Regulatory barriers, intensifying competition and high staff turnover are among the obstacles that could dent the China expansion plans of foreign insurance companies, according to a study.
About 45 foreign insurers have allied to Chinese partners to set up mainland operations but many are frustrated by restrictions governing joint venture structures, branch locations and product offerings, according to a study by PwC, the professional services firm.
“The foreign insurers believe they continue to be hindered by barriers to market access,” said Peter Whalley, PwC assurance partner and co-editor of the study, which is based on interviews with 28 senior executives of foreign-backed ventures operating in China.
The ventures have built up a 6 per cent market share in China and foreign insurers project sales growth in life insurance of between 30 per cent to 50 per cent and a rise in sales of property and casualty insurance of between 20 per cent to 40 per cent.
Most respondents to the survey believe foreign insurers would achieve 10 per cent market share by 2011.
However, both domestic and foreign insurance companies expect to face stiff challenges from China’s powerful banks, which have recently been granted approval to acquire stakes in insurers and are rolling out bancassurance products.
The study found that foreign insurers were “unclear on how successfully their products will be allowed to compete with the banks’ own proprietary insurance offerings”.
American International Group, Aviva, Generali, Prudential and Allianz are the top five foreign insurers in China ranked by premium income. A further 20 overseas insurers are expected to enter the market in the next three years.
Human resource issues are also weighing on the minds of foreign insurers. Wage inflation is running at close to 20 per cent while more than two-thirds of participants report staff turn-over this year of up to 24 per cent.
“A lack of talent also impacts on the foreign insurers’ ability to achieve first rate compliance,” the report adds.
In spite of the challenges, China remains attractive to foreign insurers because of its strong growth and enormous potential.
According to the China Insurance Regulatory Commission, premium income from life, health and property insurance in the first half of this year was Rmb562bn ($82.2bn), a 51 per cent rise on the same period last year.
Penetration rates, which are low by international standards, are expected to rise in line with the increase in wealth and the greater awareness of the need for insurance following events such as this year’s Sichuan earthquake.
According to the report, life insurance premium against gross domestic product is 1.7 per cent in China, compared with 4.1 per cent in India, 8.3 per cent in Japan and 13.1 per cent in the UK.
(FT)
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