensure future life quality is not affected. For example, if a customer signs a contract or agreement with China Life, the person will have the right to stay in the future pension community in advance, and can receive the survival funds every year. After the expiration, they can either receive the birthday money and bonus or put all into the universal insurance account to obtain higher income, thus achieving the dual functions of both pension and finance. In addition, China Life’s pension communities should provide thoughtful and professional services for the elderly, revealing love and care in the details. Therefore, these factors such as living comfort and safety, humanized facilities and cultural social relations are taken in consideration.
Third, China Life can securitize pension assets. China Life need to invest a large amount of funds in the early stage, but long-term return on investment makes profit acquisition so difficult that the net cash flow is sometimes negative. These problems are not beneficial to improve efficient use of capital and to expand reinvestment, so China Life must attach importance to asset securitization in the insurance field and enhance the liquidity of funds. As for the pension community projects that are expected to generate stable net cash flows, it is necessary to transform their income rights into liquid and tradable securities assets by the means of restructuring and enhancing credit.
There are still some new research directions. For example, scholars can select more advanced tools to analyze problems, and research the logic of value creation, value transmission and value acquisition on insurance companies developing old-age care communities.
The authors declare no conflicts of interest regarding the publication of this paper.
Shi, L.L. and Wang, Y.F. (2018) Research on the Business Model of Insurance Companies Developing the Old-Age Care Communities―Taking China Life as an Example. American Journal of Industrial and Business Management, 8, 1928-1940. https://doi.org/10.4236/ajibm.2018.89129