China’s insurance, a young sector which arouses keen interest

« It is less risky to have a partnership with SOE’s (state-owned enterprises). As a general rule, it will always be supported by the State, especially if it belongs to the financial sector. »

Albert LouieAlbert Louie gives some advice to the foreign companies wishing to enter China’s insurance market, which has just undergone a dramatic expansion.

Total insurance premiums reached 3.1 trillion yuan ($452 billion) in 2016, up by 27.5 percent from the previous year.

How do you explain the expanding growth of the insurance sales in China?

There are two key factors explaining it. First, the Chinese households enjoy an increasing purchasing power despite the recent economic deceleration growth, so that they can pay for their security. Generally speaking, the middle class has more means to think about services spending. In 2016, the per capita disposable income has increased by 8,4 % (by 6,3 %, after price factor deduction). The per capita consumption expenditure has grown by 8,9 % (by 6,8 %, after price factor deduction). Secondly, people are more unsecured overall. People are concerned about their future and are more conscious about their health. They are also worried about the devastating pollution effects, food poisoning risk, etc. To sum up, the Chinese households are wealthier but more worried.

Is the Chinese insurance sector going to be more regulated?

China’s insurance is an oligarchical sector, predominately controlled by the State, overseen by the China Insurance Regulatory Commission (CIRC). Designed by high-level experts, the regulation is approved by the People’s National Congress. However, its enforcement of its own policies- no matter how relevant they are – is still suffering from a lack of efficicency. Even if the corruption is falling, it remains a challenge. That is why the Chinese authorities’ efforts to improve the transparency will continue, coming along with a regulation tightening in order to clean up the excesses while containing the financial risks. On the ground, some weak insurers in the crosshairs are going to suffer while those with healthy fundamentals will survive and benefit most of the situation.

What kind of partners do the foreign insurers, interested in China’s market, have to choose?

It is less risky to have a partnership with SOE’s (state-owned enterprise). As a general rule, it will always be supported by the State, especially if it belongs to the financial sector. Of course, it will take some time to build such a partnership. In the first place, it will be necessary to know the administration personalities, the diverse inner workings of the decision-making, and to establish a trust relationship. Far from being vain, this long-term involvement will bear great fruit. On the other hand, the choice of a private partner, more easily accessible at first sight, more flexible and more reactive, can turn out more profitable in the short term. But, there can be a danger. One day extolled, the Chinese management teams can quickly fall off their pedestal. Such stunning turn of events can occur rapidly when China’s authorities suspect some corruption among the managers. In these circumstances, the situation to be managed by the foreign partner is all the more complex. Who are its new interlocutors? Are the former business agreements still valid? The juicy partnership of the first days can suddenly shrink. In this regard, it is more careful to develop commercial relations with SOE’s. Besides, the way they manage their teams has considerably improved during the last few years, more and more headed by multicultural leaders who have studied abroad, in the United States, in Europe, etc.

What are the skills required by China’s insurance sector?

The insurance business is still very young in China. It is a very young thirty-year old activity… So that the needs for skills are important in multiple domains, in organization, management, sale capacity, in financial expertises, asset management. All professionals, who already have an experience in the insurance, are very courted among whom the Chinese with skills acquired in the sector abroad.

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