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China has the most potential for growth

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John Nelson

Wed 24 Oct 2012  Following Lloyd’s first China Day in Shanghai, we speak* to Lloyd’s chairman John Nelson about opportunities for growth in China.What was the purpose of Lloyd’s China Day?  

To achieve Lloyd’s Vision 2025 we want to grow our business in high growth economies such as China, South East Asia and South America. In order to make this happen I think it is important for members of the market, particularly in China, to meet face to face with local brokers and insurance practitioners.

Bringing together insurers from Lloyd’s with local brokers in a meet the market type event like this, enables us to continue build trust and relationships in the region.

What challenges does Lloyd’s face in China?  

Our reinsurance business has grown over the last five years, from $90m annual gross signed reinsurance premiums to $280m in 2011. But this is a small figure. What is most important for me is that we get the relationships and knowledge in place first. There are too many examples of businesses, particularly in insurance, which have rushed to grab market share in new markets and have lived to regret that decision.

We must work to understand the specific risks in China. This is a particular challenge given the relative lack of models using historic data for economic losses following natural disasters.   Our progress in China will be based on relationships and on knowledge. Above all, it has to be sustainable – our success will be judged not by what we do in a year, but in what we do in 10 or 20 years’ time.

Why is Lloyd’s a good match for China?

To reap the full benefits of growth, the growing cities, communities and businesses of China will need specialist protection to cover their enormous energy, aviation and infrastructure needs, particularly in these areas which are most vulnerable to natural disaster.

In fact, five out of the top ten deadliest natural catastrophes of all time happened in China. It is a country vulnerable to both floods and earthquakes – as we saw, tragically, in Sichuan Province in 2008 and in Yunnan in both 2011 and 2012.

Lloyd’s expertise in this area is unrivalled, developed by covering areas in the US which face windstorms and earthquakes and also in protecting the rapidly growing assets in Mexico and Brazil – two more countries which face natural catastrophes.

Lloyd’s is in many ways the market of first resort for countries facing these risks.  I was particularly touched earlier this year, at the World Economic Forum in Davos, when the Thai Prime Minister asked to meet me, to thank the Lloyd’s market for paying out such large claims so quickly after the floods there last year.

How can Lloyd’s help develop the Chinese insurance market?  

Currently, the non-life market remains dominated by state-owned and smaller, local players – foreign insurers’ market share is only around 1% of the total market.

China, which has huge national wealth, is in many ways an insurance anomaly. The government can – at present – afford to cover losses from natural disasters. After the earthquake in 2008, the Chinese government covered the full extent of the economic loss.

The key point, though, as infrastructure is upgraded, and asset prices rise – is this model sustainable? And does the Chinese government really want to continue to cover the entire cost of a natural catastrophe– particularly when they see how other countries are able to export some of the impact of these losses to the private global insurance market?

We can help to develop broker distribution channels – by providing international and local brokers with bespoke, specialist policies. And we are particularly keen to develop our unique coverholder model – where authority to write business is delegated by Lloyd’s managing agents to local providers on the ground.

What does the future hold for Lloyd’s in China?  

Greater participation will require regulatory adjustments for Lloyd’s in China. But the Lloyd’s model fits the long term insurance needs of China– representing as it does the best of local knowledge and international expertise for local brokers and their clients.   I believe it is only a matter of time before more managing agents recognise the importance of entering this valuable market – and Lloyd’s will be doing everything it can to support them.

Lloyd’s has an unrivalled reputation across the world – for capital security, expert underwriting, its global licence network and a long history of efficiently settling all valid claims – we have a great deal to offer the local insurance community.

(sourse: Lloyd’s of London news site)

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