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Talent, competition & regulation: key challenges for insurers in China

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china pic SMon 11 Feb 2013 –  Understanding local business culture and markets is key to insurers’ success in China, says PwC.

The world’s second largest economy is proving to be an attractive market for insurers, however strong competition from domestic insurers, a largely untapped pool of local talent and the country’s evolving insurance regulations can be a challenge for foreign insurers.  

Attractive proposition  

Despite challenges, insurers believe that the opportunities in China outweigh the challenges of operating in the market, says Shu-Yen Liu, a partner at Pricewaterhouse Coopers in Beijing. Liu says the expected growth rate for China’s insurance market is around 10-15% annually.  She believes that insurers continue to be attracted by the “exceptional” growth in China’s insurance market. However, the market is not easy to penetrate – foreign firms have just a 1% share of the Chinese non-life market, the lowest penetration level in Asia, she says.

Ease of doing business  

Despite being the world’s second largest economy, China is widely perceived as a country which is not easy to do business in. The World Bank currently ranks China 91 out of a 185 countries, well behind Singapore and Hong Kong, the two highest ranked countries for ease of doing business, but ahead of all the other BRIC countries (Russia in 112th, Brazil 130th and India 132th). In its Foreign Insurance Companies in China survey, PwC found that competition, hiring talent and regulatory changes were the most frequently cited concerns for foreign insurers in China.   “China has the largest insurance market potential with scale not experienced before, ” says Lui. “Therefore, insurers need to understand the local culture, the market, and the distribution channels, and then form an achievable plan with accountability and long term sustainability, ” she advises.

Talent pool  

According to Neil Wray, Regional Managing Director for Kiln in Asia, hiring local experienced staff is one of the biggest issues for insurers looking to access the market in China. Kiln, which became the latest syndicate in January to join Lloyd’s Insurance Company (China) Ltd, the market’s platform based in Shanghai.   “The main challenge is talent – finding someone who can live and breathe our company’s values, ” he says. “All the other challenges are part and parcel of being a global business and are not unique to China.”

Getting noticed  Foreign insurers in China face stiff competition, especially from the large domestic Chinese insurers. “Foreign insurers find it difficult to compete with the local insurance companies on brand recognition and the sales network, ” says Gerry Callaghan, Hong Kong-based Chairman of Asia Pacific at insurance broker Lockton. Most foreign insurance companies do not have a China-wide sales network in China, which substantially restricts public awareness and confidence of after-sales services, he says.


Insurers in China are subject to the country’s Insurance Law, which does not discriminate between foreign and domestic insurance companies.

“China Insurance Law and associated insurance regulations are generally clearly stated and easy to understand, ” says Callaghan. “Most national law and regulations are also consistent with provincial or city level regulations. However, the pace of implementation of relevant regulations may vary from city to city, ” he says.

However, changes in the regulatory framework are likely to be the most important driver of change in the insurance market, according to PwC. Insurers face a number of regulatory challenges, including potential de-regulation on premium and new solvency requirements, says Liu.

Focus on relationships  

The emphasis in China’s insurance market is on personal relationships or “guanxi”, says Callaghan. However, the reliance on relationship also has a downside, he says.   “Pricing is a key driver and the concept of value over price is not always understood. The insurance industry in China must move away from predominately ‘cheap’ pricing and ‘guanxi’ towards a more value-added service for the benefit of clients’ growth strategy and reduction of total cost of risks, ” he says.

(source: Lloyd’s of London)

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