The market for insurance in China is huge. With a population of 1.3 billion-that's 20% of the people in the entire world - China's insurance premiums are projected to grow from $60 billion this year to $100 billion by 2009 (see "Chinese Insurance Premiums," page 13).That's because between 1949-when the People's Republic of China was established-and the 1980s-when Deng Xiaoping opened the market to private insurers, there was no insurance industry in China. The government took care of the people, from the "cradle to the grave."

More recently, the Chinese Insurance Regulatory Commission (CIRC) was formed (in 1998) and China was granted membership in the World Trade Organization (in 2001). As a result, the private insurance market-life insurance in particular-has rapidly expanded over the past few years in China, primarily in the large economic regions, such as Beijing, Shanghai, and Shenzhen.

The non-life insurance market, which is currently underserved, is poised to grow at roughly 25% for the next few years, according to Celent Communications Inc., a Boston-based financial services research and advisory firm.

Currently, approximately 30 domestic and 30 foreign insurance companies are now operating in China, according to several industry sources. And the brisk growth of the industry is presenting both problems and opportunities for carriers operating there.

Those issues range from training and educating a massive new workforce-to implementing new technologies in greenfield operations-to establishing the appropriate financial, organizational and operational controls to ensure the industry will remain viable and reliable in the long-term.

"Since China did not have an insurance industry from the 1940s until the 1980s, they literally had no one who had any experience in insurance," says Gary Knoble, vice president, data management, The Hartford Financial Services Group, Hartford, Conn.

"They've really had to create a workforce from scratch." In some instances, they've hired expatriates to come back from places like Hong Kong, he says. But China literally has had to train an entire industry. "They are very much in that mode right now," says Knoble. "They are teaching a whole new generation what insurance is."

Currently, The Hartford doesn't have an operation in China, but Knoble has been active with the Insurance Accounting & Systems Association (IASA), Durham, N.C., in sharing best practices with the representatives from the Chinese insurance industry.

LOMA is another insurance trade association playing a role in educating the Chinese industry. The Atlanta-based organization has established educational programs with the three largest domestic insurance companies-China Life Insurance Co., Ping An Insurance Co., and China Pacific Insurance Co. Through these partnerships, LOMA is helping Chinese insurers educate hundreds of thousands of workers. China Life alone is training 600,000 employees.

"The growth in the industry could happen so fast that it will be hard for education to keep up," says Thomas Donaldson, LOMA's president and CEO. But China has one advantage, he says. It has a very strong education culture. "You don't have to sell the importance of education in China. It's just a matter of getting the education out there where it's needed."

The Metropoliton Life Insurance Co. (MetLife) is actively educating its own Chinese workforce. Last year, the New York-based insurance giant launched business in China through a 50/50 joint venture with Capital Airports Holding Co., a Chinese company that owns and operates the Beijing International Airport. Education was the first item on the agenda.

"We've really focused a great deal on educating the people in the market regarding life insurance, and the need for life insurance," says John Rao, chief administrative officer of MetLife International.

In fact, MetLife's Chinese operation-called Sino-U.S. MetLife Insurance Co. Ltd.-set up a comprehensive training curriculum even before it began hiring its current 650 agents and managers and 200 back-office professionals.

"We put agents through a needs-based selling program. We train them on various products and how they work, and we train them how to educate customers about insurance products and their value," says Rao.

Since launching individual life products in Beijing in March 2004, Sino-U.S. MetLife has received CIRC approval for two other regions and another business line. As a result, it has expanded into Guangzhou and Chongqing, and recently initiated its institutional (group) business in China. MetLife also now distributes through telemarketing and banks as well as through Chinese captive agents.

China's advantage

China's inexperience in the private insurance industry can be viewed as a disadvantage to domestic carriers. But the same lack of development is also an advantage-especially when it comes to implementing new technology and establishing distribution channels.

"Where China has the advantage is: They don't have any baggage," says The Hartford's Knoble. "They don't have this huge problem of legacy systems-and they don't have this enormous, highly developed distribution structure that we have. So they really can create the industry from scratch."

What's more, some Chinese companies have been learning from the mistakes of the Western insurance industry and are trying to avoid those mistakes themselves," Knoble adds. In the process, they're duplicating Western insurers' best practices.

Ping An Insurance, for example, has contracted with PacificNet Inc., a Minneapolis and Hong Kong-based call center and telecommunications firm, for customer relationship management (CRM) consulting and call center training services for Ping An's main customer service center in Suzhou.

In 2000, Ping An established an information "hotline" to provide customer inquiry, order processing and complaint resolution. This year, the Chinese insurer initiated a new corporate program to improve its competitiveness by enhancing its hotline services and to generate profit through outbound telemarketing.

"During the last three years, Chinese companies are gradually discovering that their insurance customers are no longer satisfied with low prices as the only factor in making purchasing decisions, and that low-cost pricing cannot be the sole competitive advantage," said Tony Tong, chairman and CEO of PacificNet, when the contract with Ping An was announced in April.

Meanwhile, while Chinese carriers are adopting Western insurance best practices, U.S.-based carriers moving into the Chinese market are leveraging their experience and technology expertise to their competitive advantage.

Sino-U.S. MetLife, for instance, installed an integrated, Web-based technology platform that enables the company to automatically underwrite 70% of new individual life insurance policies. It also makes it possible for MetLife to set up new operations in China within weeks of obtaining regulatory approval.

"We are operating on a common administrative platform in China, which is the standard platform for all MetLife International," says Rao. "It includes a common illustration system, underwriting system, policy administration and financial system," he says.

With straight-through processing, automated underwriting, and four customized portals-one each for customers, sales agents, customer service representatives and management-the platform is designed for flexibility and expansion. As a result, Sino-U.S. MetLife can grow quickly and handle more transactions without the need to add and train a lot of new people.

In addition, Sino-U.S. MetLife's system issues policies in two days on average, rather than weeks that its competitors may take, according to Rao. "Customers everywhere in the world want responsiveness when they submit an application," he says. "It's also important to the agents. They want to know the status of applications, and they appreciate that we issue policies quickly."

The ROI equation

Although China's fledgling technology infrastructure enables insurers there to leapfrog the legacy quagmire that saddles many Western carriers, the return-on-investment (ROI) equation is much different for companies operating in China. And applications designed for U.S. insurers don't necessarily meet their needs.

"For Western companies, ROI is based on replacing manual steps and legacy systems and the maintenance costs associated with them," says Doug Winter, general manager of technical operations at Document Sciences Corp., Carlsbad, Calif. In China, where labor costs one-tenth what it costs in the United States, and there are no legacy systems to replace, the ROI has to address what the technology enables the company to do, he says. "And that's always a tougher ROI to figure out."

In addition, directly exporting technology from the West probably won't work in China, Winter adds. Applications designed for U.S.-based insurers are "heavy" for lack of a better term, he says. "That is, they are designed to talk to many different systems and run on many different platforms, which isn't necessary in the Chinese market."

In fact, that 'heaviness' is an impediment, he says. "A typical company in the U.S. will spend $1 on software and $5 on deployment. In China, companies are looking for software, and that's it," Winter says.

Actually, although technology considerations are different for insurers in China, IT is not the first item on the agenda for new market entrants, sources concur.

"The first thing a Western insurer needs to consider is who to partner with, what markets to enter, and what managers to hire," says Tao Ye, general manager for Document Sciences' Chinese operations.

For domestic insurers, key priorities are setting up financial and operational structures that will create a viable and competitive industry.

"Chinese insurers are looking to foreign companies to see what they are doing," says Jamie Bisker, global leader, insurance industry, at IBM Global Services' Institute for Business Value. "They recognize they have operational, organizational and procedural challenges to overcome."

Most of the questions The Hartford's Knoble hears from Chinese insurance leaders pertain to financial stewardship.

How does an organization establish financial goals? How does management know when the company is successful? What are the responsibilities of a board of directors?

"It stands to reason they'd be asking these questions because they don't have a long history of private ownership," says Knoble. "They certainly don't have a long history of corporate governance."

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