China's softer stance on insurance market entry sets the bar too high for smaller insurers, analysts say
China's latest relaxation on foreign insurance companies entering the country is welcome news for many global brands, yet smaller players appear to have been left out in the cold, according to industry analysts.
The People's Bank of China announced on July 20 it would scrap a rule that requires insurance companies to have at least 30 years of history before they can apply to enter the mainland market. The central bank also said it would lift ownership restrictions, allowing foreign investors to hold majority stakes in insurance companies from next year, scrapping the requirement a year earlier than initially planned.
Experts said the changes will be helpful to many young insurance companies, however, they did not go far enough in removing barriers for smaller companies.
"China has not yet relaxed the requirement that insurers need total assets of US$5 billion, which is a bar too high for many insurance companies," said Winnie Wong, chief executive of Asia Insurance Company. "For some insurers which just want to offer simple insurance products in China, they don't need to have such a high requirement."
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The China market is dominated by domestic players despite years of opening reforms.
Foreign insurers have an 8.1 per cent share, a level that would suggest mainland consumers have yet to reap benefits that come with greater market competition, according to Moody's Investors Service.
"Stronger foreign participation could raise market competition, but its impact on domestic insurers will be more than offset by the potential benefits it brings to the industry's diversity and product scope," said Frank Yuen, vice-president and senior analyst of Moody's.
"The current penetration of health and retirement policies is still very low in China. Outstanding pension assets in China only accounted for 1.6 per cent of GDP at the end of 2017, compared with 84.1 per cent of the US."
China's market for health and retirement products is still relatively small, as outstanding pension assets accounted for 1.6 per cent of GDP at the end of 2017, compared with 84.1 per cent of the US, according to Moody's Investors Service. Photo: Simon Song alt=China's market for health and retirement products is still relatively small, as outstanding pension assets accounted for 1.6 per cent of GDP at the end of 2017, compared with 84.1 per cent of the US, according to Moody's Investors Service. Photo: Simon Song
Bernhard Kotanko, senior partner of McKinsey & Company, said foreign insurers had a single-digit market share in the life and general insurance segments, partly because they are handicapped by the limited scale of their sales and distribution channels.
Domestic insurers such as China Life and Ping An Insurance each have over a million agents, dwarfing the marketing abilities of international insurers who have a much smaller network of agents.
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"China is such a big market that even if foreign insurance companies can only have a small portion of the business, they still take it as an important market," Kotanko said. "The opening up of China will thus help promote more insurance companies to expand their business or enter into it."
He said China remains an attraction thanks to its blistering pace of growth, as the nation ranked No 1 globally last year in the sale of insurance products, which leapt 25 per cent on year.
"China and Hong Kong will also open up the Greater Bay Area to make it easier to develop business on both sides," Kotanko said.
Mainland consumers accounted for about 30 per cent of life and medical policy sales in Hong Kong over the past five years, according to McKinsey.
Since the extradition bill protests started in early June, sales of insurance products to mainlanders has fallen about 15 to 20 per cent, according to industry players.
Kotanko said the local insurance industry has proven itself resilient, having survived the 1998 financial crisis, the Sars outbreak in 2003 and the global crisis sparked by the crash of Lehman Brothers in 2008.
This article originally appeared in the South China Morning Post (SCMP), the most authoritative voice reporting on China and Asia for more than a century. For more SCMP stories, please explore the SCMP app or visit the SCMP's Facebook and Twitter pages. Copyright © 2019 South China Morning Post Publishers Ltd. All rights reserved.
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