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Insurance is foresight not hindsight

HINDSIGHT is always a great thing. It explains, in a lot of situations, what foresight could have prevented.

How often do we hear people saying, "Oh, if only I had bought a home before prices surged!" or "Why didn't I sell those shares at their highs?"

Oddly this retrospective insight into our human frailties doesn't seem to help much where the insurance industry is concerned.

The apartment complex blaze that killed at least 58 people in Shanghai on November 15 is a case in point. It turns out only a handful of residents had insurance policies covering their homes and contents. Insurance compensation can't bring back the life of a loved one, but it can go a long way in staunching the kind of material losses almost all of the families now face.

The combined property losses of the reported 156 families living in the building have been estimated at 500 million yuan (US$75.2 million), based on the average market price of 30,000 yuan per square meter for residential space in the area, said earlier media reports. By November 23, insurers in Shanghai paid more than 8.3 million yuan in claims related to the fire, according to the Shanghai Bureau of the China Insurance Regulatory Commission, the nation's top industry regulator.

Of the 8.3 million yuan, 5 million yuan came from a publicly financed community insurance fund, indicating the low penetration of the private insurance sector.

Life, property and casualty insurance is still a relatively new concept in China. I still remember the sneer from one of our business reporters, a frequent flier, who was asked if he bought flight insurance. "What's the use of money if one is dead?" the reporter replied.

That misses the point. Insurance aims to provide relief for survivors in case of death.

I did a quick, informal survey among 12 colleagues on the subject of buying insurance. Only one said he has insurance to protect his family from "the uncertainties of the future."

"I bought insurance to cover illness, pension and accidents," said the 30-year-old married guy, whose monthly salary is around 7,000 yuan. "I don't want my family to suffer a deteriorating quality of life if anything happens to me."

The other 11 all said they had no insurance at all, including a reporter covering the insurance industry.

"My own experiences showed me that insurance agents are always quick to boast about all the things they can offer when they are selling policies, but when it's time to file a claim, it's a tedious and complex process to try to collect on any of those promises," said the mother of a three-year-old boy, recalling her unhappy experiences when she claimed reimbursement under the employer's group medical policy.

Difficulty in claiming compensation, the lack of third-party agencies to provide an impartial guide to insurance products and lack of trust in insurance professionals have topped the list of why my colleagues aren't rushing out to buy insurance.

Hu Shi, the esteemed Chinese philosopher and essayist who died in 1962, once said that insurance is to prepare for tomorrow today, prepare for death while one is still alive, and prepare for children when you're parents.

His wisdom seems to be particularly well received by the well-off.

It appears the more money you have in China, the more you are aware of insurance protection. Buying protection to cope with major diseases, protect pension funds and savings, and guarantee enough money for children's education top the list of needs when the wealthy consider their risks, according to a survey conducted by HSBC Life Insurance Co.

The survey centered on people in Shanghai, Guangzhou and Beijing who had financial assets of 500,000 yuan or more.

Thus, a dilemma: the most vulnerable are the least concerned about financial protection. In many instances, lower-income families just can't afford to face another cost, especially during a period when high inflation is already eroding household spending power.

"For the rich, the main concern is protecting their wealth; for the poor, the main concern is how to increase their wealth," said a former Shanghai retail banking officer now working in the news media.

The insurance sector in China is still small by comparison with the nation's huge economy and population. Since China embarked on its market reform and opening-up policies three decades ago, sea changes have occurred. China is now the world's second-biggest economy after the United States, and family incomes are rising rapidly.

The financial sector, too, is growing by leaps and bounds. But insurance professionals in China still lack the prominence of their counterparts overseas.

In China, insurance agents are often treated like salesmen peddling milk. Insurance industry personnel complain that their salaries are nowhere near those of bankers or securities brokers.

True, China's insurance industry is growing almost three times as fast as the economy at large, but that gain comes from a very small base in a country with 1.3 billion people.

In the first three quarters of this year, insurers in China pulled in premiums totaling 1.13 trillion yuan, up 32 percent annually. In the same period, China's economy surged 10.6 percent to 26.8 trillion yuan, giving an insurance penetration of only 4.2 percent. Actually, the insurance industry is growing ahead of the government's forecasts.

China's 11th Five-Year Plan, which ends this year, envisioned insurance premiums per capita doubling and contributing to 4 percent of gross domestic product.

Per capita premiums are forecast to reach 750 yuan this year, compared with just 367 yuan, or 2.7 percent of GDP, in 2005, according to data compiled by Swiss Reinsurance Co.

China is also ahead of its five-year target to triple domestic insurance assets to 5 trillion yuan by the end of this year and to more than double premiums to 1 trillion yuan.

The potential of the market is tantalizing to overseas insurers. However, many of them have held back because their operations in China are restricted and their returns on investment poor, an industry survey by PricewaterhouseCoopers found in late November.

Foreign insurers continue to find China a tough market to operate in, said the PwC report. Regulations, shortage of professionals and fierce competition from domestic insurers are cited as stumbling blocks, according to the survey. The accounting firm's survey covered 21 of the 28 overseas life insurers operating in China, and 10 of the 18 property and casualty insurers.

China is trying to encourage the growth of the domestic insurance industry to trim the government's burden in a cradle-to-grave social welfare system. The government also wants to expand the investment vehicles insurers are allowed to offer to help them earn higher returns and prepare for the future needs of a burgeoning crop of middle-class customers.

China introduced its modern insurance law in 1995, and the China Insurance Regulatory Commission was set up three years later to supervise the growing industry.

A healthy insurance industry can deepen attention to cutting risk exposure. I still remember how a risk-control officer at an overseas insurer said he won the trust of clients by advising a company to increase ventilation in an engine room and thereby cut risks of situations that might lead to claims.


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