Given that China’s insurance industry has been growing at twice the pace of its overall economy, this is a great opportunity for foreign insurers, right? According to a new
According to the report, “China’s Maturing Insurance Industry: Rapid Growth in a Public-Private Partnership” the size of China’s GDP, and its continued growth even through the financial turmoil that shook most of the world, make China appear compelling as a market opportunity.
The nation, with a GDP of $5 trillion, is arguably the second- or third-largest economy in the world based on sheer economic output. However, China’s insurance industry has undergone massive change in structure and regulation in the past several years, and keeping abreast of the pace of change could prove challenging for foreign insurers seeking growth.
“As the industry works to overcome the legacy of prior economic and regulatory constraints, the direction and scope of future development is still in flux,” says Conning Analyst Jerry Theodorou. “Our study of the current state of market indicates that much of China’s insurance industry promise hinges on the questions surrounding urbanization, consumerism and the anticipated rise of a middle class in China.”
Premium generation today is concentrated in China’s most populous and affluent population centers, which account for more than half of all premiums, the report states. It is projected that up to 75% of Chinese people will live in urban areas by 2050, but the majority of Chinese citizens will not live in China’s largest cities. If present trends continue, they will live in the second- and third-tier cities of under 5 million people, which means insurance entities would be wise to focus more on smaller cities within China.
“Along with this growth from urbanization, we may well see the surge in the middle class that has long been anticipated, but which has so far remained elusive,” says Stephan Christiansen, director of research at Conning. “Foreign insurers see the opportunity represented by the rapid growth, but to succeed in the Chinese insurance market, they need a clear understanding of the history, the regulatory issues, the market intricacies and the patience to set and meet long term profit goals.”
As for companies intending to establish or expand insurance operations in China, Conning suggests a few basic common sense guidelines that should be followed:
• Learn the business culture, and follow it with discipline
• Be realistic about expectations of performance
• Do not expect to be able to simply operate in China’s largest cities and achieve success.
• Be willing to experiment with new types of marketing and distribution
• Create meaningful relationships with members of the government who can assist you in meeting your objectives
