Like the rest of the Chinese economy, the insurance market has expanded rapidly in recent years.
China is now the world’s sixth largest insurance market, states Swiss Re. Growth has been particularly strong in the life sector, where premiums have risen by 23.5% per annum since 2000. In the non-life sector, growth averaged 18.1%.
However, the ability for foreign insurers to enter the market remains difficult. Currently, foreign life insurers command about 5.6% of total premiums and non-life insurers about 1.1%, according to Swiss Re.
“A foreign life insurance company can only enter the Chinese market through a joint-venture with a local partner,” says Clarence Wong, head of Asia Pacific economic research at Swiss Re. “Foreign non-life insurers are also not allowed to participate in the nation’s motor third-party liability insurance business.”
Additionally, business enterprises licensed in China are not allowed to purchase non-admitted insurance for most classes of non-life insurance, with the exception of marine cargo insurance, according to Paul S K Lam, technical and international business director, Continental Insurance Brokers Limited, network member of Gallagher Global Alliance.
“Though there are no specific penalties in the legislation, a business enterprise will not be able to deduct premiums for non-admitted insurance in its profit and loss account,” he says. “In addition, it will have difficulty to remit claim payments to China from such a non-admitted insurer.”
The local broker market is relatively small at 2.9% of total premiums, but has expanded robustly over the past few years. In 2010, revenue for brokers increased 32.8% from a year earlier. The broker market is highly competitive and according to Wong, the top five players accounted for 32.4% of the sector’s total revenue in 2010.
And according to Zurich, recognition by insureds of the services brokers provide is low. “It is very common that customers use brokers (unless it is an in-house broker or a broker appointed by the global program) mainly for the purpose of bargaining premium with insurers,” Zurich says.
Meanwhile, the regulatory landscape has seen major changes over the last decade. The China Insurance Regulatory Commission (CIRC), established in November 1998, is the main regulatory body tasked with the supervision of insurance business.
“There has been no failure of insurance [companies] in China,” says Lainey Chen, executive vice president of WISE Taiwan & CCIB China, and a partner in the Worldwide Broker Network. “In general, CIRC would not allow any insurance company to go bankrupt or close its operations. If anything, they would seek a buyer to take over the entire assets and liabilities of the troubled company to protect the innocent policyholders in the general public.”
Those placing insurance should also beware of fines for illegal activities as stated in Article 142 of the Insurance Law, according to Axco Insurance Information Services. “Whoever engages in illegal insurance activities shall be investigated for criminal responsibility according to the law. If the offence does constitute a crime, the offender’s illegal gains will be confiscated and a fine imposed by the CIRC of between one and five times his illegal gains. If there is no illegal gain or the illegal gain is less than CNY200,000 (US $29,283), a fine of CNY200,000 to CNY1mn (US $29,283 to US $146,413) will be imposed.”
In terms of worker’s compensation there is a nationalized social security system and employers are required to enroll their employees under the Industrial Injuries Insurance Regulations of the System, according to Lam.
“However, the employer should also purchase employer’s liability insurance to provide coverage for work related injuries not covered under the Regulations, as well as liability towards expatriate employees including those from Hong Kong, Macau and Taiwan,” says Lam.
- After China joined the World Trade Organization (WTO) the number of insurers increased to 116 in 2010, from 26 in 2000
- Foreign insurers in the non-life sector command 1.1% of total premiums in 2010 (0.9% in 2000)
- Brokers derived 78% of revenue from non-life insurance in 2010, and 11% each from life insurance and reinsurance
- 305 loss-adjusting firms as of March 2011
- Examples of compulsory insurance: motor insurance, nuclear liability, marine oil pollution, liability for transport of hazardous materials, third-party liability for schools or travel agents
Sources: Clarence Wong, head of Asia pacific economic research, Swiss Re; Paul S K Lam, technical and international business director, Continental Insurance Brokers Limited, network member of Gallagher Global Alliance; and Axco Insurance Information Services
Copyright 2011 Rogers Publishing Ltd. This article first appeared in the July/August 2011 edition of Canadian Insurance Top Broker magazine.