Tuesday, February 28, 2006

Higher Threshold for Foreign Insurers in China

China Daily

Beijing, Feb. 28 -- Foreign insurers are going to face a much higher threshold to enter the Chinese market due to the industry watchdog revising the management rule on foreign insurers' representative offices in Beijing.

As a major change, the new draft, which is open to the public opinion before March 9, required foreign insurance institutions to have at least 20 years of continuous experience in running an insurance business when applying for a licence to set up a representative office in China.

For those running non-insurance businesses, they should have a business history of more than 20 years, said the China Insurance Regulatory Commission (CIRC) in a statement.

"Compared with the original rule which has no requirement for foreign insurers' years of experience, the newly added threshold shows the regulatory authority's commitment to prevent potential risks and strengthen management of foreign insurance institutions," said Wang Guojun, an insurance professor at the University of International Business and Economics.

According to the original rule, foreign insurance institutions could apply for the licence to set up a representative office once they saw a favourable business performance and had no blunders on record three years prior to the application.

The CIRC also will require stricter management by chief representatives by raising criteria of scholarship, capacity and experience.

"I don't think there will be any influence on our representative office," said Kumjoo Huh, chief representative of Kyobo Life Insurance Co (Beijing representative office).

The South Korea-based life insurer entered the Chinese market in 2004 and is actively seeking local partners to start a joint venture.

Akihiro Matsumoto, senior resident representative of Sumitomo Life Insurance Company (Beijing representative office), also shared the same view.

"The revised article has no influence on us," he said.

The Japan-based insurer, which set up its Beijing representative office in 1991, took a 29 per cent stake in PICC Life Insurance Company last December.

"The revised rule will be a big challenge for those small and medium-sized foreign insurers that are eager to cash in on the huge Chinese insurance market," Matsumoto added.

China's insurance industry has maintained an average of 30 per cent growth in the past decade, and the market potential is still growing.

A Sigma report from Swiss Reinsurance suggests China's premiums are likely to top 453.1 billion yuan (US$55.9 billion) in 2006. Boston Consulting Group (BCG) believes that this figure will reach 830 billion yuan (US$102 billion) in 2008.

After completely opening its doors to foreign insurers in late-2004, China has seen many multinationals expanding throughout the country in the past year and grabbing a larger share of the market.

Joint venture insurers such as Skandia-BSAM Life, Generali China Life, and Manulife-Sinochem nearly doubled their presence in China in 2005.

After conquering large cities such as Beijing, Shanghai and Guangzhou, these operators began expanding into mid-sized centres such as Qingdao, Hangzhou, Chongqing and Chengdu.

CIRC's figure suggested that the 40 foreign insurers reaped 34.1 billion yuan (US$4.2 billion) in premiums last year, which represented 6.9 per cent of the market.

Three more foreign insurers were allowed to enter the market last year, while a total of 25 operational entities by foreign insurers were set up.

"The growth of foreign insurers reflects the strong desire to tap into this huge market. It also says a lot about Chinese consumers' confidence in foreign companies," said an analyst with China Securities.

A report from the Development Research Centre of the State Council says domestic customers place high expectations on foreign insurers.

It shows that 74.1 per cent of Chinese consumers surveyed think foreign insurers offer exceptional service, 82 per cent trust the employees of multinationals, and 77.9 per cent prefer foreign insurance products.

Facts and figures

* The new draft requires foreign insurance institutions to have at least 20 years of continuous experinece in running an insurance business when applying for a license to set up a representative office in China.

*Statistics from the industry watchdog showed there were 40 foreign companies and 44 domestic firms operating in the Chinese insurance market by December 2005. Approximately 124 foreign insurers from 18 countries have established representative offices in China.