When China was negotiating to join the World Trade Organisation in 2001, a crucial sticking point was whether it would open the country’s insurance sector to foreign companies.
Beijing agreed to allow foreign property and casualty insurers to operate wholly owned domestic units. Foreign life insurers would be allowed to hold up to 49 per cent of Chinese joint ventures by the end of 2004.
Many predicted that the major international insurers, with decades of experience and myriad sophisticated products, would rapidly capture market share from the lumbering state-owned underwriters.
But three years after the market’s opening, the fearsome foreigners have gained little ground even though large international insurers have dedicated enormous energy and resources to this tantalising market.
In the first half of the year, foreign-owned P&C insurers’ market share was just 1.15 per cent, down from 1.24 per cent in the same period a year earlier and even from the 1.17 per cent share notched up in 2005.
Foreign life assurers fared slightly better. Their market share reached 5.79 per cent in the first half, up from 4.82 per cent in the same period of 2006. “This could reflect the fact that life insurance is more attractive to insurance companies than property and casualty, so the foreigners are putting less resources into that sector,” says Dorris Chen, BNP Paribas analyst.
Foreign life assurers, however, captured 12.77 per cent of the market in the first half of 2005. That was thanks to a single Rmb20bn ($2.6bn) policy sold by Generali China Life Insurance, a joint venture between Italy’s Assicurazioni Generali and the China National Petroleum Corp.
That policy – an annuity, retirement and pension that covered CNPC’s 390,000 employees – made up the bulk of the Rmb32.4bn in total premium income earned by foreign insurers in China in 2005. No such mega-policies have been issued by foreign insurers since.
The only foreign insurer to make a consistent strong showing is American International Group. Its wholly owned American International Assurance unit got its business licence back in 1992 through practised lobbying and captured 1.6 per cent of the overall life assurance market on its own in the first half of this year.
Though foreign groups are not gaining ground, China’s insurance market is growing at an annual rate of about 20 per cent and will probably continue its rapid expansion thanks to the dismantling of the country’s social infrastructure and the lack of a replacement safety net.
Foreign insurers put their slow progress down in part to continuing regulatory barriers. Although the national market was formally opened, insurers have found that they must apply separately in every local market in which they want to operate. This process is time-consuming, opaque and fraught with red tape.
