China Presents Compelling Opportunity for Foreign Insurers, Says EY

Digitalization Offers Growth Potential in a Challenging Environment

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September 17, 2014, Shanghai, Hong Kong – As the world’s most populous country with a booming middle class and growing interest in attracting foreign investors, mainland China offers a compelling opportunity for foreign insurers, says a new EY report, Future Directions for Foreign Insurance Companies in mainland China 2014.

In mainland China, the industry regulator is predicting an average annual growth rate of 17 percent in premium over the next seven years. Even though mainland China represents a challenging market for foreign insurers, almost 50 companies have entered the market as joint ventures or wholly foreign-owned subsidiaries and a wide variety of international insurers have also set up representative offices.  “They recognize that mainland China continues to develop its insurance market and that, as global insurers, they need to have an expanding presence in this market,” says Shaun Crawford, EY’s Global Insurance Sector Leader.

This report draws on interviews with 27 seasoned foreign insurance companies’ CEOs and senior executives operating in mainland China.  The participants in this survey predicted annual premium growth for life insurance companies of over 20%, and 10% to 15% for property and casualty companies.  These forecasts point to a healthy and robust future. 

In fact, foreign insurers are only slowly expanding their footprints in mainland China.  Foreign life insurers increased their market share from 4% in 2011 to 5.6% in 2013, but it is still considerably below the peak of 8.9% in 2005.  The property and casualty insurers have failed to maintain the 1.3% market share reached in 2005 and ended 2013 at only 1.28%.

In this first edition, EY examines the barriers to successful growth for foreign players, as well as the trends shaping the market today and tomorrow.  “We strive to provide industry insights to harness growth strategies for these foreign-owned insurers,” adds Jonathan Zhao, EY’s Asia-Pacific Insurance Leader.

The acceptance and deployment of e-finance or internet finance presents emerging opportunities, and insurance companies are beginning to take advantage of this fast developing sector.  While the digital transformation does represent an excellent opportunity for foreign insurers seeking to increase market share in mainland China, it is not a one-stop solution.

The market is relatively complex, and certain digital products that have driven growth in home markets have yet to have great success in mainland China. “China, due to its scope and scale, may adopt certain internet finance concepts from ‘developed’ financial markets.  ‘Made in China for China’ is the key,” explains Andy Ng, EY’s Greater China Insurance Leader.

The ability to develop appropriate product designs, pricing structures, and more effective servicing and delivery mechanisms will require foreign insurers to produce “Made in China” solutions.

Mainland China’s ongoing financial reform offers significant opportunities through price liberalization, product development, renminbi internationalization, the creation of free trade zones and new distribution channels.  However, the operating environment remains relatively challenging so it is important foreign insurers stay up-to-date with regulatory and other developments and opportunities.

In August 2013, the Chinese Insurance Regulatory Commission (CIRC) raised the maximum guarantee yield on traditional insurance products from 2.5% to 3.5%.  The CIRC’s ultimate goal is probably full price liberalization. While most foreign insurers surveyed gave timelines of up to 10 years to achieve this goal, EY expects that full price liberalization may occur after 5 years.

“Given the myriad of promised wide-ranging financial reforms, underlying demographics, the scale and scope of the internet and high mobile usage, new technologies, big data etc., we believe that we are poised for a new era for foreign insurers in mainland China,” concludes Jonathan.

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