Japan shows the way into Chinese insurance market

Japan shows the way into Chinese insurance market

By Geoffrey Murray

BEIJING (Kyodo): China is finally opening up the domestic insurance business for foreign involvement, creating vast opportunities for Japanese insurers.

Over the past decade, far-sighted companies have been establishing representative offices in China, even if only for the purposes information-gathering in anticipation of eventually being allowed to open full-fledged agencies to tap what could eventually be a vast market for insurance.

Lack of a developed insurance industry has been identified by the government in Beijing as a potential roadblock to the continued expansion of inward investment as well as the country's booming foreign trade -- given the inadequacies in the country's transportation system, the problems of security in troubled inland areas, and the frequency of natural disasters such as floods, typhoons and earthquakes.

At the same time, social changes created by the lessening of government involvement in every aspect of life, have also created a demand for corporate and personal insurance protection in the key areas of health, unemployment and pensions.

The government recently announced that from now on there will be no limit on the number of insurance companies allowed to open agencies in China, although they will still not be allowed to sell life insurance policies.

Nor is the door fully open as yet, as the offices will be restricted to the handful of coastal cities that have special economic development zones. But for the moment, anyway, this is where the major action is as much of the foreign investment has been channeled into the coastal areas, which also dominate the foreign trade.

Three conditions will have to meet under existing regulations in order to open an agency: the companies must have a business history of at least 50 years, possess assets and capital exceeding US$5 billion, and must have maintained a representative office in China for at least three years.

By early this year, China was home to more than 40 agencies representing 27 insurance companies from Japan, Britain, the United States, Switzerland, South Korea, Taiwan and Hong Kong. Beijing dominated with 27 representative offices, followed by Shanghai and Guangzhou.

The pace has certainly picked up. Officials at the People's Bank of China, the central bank, said that 14 new agencies opened in 1993, half the total approved during the previous decade.

A number of Japanese companies, led by Yasuda Fire and Marine Insurance Co., established agencies in the early 1980s and officials say Japan at present occupies first place in terms of both the number of insurance companies involved and the agencies they have established.

But it is rapidly becoming a very competitive field, with major international insurers looking for ingenious ways to gain an advantage. Continental Insurance Co. of the U.S., for example, has developed close relations with the People's Insurance Co. of China (PICC), which currently handles 90 percent of the country's insurance business.

One of the early arrivals, Continental has conducted insurance-related training courses at various PICC offices around China and has also provided training overseas for key personnel, building up considerable goodwill.

Eagle Star Life Insurance Co. of Britain, which opened offices in Beijing and Shanghai in 1992, has provided funds and teachers for a postgraduate course to train Chinese actuaries at the Central Institute of Finance and Banking in Beijing where a three-year ongoing course is aimed at producing 20 urgently needed actuaries.

Raymond Chu, the company's chief representative, says that there is a strong public relations element in the program, as Eagle Star tries to gain a foothold in the market.

Moreover, he is full of admiration for his Japanese counterparts, who he concedes demonstrated a strong will to get into the Chinese market early and are now poised to reap the benefits of that commitment.

"Even today, China remains a vast, uncultivated territory for insurance. The Japanese came in very well and began providing a timely economic information service for Japanese-funded enterprises, which they naturally regarded as potential major clients once the industry was opened up," said Chu.

"These enterprises will now become ready-made clients and given the dominating presence of Japanese companies in many industrial sectors and in most parts of the country, the insurers will have a strong base for expansion. I expect the next round of agency approvals to be dominated by the Japanese."

This causes some concern among the 200,000 employees of PICC who can see the company's current dominant position being eroded as highly-efficient foreign companies move into the market. Its biggest handicap is that all its premiums have to be paid in local currency, but the company is kept on a very tight rein in obtaining foreign exchange for international reinsurance.

But a manager in PICC's international division sees one silver lining to the dark clouds ahead, saying "Under the principle of reciprocity, the entry of foreign firms will help raise our standards and also give us opportunities to enter overseas insurance markets in the years ahead."