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The insurance industry in China continues to grow rapidly


Wednesday, September 16th, 2009

China’s insurance industry only resumed business in 1980 but is already the second largest insurance market in Asia, after Japan.

The industry is growing rapidly as more people seek to protect their property and family and domestic insurers gain expertise and offer more products.

There is a strong need for medical insurance as China has limited national health care and hospitals will not treat people without payment up front.  In practice, medical insurance is often included in a salary package or people have no health care at all.  A major illness can send a family into poverty – one of the reasons the country’s savings rate is so high.  The poor quality of health care, particularly outside major cities, has led to social unrest and the government earlier this year unveiled an ambitious plan to provide a basic health service across the country.   However, as incomes improve people are more likely to buy private health insurance that offers them a choice and more comprehensive treatment.

Wealth management is another growing business, due not only to rising prosperity but also as the industry gains expertise and the government allows it to offer more products.  The majority of Chinese keep their savings in the bank, where they are eroded by high inflation and low interest rates.  Although financial knowledge is low, so is the number of savings options and major insurers are keen to expand wealth management activities.

The industry had net assets of 329.9 billion yuan, or $US48.3 billion, at the end of June, according to the regulator, the China Insurance Regulatory Commission (CIRC).  This was a 17.5 per cent increase on the previous year and came despite a series of natural disasters such as the Sichuan earthquake and weather disruptions caused by a severe winter. 
Insurance premiums grew by 6.4 per cent in the first half of this year to $US87.88 billion.  Property insurance premiums rose 15.8% to US$23 billion, while life insurance premiums rose by 3.3% to US$64 billion. Life insurance companies recorded US$1.7 billion in net profits in the half.

China’s largest insurance firms are China Life, Ping An and China Pacific, who have over 95 per cent of the market, and to varying degrees they have expanded outside general insurance into health cover, banking and investment products.
The potential of the Chinese market means foreign insurers are beating a path to China although they face stiff competition from the local firms and tight regulatory control over their activities.  Foreign firms hold an estimated four to six per cent of the market, which is not bad going since they really only gained a foothold from 2001 when China was forced to reopen its insurance market as part of joining the World Trade Organization.

AIG, Manulife and HSBC are some of the foreign companies with a presence in China.  In announcing a 50-50 joint venture with Beijing-based National Trust this year, David Fried, Chairman and Chief Executive Officer of HSBC Insurance for Asia-Pacific, said the country’s growing personal wealth base would drive the use of insurance products.

He noted the percentage of insurance penetration shown by premiums as a percentage of the GDP was extremely low in China at only 3.3 per cent, compared to more mature markets such as the UK where it was 18 per cent.  HSBC also holds 16.78 per cent of Ping An insurance.