China’s Insurance Market: Opportunity, Competition and Market Trends

Abstract

China represents the largest insurance market in the world that is both closed and underserved. With more than 20 per cent of the world's population and a high level of domestic savings, China is considered an ideal opportunity for foreign insurers: one quarter of the world's population accounting for less than 1% of its premium spending. For the past two decades, the highly centralized planned economic system and the state social insurance system has operated to prevent commercial insurance from ful®lling the role that it plays in countries where insurance is highly developed. This situation is now changing. While the insurance industry in China is still, in essence, a new and developing industry (having just under two decades of insurance experience as compared to more than a hundred years' experience for developed countries). Chinese regulatory authorities predict the market will double by 2004 to more than $30 billion. From 1992 until 1999 only nine foreign companies were granted licences and their operations were restricted to the city of Shanghai, with the exception of one American company permitted to operate in Guangzhou. In 1999, four more foreign companies were selected by the government for business in China. In November 1999 the U.S. Government completed bilateral talks on China's accession to the World Trade Organization (WTO). It is expected that China's WTO accession will lead to an elimination of geographic restrictions, greater market access, and more lines of business permitted for foreign insurers over the next several years. Life insurers strongly praised the agreement, as American Council of Life Insurance President Carroll Campbell said, ` it gives insurers the opportunity to grow into a new and largely untapped market.'' This article starts with a general introduction of the Chinese insurance market with statistic reports, that offer a basis for further analysis of market pro®les and prospects. The second part it provides an overview of the market competition status in China with special focus on the entry and operating issues for foreign insurers. The third part summarizes the insurance aspects of the U.S.±China WTO agreement and predicts its implementation. The article concludes with a general discussion of relevant legal and regulatory issues, followed by a projection of development trends and strategic recommendations to foreign insurers who want to tap this emerging market.