Although China's total insurance premiums in 2011 rose 10 percent to 1.43 trillion yuan ($226.64 billion) from a year earlier, many insurance companies have not kept up with "the profound changes in the external environment," according to the country’s regulatory body.

In a speech at the end of a key financial conference, Xiang Junbo, the chairman of the China Insurance Regulatory Commission (CIRC) who has served in this role since last October, said assets in the industry totaled 5.9 trillion yuan. He did not offer a background comparison. A war veteran and previously a screenwriter turned banker, Xiang was the chairman of Agricultural Bank of China before taking the helm of the CIRC. He currently oversees an industry that the media has described as facing headwinds from weak investment returns, and includes the world's two biggest life insurers -- China Life and Ping An.

"A number of insurance companies do not attach importance to strengthening internal management and innovating their products and services, leading to the deterioration of their abilities to compete in the industry," Xiang said. "Some companies even flout the law, with no regard for cost effectiveness, in blind pursuit share."

Further reports hold that China's insurance industry will see lower profits in 2012, citing a difficult operating environment and struggles with poor customer service and unethical salesmen.

Growth will slow, insurers will be less able to make payouts on claims and will reap lower investment returns, Chinese state media reported Xiang as saying.

"Customers don't trust the insurance sector due to misleading salesmen and the difficulty of getting paid back (on claims)", said Xiang, while companies themselves continue to grab marketshare, sometimes through illegal methods.

"These problems are eroding the foundation of trust for the development of the insurance industry and seriously damage the image of the sector," he said.

Last month, Ping An reported its plans to raise up to 26 billion yuan ($4.1 billion) by selling convertible bonds to replenish capital amid economic uncertainty.

But Standard & Poor’s noted that Chinese insurers will need more than 110 billion yuan of external funding to fuel their rapid development in the next three years.

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