Since China entered the World Trade Organization at the end of 2001, its insurance sector has gradually opened to foreign companies in terms of both market access and operational restrictions. Meng Zhaoyi, director of the China Insurance Regulatory Commission’s (CIRC) international department, said on Tuesday that so far 15 cities have fully opened to foreign insurance businesses and all others will be accessible by the end of this year.
“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. And that is a good thing,” said Meng.
China is scheduled to lift nearly all restrictions on foreign insurers at the end of this year as part of its WTO commitments.
Currently, foreign insurers are only allowed to provide property insurance and life insurance to Chinese citizens. Within the next few months, key market segments such as group insurance and annuities will open. Moreover, foreign insurers will be permitted to operate in all Chinese cities, although they will still need regulatory approval before new branches are set up.
The lifting of operational and geographical restrictions, coupled with the gradual accumulation of experience in the local market, will spur foreign insurers’ growth and increase their market share. The effect is apparent even in the first two years of opening, Meng said.
Foreign insurers’ new business jumped 50 percent year-on-year in the first half of 2004, twice the pace of growth of their Chinese counterparts.
Thirty-nine foreign insurance companies have so far entered the Chinese market and have set up 70 operational entities, including branches and joint ventures.
In Guangzhou, a major target in their China strategies, foreign insurers seized an unexpectedly large 41.5 percent share of the market in first-year life insurance premiums during the first five months of this year.
American International Assurance reportedly recently overtook New China Life Insurance to rank fifth in terms of sales through agents in the domestic market. The US-based insurer raked in 2.5 billion yuan (US$301 million) in premiums during the first seven months of this year.
The difference in growth rates between foreign and local insurers this year is in part attributable to the foreign companies’ low base figures. At the same time, their Chinese competitors are undergoing reforms and business restructurings that hamper premium growth.
Analysts said that a broad reduction in the sales of five-year single-premium products this year, as major domestic insurers trim unprofitable operations, was a major reason for the abrupt downshift in the life insurance segment in the first half.
“But increasing competition will promote mutual growth and improve the overall competitiveness of the domestic insurance industry,” Meng said.
Nearly all the foreign life insurance companies are joint ventures with Chinese partners, although most foreign property and liability insurers have set up branches.
Existing industry trends and the huge potential for growth are drawing increasing attention from the international insurance community.
In a trend that is almost certain to continue, the Chinese insurance industry has grown more than 30 percent during the past two decades.
CIRC Chairman Wu Dingfu has been invited to speak at the 11th International Association of Insurance Supervisors (IAIS) annual conference, to be held in Jordan next week.
(China Daily September 29, 2004)