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."