Overseas insurers get warm welcome
By Zhang Dingmin (China Daily)
Updated: 2005-01-17 14:39

Foreign insurance firms are giving their Chinese counterparts a run for their money, despite the domestic market having only fully opened last month.

Residents in prosperous cities such as Guangzhou and Shanghai are among those who opt for policies offered by foreign insurers, whose innovative products, management expertise and sometimes more than a century of experience are attracting Chinese customers.

Beijing employee Liu Jia is one of those. He is planning to buy some travel and life insurance products, but is only looking at those offered by foreign companies.

"I think they are more mature, reliable, and provide better services. They seem to have quite good selections for us," he said. "So I'm not considering local insurers."

Liu is not alone. This is proven by the blistering 50 per cent growth in foreign insurers' business in China in the first six months of last year, more than twice the growth rate of their domestic counterparts.

So far, 39 foreign insurance companies such as American International Group have entered the Chinese market and established 70 operational entities, including branches and joint ventures.

Despite having just a few years' experience in this new market, they have already snapped up a sizable share, as high as 14 per cent in the nation's economic hub of Shanghai.

And foreign insurers have already grabbed a massive 41.5 per cent share of the first-year life insurance premiums business in Guangzhou, the capital of South China's Guangdong Province, according to the China Insurance Regulatory Commission (CIRC).

The recent opening of lucrative corners of the market, such as group insurance, health insurance and annuities, means that 2005 will be an even more profitable year for foreign insurers in China.

China lifted all geographical and business scope restrictions on foreign insurers last December as part of its commitments upon World Trade Organization (WTO) entry three years ago.

Does this mean that Chinese insurance firms are quaking in their boots, as they watch these foreign behemoths march in and clean up?

Interestingly, the answer to this question is no.

Although the domestic insurance industry was generally nervous about the opening of the sector to foreign competition when it was announced as one of China's commitments on joining the WTO, they are now much more sanguine.

"No matter whether they are foreign or Chinese, insurance companies' strong growth will be conducive to the development of the local insurance industry and the economy," said Meng Zhaoyi, deputy director-general of the CIRC's International Department. Meng insisted that the arrival of foreign insurers in China "is a good thing."

In fact, it can be argued that entry of these foreign firms to China's insurance market has given their domestic industry a vital wake-up call.

"Every company is now paying great attention to product development," pointed out Zhou Jun, a general manager in charge of this field at a major Chinese property and casualty insurer.

Such awareness of product innovation has not been witnessed since the nation's insurance industry was re-established in 1979 after a hiatus of 20 years due to political factors.

This trend promises to bring an end to years of intense price competition among domestic insurers, which analysts say is mainly due to a widely held misconception that insurance products are merely combinations of different terms and premium rates.

"That's why three categories - automobiles, cargo and business property - dominate insurance companies' balance sheets, despite more than 1,000 products being registered at the CIRC," said Zhou, pointing out that many are just copies of other products.

This low-level competition has resulted in price undercutting in many business lines. This pushed automobile insurance to the brink of industry-wide losses early in 2002.

But foreign players' development of new areas of the market with their experience and expertise means that they are likely to clear up this mess.

"We are going to see more new products by foreign insurers that are genuine innovations," Zhou said.

"The biggest challenge facing Chinese insurers is ensuring that their products have real technological content in terms of distribution, database backup, and actuarial capacity," he added.

"But that's precisely what we are opening up for - using foreign competition to fuel the progress of Chinese insurance companies," he said.

Product development is not the only area that has benefited from the opening of the sector. Huang Himing, a professor at Beijing's University of International Business and Economics, argues that China's WTO membership has provided the domestic insurance industry with "a good environment for healthy growth, and an internationally competitive environment."

Huang said this new environment will help domestic insurers improve their credibility, and become more customer-centred, market-oriented and professional.

There are signs that competition is helping to alter the deep-rooted "premiums first" misconception among many Chinese insurers. "It's good to see that every company is now striving to build their own corporate culture," Huang said. "In the end, competition is about corporate culture."

He added: "You need to meet clients' demands before you can meet the company's profit targets."

Another example, Huang said, is the long-dormant agriculture insurance sector, where hope has returned after French insurer Groupama brought in a new concept of complementing the traditional business lines of planting and breeding insurance with the more profitable business of property and life insurance for farmers.

"Foreign capital has set a good example," he said. "I'm expecting a breakthrough in broader agriculture insurance."

Heavy losses meant that domestic insurers nearly threw in the towel on agriculture insurance before Groupama opened a branch last September in Southwest China's Sichuan Province. Several specialized Chinese agricultural insurance firms have also been set up recently.

"After the (WTO) accession, there is no longer a feeling that the 'wolf is at the door,' because you see the new things foreign insurers are bringing," Huang said.

"And domestic companies are catching up quickly, and their progress is much faster than before," he added.

Chinese insurers still dominate the domestic market, with foreign players accounting for only around 3 per cent of total premiums.

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