Foreign insurers to face tougher
entrance criteria
BEIJING
- Foreign insurers are going to face a much higher
threshold to enter the Chinese market due to the
industry watchdog revising the management rule on
foreign insurers' representative offices in
Beijing.
As a major change, the new draft,
which will be opened to public input before March
9, required foreign insurance institutions to have
at least 20 years of continuous experience in
running an insurance business when applying for a
license to set up a
representative office in
China. For those running non-insurance businesses,
they should have a business history of more than
20 years, said the China Insurance Regulatory
Commission (CIRC) in a statement.
"Compared with the original rule which has
no requirement for foreign insurers' years of
experience, the newly added threshold shows the
regulatory authority's commitment to prevent
potential risks and strengthen [the] management of
foreign insurance institutions," said Wang Guojun,
an insurance professor at the University of
International Business and Economics.
According to the original rule, foreign
insurance institutions could apply for a license
to set up a representative office once they
recorded favorable business performance and had no
blunders on record for three years prior to the
application.
The CIRC also will require
stricter management by chief representatives by
raising criteria with respect to scholarship,
capacity and experience.
"I don't think
there will be any influence on our representative
office," said Kumjoo Huh, chief representative of
Kyobo Life Insurance Co's Beijing representative
office. The South Korea-based life insurer entered
the Chinese market in 2004 and is actively seeking
local partners to start a joint venture.
Akihiro Matsumoto, senior resident
representative of Sumitomo Life Insurance
Company's Beijing representative office, shared
the same view. "The revised article has no
influence on us," he said. The Japan-based
insurer, which set up its Beijing representative
office in 1991, took a 29% stake in PICC Life
Insurance Company last December. "The revised rule
will be a big challenge for those small and
medium-sized foreign insurers that are eager to
cash in on the huge Chinese insurance market,"
Matsumoto added.
China's insurance
industry has maintained an average of 30% growth
in the past decade, and the market potential is
still growing. A Sigma report from Swiss
Reinsurance suggests China's premiums are likely
to top 453.1 billion yuan (US$56.3 billion) in
2006. Boston Consulting Group (BCG) believes that
this figure will reach 830 billion yuan in 2008.
After completely opening its doors to
foreign insurers in late-2004, China has seen many
multinationals expanding throughout the country in
the past year and grabbing a larger share of the
market. Joint venture insurers such as
Skandia-BSAM Life, Generali China Life, and
Manulife-Sinochem nearly doubled their presence in
China in 2005.
After conquering large
cities such as Beijing, Shanghai and Guangzhou,
these operators began expanding into mid-sized
centers such as Qingdao, Hangzhou, Chongqing and Chengdu.
CIRC's figure suggested that the 40
foreign insurers reaped 34.1 billion yuan in
premiums last year, which represented 6.9% of the
market. Three more foreign insurers were allowed
to enter the market last year, while a total of 25
operational entities by foreign insurers were set
up.
"The growth of foreign insurers
reflects the strong desire to tap into this huge
market. It also says a lot about Chinese
consumers' confidence in foreign companies," said
an analyst with China Securities. A report from
the Development Research Center of the State
Council found that domestic customers place high
expectations on foreign insurers. It showed that
74.1% of Chinese consumers surveyed think foreign
insurers offer exceptional service, 82% trust the
employees of multinationals, and 77.9% prefer
foreign insurance products.
