China is fast becoming one of the world's most important economies. Although its financial services sector is still small compared to the US, Europe, or Japan, its rapid growth rates and huge potential size make it a critical arena for expansion for both insurers and solution providers.
Although the insurer market is currently dominated by Chinese firms, new entrants are flooding the market as well from all corners of the globe. In 2004, a wide range of companies established operations in China, including Mitsui Sumitomo (Japan), Samsung (South Korea), Cathay (Taiwan), Allianz (Germany), Prudential plc (UK), Manulife (Canada), and Met Life (USA).
While the top five Chinese companies in both the life and non-life sectors currently control 85-90 percent of the market, these new entrants are growing up to four times faster than the local Chinese firms. Within a few years, they could control a sizeable portion of a rapidly expanding market.
The Chinese insurance market was about USD60 billion in premiums in 2004, and is projected to grow to over USD95 billion by 2009. The fastest growth is in the non-life sector, since this segment is currently underserved. But a strong growth in affluent population (China currently is reported to have more than 250,000 USD millionaires!) should lead to strong growth in Life as well.
As Chinese and foreign companies compete in this market, they face different organizational and technological challenges. Chinese companies have an advantage with their market knowledge and especially with their relationships with regulators, but are hampered by underdeveloped business practices and technology. Foreign entrants are typically further advanced in those areas, but must adapt to a new market, which operates differently from the more mature markets that many are used to dealing with.
Based on Celent's conversations with Chinese insurers, one of their biggest acknowledged challenges is lack of strong management leadership and established practices to deal with a highly competitive market. Since most Chinese insurance executives have grown up in a highly protected market, they are unused to both aggressive competition, and the management burden of operating a public company that must maintain transparent operations to investors (in this way, they are not unlike the first generation of demutualized US insurers).
Chinese insurers also need to make sure that they don't get blinded by their high-growth environments to the extent that they over-focus on premium revenue while neglecting disciplined underwriting and managing loss ratios.
In addition, many Chinese insurers feel at a disadvantage when it comes to product innovation and meeting higher service level expectations, again due to their main experience of operating in a protected market for so long.
In the IT arena, Chinese insurers are dealing with out-dated, and in some cases, entirely lacking, systems to support their new business needs. Many Chinese insurers are focused on their desktop productivity systems, since they need to build infrastructure in that area most quickly. They also need to build the basic infrastructure for growth, including server capacity and networks. But new core systems, including CRM, product development, distribution support, e-business, and business intelligence and reporting, are all critical needs for most Chinese insurers.
