China's Insurance Business to Open UpGrowth assured in insurance business
BEIJING - China's insurance market has rapidly been opened to the outside
world. The China Insurance Regulatory Commission (CIRC) recently
approved another eight foreign insurance companies to undertake or expand
business in China. So far, 27 foreign insurance companies have been
approved for operation in China. Among them are several international
banking and insurance integrated financial groups ranked in the Fortune Top
500.
There are now 40 domestic and foreign capital insurance companies in China,
including five solely state-owned companies, nine shareholding companies, 13
Sino-foreign joint ventures and 13 branches of foreign insurance companies.
Foreign insurance companies have about a 1 percent share in the Chinese
insurance market, and the room for development is large.
China, after its entry into the World Trade Organization (WTO), will
strengthen the development of and supervision over the re-insurance industry,
facilitate the integration of China's re-insurance market into the international
market, and forge an open and competitive market.
The re-insurance market in China is still in its initial stage, and faces a host of
problems including a low commercialized economy, a limited number of
players in the re-insurance market and insufficient re-insurance supply, and
relatively low technology and services in the domestic re-insurance market.
Currently, the China Re-insurance Corp is the only specialized reinsurance
company in China's insurance market. Legal re-insurance accounts for 88
percent of the total re-insurance market, while commercial re-insurance
accounts for 12 percent.
China's entry into the WTO will attract more insurance market players and
forge a new and competitive market, which demands the further development
and reform of China's property insurance industry. The CIRC, the
government watchdog of the industry, will transform the management system
of property insurance products from an "approval system" to a "field system".
The CIRC has set up the Temporary System to Manage Property Insurance
Products and Premiums, which regulates that the management, including terms
and premiums of the property insurance products, adopt the record system.
The new management system will help reduce the procedures of authorization
and encourage the product innovation of insurance companies.
With China's entry into the WTO, the CIRC will put more emphasis on
supervising payment ability, setting up re-insurance regulations, and supporting
insurance companies which provide all kinds of services based their own
technological advantages. The CIRC will also transform the management
system of state-owned insurance companies through the shareholding
mechanism.
In the current domestic property-insurance market, state-owned companies
account for 70 percent of the market share. In 2000, insurance revenue was
159.59 billion yuan (US$19.3 billion). The revenue from property insurance
was 59.84 billion yuan, an increase of 14.8 percent, and property insurance
accounted for 37.5 percent of the total insurance revenue.
Insurance funds have maintained strong growth since the beginning of this
year. By the end of July, insurance capital had reached 400 billion yuan,
including 16.76 billion yuan invested in securities investment funds. Funds of
the commercial insurance companies flowing into the stock market are
expected to reach a maximum of 170 billion yuan by 2005.
China's insurance industry posted hefty growth in the first half of this year as
marked by a 27.69 percent year-on-year increase to 102.23 billion yuan in
insurance premiums collected nationwide. The growth rate was 21.99
percentage points higher than that for the same period of last year. Of the total
premium revenue, 37.899 billion yuan or 37.07 percent derived from
property insurance and 64.331 billion yuan from life insurance. They
represented increases of 14.26 percent and 36.78 percent respectively over
the same period of last year. The growth rate of premiums from life insurance,
in particular, picked up 33.96 percent over that for the same period of last
year.
Owing to market demand and the need of national economic growth, all
insurance companies, particularly life insurers, actively adjusted their product
mix and developed new services. In the January-June period, the premiums
from new products such as unit-linked insurance and dividend sharing
insurance products amounted to 13.543 billion yuan, accounting for 21.05
percent of the total premiums from life insurance in the same period. The
premiums from new life insurance policies reached 32.242 billion yuan in the
six months, accounting for 50.12 percent of the total premiums from life
insurance.
Policies
Preparing for China's accession to the WTO, the government has made
commitments in the aspects of market access by foreign investors such as the
form for enterprise establishment, geographical limits, business scope and
business licenses. The main commitments of the government toward opening
the insurance industry are as follows:
Form for enterprise establishment Immediately after China's entry to the
WTO, non-life insurers from abroad will be allowed to set up branches or
joint ventures in China. Foreign firms will be able to hold as much as 51
percent of the stake in the joint ventures. Two years after the entry, non-life
insurance firms from abroad will be allowed to set up solely funded sub-firms
in China, that is, there will be no limitation on the form of enterprise
establishment. Immediately after the entry, foreign life insurers will be allowed
to set up joint ventures in China, and hold no more than 50 percent stake in
the joint ventures. They will also be allowed to choose their partners
independently.
Immediately after China's WTO accession, the foreign interest in Sino-foreign
joint venture insurance brokerage companies may reach 50 percent, and the
proportion may not exceed 51 percent within three years after the accession.
Five years after the WTO entry, foreign insurance brokerage companies will
be permitted to set up solely funded sub-firms. With gradual cancelation of
geographical limitations, foreign insurance companies will, after approval, be
permitted to set up branches. The qualification conditions for initial
establishment do not apply to the establishment of internal branches.
Geographical limitations
Immediately after WTO entry, foreign life and non-life insurance firms will be
allowed to offer services in Shanghai, Guangzhou, Dalian, Shenzhen and
Foshan. Two years after the entry, their business could be extended to
Beijing, Chengdu, Chongqing, Fuzhou, Suzhou, Xiamen, Ningbo, Shenyang,
Wuhan and Tianjin. All geographical restrictions will be lifted three years after
the entry.
Business scope
Immediately after the entry, non-life insurers from abroad will be permitted to
engage in "general insurance policies" and large-scale commercial insurance
with any geographical limitation, and offer non-life services to overseas
enterprises, property insurance to foreign-funded enterprises in China, and
related liability insurance and credit insurance services. Two years after entry,
non-life insurers from abroad will be able to offer all kinds of non-life
insurance services to Chinese and foreign customers.
Immediately after WTO entry, foreign life-insurance companies will be
permitted to provide individual (non-group) life-insurance services to foreign
citizens and Chinese citizens. Two years after entry, they will be permitted to
provide health, group, pension and annual-pay insurance services to Chinese
and foreign citizens.
Immediately after WTO entry, foreign re-insurance companies will be
permitted to provide life and non-life re-insurance services in the form of a
branch company, joint-venture company or solely funded sub-firm. There are
no geographical restrictions or quantity limits in license approval.
Business licenses
Immediately after WTO entry, China is committed to abolishing the
restrictions on the number of licenses issued to foreign insurers. Foreign
insurers must satisfy the following conditions before applying for licenses: a
business history of more than 30 years in a WTO-member country, operating
a representative office in China for two consecutive years, and holding no less
than $5 billion in total assets as of the end of the year prior to the application.
Large-scale commercial insurance
This refers to insurance provided to large industrial and commercial
enterprises. Its standards are: the annual premium paid by such an enterprise
at the time when China enters the WTO exceeds 800,000 yuan, and its
annual investment tops 200 million yuan; one year after the WTO entry, the
annual premium paid by the enterprise should exceed 600,000 yuan and its
investment should exceed 180 million yuan; two years after the WTO entry,
the annual premium paid by the enterprise should exceed 400,000 yuan, and
its investment should exceed 150 million yuan.
On legal insurance scope
China has committed that the 20 percent proportion for reinsurance provided
Sino-foreign direct insurance companies to Chinese re-insurance companies
will not be changed immediately after WTO entry and will be lowered to 15
percent one year after entry, 10 percent two years after entry, 5 percent three
years after entry, and canceled four years after the entry. However, foreign
capital insurance companies will not be permitted to engage in third-party
liability insurance of motor vehicles, liability insurance for public transport
vehicles, commercial vehicle drivers and carriers, and other legal insurance
services.
Taiwan's interest
With increasing numbers of Taiwanese manufacturers moving their facilities to
mainland China, Taiwanese insurance companies are anxious to expand their
operations across the Taiwan Strait. Three firms - Cathay Life Insurance Co,
Fubon Insurance Co and Sinkong Insurance Co - have had representative
offices there since early this year.
The representative offices are only allowed to collect market information.
They may apply for permission to set up branches on the mainland two years
after the establishment of representative offices. A Fubon Insurance official
said that not many insurance companies in Taiwan can meet Beijing's
requirement that initial capital investment should be no less than $5 billion.