Chinese Insurance Market News

Chinese Insurance Market

A number of insurance companies do not attach importance to strengthening internal management and innovating their products and services, leading to the deterioration of their abilities to compete in the industry, "Some companies even flout the law, with no regard for cost effectiveness, in blind pursuit of market share. Further reports hold that China's insurance industry will see lower profits in 2012, citing a difficult operating environment and struggles with poor customer service and unethical salesmen. Growth will slow, insurers will be less able to make payouts on claims and will reap lower investment returns. Customers don't trust the insurance sector due to misleading salesmen and the difficulty of getting paid back (on claims), while companies themselves continue to grab market share, sometimes through illegal methods. "These problems are eroding the foundation of trust for the development of the insurance industry and seriously damage the image of the sector. Last month, Ping An reported its plans to raise up to 26 billion yuan ($4.1 billion) by selling convertible bonds to replenish capital amid economic uncertainty.But Standard & Poor’s noted that Chinese insurers will need more than 110 billion yuan of external funding to fuel their rapid development in the next three years.

Since its reform, China has begun to gradually decrease direct social security protection and insurance has become necessary to many citizens who find themselves without the government’s social security coverage. On January 1, 1984, People’s Insurance Company of China (PICC) was re-established and supervised by the People’s Bank of China as an independent insurance company. The establishment of Shenzhen Ping, an insurance company in Shenzhen, ended the PICC’s monopoly in 1988. With the establishment of China Pacific Insurance Co. Ltd. in Shanghai in 1991, a competitive insurance market began to take form. In 1992, AIA became the first foreign insurer to conduct insurance business in China . Following the establishment of AIA’s Shanghai branch in 1992, distribution through individual agents emerged for the first time in the China’s life insurance market, and shortly after, in the property and casualty insurance market. Since then, the number of individual agents has grown rapidly. In response to rapid developments in the insurance market, the National People’s Congress (NPC) promulgated the PRC Insurance Law in 1995, which set forth the framework for restructuring and rationalizing the PRC insurance industry. One of the most important clauses of the 1995 PRC Insurance Law was to classify insurance into property and casualty insurance (including property, casualty, liability and credit insurance) and life insurance (including life, accident and health insurance). A single entity was only allowed to provide one of the two services but the 2002 amendment of Insurance Law allowed one group to have both life insurance and property and casualty insurance subsidiaries. Following the enactment of the PRC Insurance Law, PICC was restructured into the PICC (Group) Company, with its businesses being transferred to three subsidiaries: PICC Life Insurance Company with a focus on life insurance, PICC Property Insurance Company with focus on property and casualty insurance, and PICC Reinsurance Company with a focus on reinsurance. PICC was once again restructured in October 1999 when the PICC Group was split up. The three subsidiaries were re-organized into three independent companies: PICC Property Insurance Company became known as PICC; PICC Life Insurance Company became China Life Insurance Company; and PICC Reinsurance Company was changed into China Reinsurance Company. Besides the structural changes occurring in the insurance industry, the regulatory system has also been strengthened. In 1998, China Insurance Regulatory Commission was established and assumed the power and responsibility of supervising the insurance industry previously under the control of the PBOC. The formation of the CIRC underscored a policy objective of fostering the orderly development of the Chinese insurance market.  Currently, the only major restriction is on life insurance company ownership as foreign insurers are required to set up a JV with a local partner, and may only hold up to 50% equity interest in the JV. While it provides a great opportunity for foreign insurers, it poses a big challenge to China’s domestic insurers. To cope with the threat of foreign counterparts, China’s domestic insurers have accelerated their pace of restructuring. In July 2003, PICC was restructured into three companies: PICC Holding Company, PICC Property & Casualty Insurance Company, and PICC Asset Management Company Limited, and in August 2003, China Life Insurance Company was restructured into China Life Insurance (Group) Company and China Life Co., Ltd.  Growth of Premiums Although China’s economy is expanding at one of the fastest rates in the world, it pales in comparison to the growth of its insurance industry. With the continuing implementation of economic reforms that started in the late 1970s, there has been a surging demand for insurance policies. This is partly due to the rising income and higher quality of life demands, and partly due to the implementation of a more market-oriented social security system. In 2007, the gross premiums written in China reached RMB 703.6 billion, 24.7% higher than in 2006. The average annual growth from 2000 to 2007 of gross premiums was 23.5%. In the same year, insurance depth and insurance density amounted to 2.9% and RMB 535 respectively.