China's life insurance market is poised to become the world's third largest after two decades of unprecedented growth, with an expected two-digit growth in the next five years, a new report released by McKinsey & Company said.

The life insurance industry in China has been through three stages from a huge boost with an annual growth of 33 percent in 1990s, to consolidation into three major insurance companies focusing on profits in the 21st century and finally arrived at the current upgrades of product structures at a slower pace.

The industry's aggregate returns over the last decade have exceeded the cost of equity by just half of one percent, far less than lower-risk investments.

"As returns fluctuate widely and have barely broken even, the market focus will shift to pursue value creation in the next five years," said Shi Lei, Senior Partner of McKinsey & Company.

Getting digitalized will be also a direction for insurance companies to focus on, according to the report. As millions of people move their insurance shopping online, carriers have opportunities to turn to digital distribution, reduce dependence on banks and grow profitably making more targeted investments in building agency sales forces.

"Insurance carriers in China have to catch the opportunities for value-added growth by applying digital tools and analytical methods to build up improved relationships with clients," said Shi.