Insurance options widen as controls ease

Tracy Li
Chinese have been slow to embrace insurance, after having lived for decades under a cradle-to-grave state welfare system, but now they began to see risks.
Tracy Li

Ye Xueyao, an office worker born in 1989, bought a health insurance policy last year for her parents through a friend who works as an agent for Sino-US United MetLife Insurance Co. Each cover cost her about 1,760 yuan (US$249).

At first, her parents, who are in their mid-50s, thought it was “a waste of money” because they are both in good health. However, when they learned that a neighbor had to pay a large out-of-pocket cost for treatment of an acute disease, they realized the importance of health insurance.

Chinese people have been slow to embrace the concept of insurance, after having lived for decades under a cradle-to-grave state welfare system. But as that system was slowly dismantled, they began to see risks.

When selecting insurance coverage, Chinese consumers have tended to put their trust in well-known names, and Ye was no exception.

MetLife was among the first foreign insurers to enter China after the insurance sector began to be opened to offshore companies.

The New York-based company first opened a representative office, which conducted marketing and non-transactional business, in Beijing in 1995.

In 2011, the US insurer merged its two subsidiaries in China into Sino-US United MetLife Insurance Co Ltd (MetLife China), a 50-50 joint venture between MetLife Inc and Shanghai Alliance Investment Ltd, a state-owned investment company affiliated with the Shanghai government.

Domestic catch-up 

Foreign companies have long dominated what has been a limited market because of their superior underwriting experience and risk management expertise. But that is changing as domestic insurers become more tuned into modern insurance practices and technology.

Fifty foreign-funded insurers are now incorporated in China  — 28 percent of industry players with a combined 6.8 percent market share. In the first quarter of this year, they had aggregate premium earnings of about 110 billion yuan, up almost 2 percent from a year earlier.

Today, under China’s progressive market deregulation, the industry is undergoing rapid change as controls are eased.

On July 20, the People’s Bank of China announced further measures to open up the sector. The changes include the lifting of the foreign ownership limit on life insurers next year and the removal of restrictions that allowed only foreign insurers with operating histories of more than 30 years to enter the market.

The removal of foreign ownership limits was originally scheduled for 2021.

The new rules also allow foreign financial institutions to set up or invest in pension fund management companies and hold more than 25 percent in insurance asset management firms.

“We welcome efforts made by the Chinese government to further open up and encourage investment in China by foreign financial insurance institutions,” said a spokesperson for German insurer Allianz.

Last November, Allianz received regulatory approval for “preparatory” establishment of China’s first fully owned foreign insurance holding company.

“For Allianz, this means more local customers will be able to take advantage of our comprehensive financial and risk management solutions and services, and benefit from the continued growth and liberalization of China’s financial markets,” the spokesperson said of deregulation.

The policy changes will benefit the industry overall in China and increase foreign participation, Moody’s Investors Service said in a recent report.

Bloomberg Economics estimates insurance will be a lucrative market for foreign investors. It projects that life insurance premiums in China may top more than US$217 billion by 2030, with fund assets under management reaching US$1.8 trillion.

The deregulation comes as the industry tries to reduce its reliance on short-term savings-style policies and develop more protection-oriented products, under stringent product control and a regulatory desire for higher protection coverage, Moody’s said.

That is especially true in the case of retirement and pension businesses, which are currently underdeveloped segments of the sector.

Outstanding pension assets accounted for only 1.6 percent of China’s gross domestic product at the end of 2017, well below the US level of 84.1 percent, according to Moody’s.

The figures point to vast potential.

Positive effects

Foreign insurers, through their long histories of operating in aging countries and developed economies, have accumulated experience on distribution and asset-liability management. Moody’s said increased foreign participation in pension funds and insurance asset management will help the Chinese industry widen retirement solutions.

The accelerated schedule of increased foreign participation will be positive for offshore life insurers operating in China, the rating agency noted. It will allow greater management autonomy and provide more flexibility in expansion.

MetLife China applauded the new policies, saying industry competitiveness as a whole will be further enhanced.

“We have adhered to a multi-channel development strategy, focusing on value growth and providing Chinese customers with real protecting insurance solutions,” said Sun Siyi, MetLife China‘'s chief executive officer.

Business expansion of foreign-funded players were formerly restricted by regional supervision, preventing them from reaching a larger body of customers. Despite that, the health insurance businesses of offshore companies have maintained strong growth in the past few years, according to a report from CPIC Allianz Health Insurance Co, a joint venture of China Pacific Insurance Co and the Allianz Group.

Despite a low market share of 8.1 percent, foreign joint-venture life insurers delivered premium growth of 10 percent in the past year. That compares with flat growth industry wide.

Moody’s said stronger foreign participation is likely to raise market competition. Any adverse impact on domestic insurers will be more than offset by the potential benefits it brings to industry diversity and product scope, it predicted.

In reality, domestic insurers — both established and up-and-coming — are on the rise, and Chinese consumers are becoming savvier about choosing insurance.

Ye told Shanghai Daily that she is considering getting herself and her husband health insurance coverage under ZhongAn Online P&C Insurance Co, a Shanghai-based carrier that has been winning policyholders in the past few years with innovative policies that provide value for money and quality services.

Xu Xian, dean of the Insurance Department at the School of Economics of Fudan University, said opening the sector wider to foreign players will spur greater innovation and development in the industry.

For example, domestic underwriters can recommend suitable products to customers, calculate accurate pricing and offer differentiated and customized solutions by using Big Data and artificial intelligence technologies.

Chen Xin, a 1990s woman working in Shanghai, said she used to believe that insurance plans sold in Hong Kong were better than those available on the mainland. She bought a lifetime critical disease policy from Prudential Hong Kong Ltd in 2016, despite its high cost.

“But now, I find more products of domestic insurer are outperforming those of foreign counterparts in terms of value for price,” Chen told Shanghai Daily. “I will buy more such plans in the future.”

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