The relaxation of China’s regulatory framework, the growing attractiveness of joint venture and alliance structures, digital marketing expansion and market growth, are set to coalesce to boost foreign insurance companies operating in China, according to EY’s report “Future directions for foreign insurance companies in China”.
Based on C-suite interviews conducted with 30 foreign insurers in mainland China, the report finds that the industry is seeing the first positive signs of a more relaxed regulatory environment for foreign insurers in China, with the potential to transform the sector over the next five years and beyond.
In 2014, market share moved up marginally to 5.8% for foreign life insurers while in property and casualty, the foreign market share almost doubled to 2.2%.
Mr Jonathan Zhao, Asia-Pacific Insurance Leader and Managing Partner, EY, said: “While China’s insurance market continues to be dominated by the big domestic players, new risk management and solvency rules are likely to more deeply entrench the positions of these incumbents. However, developments in market liberalisation are creating opportunities for foreign insurance companies to start to compete with the domestic giants.”
Three key regulatory developments – C-ROSS, FTZ and Internet Plus
The Chinese cabinet, the State Council, has issued a blueprint envisaging a world-class industry by 2020. Three regulatory developments in particular are being closely followed. The first is the China Risk-Oriented Solvency System (C-ROSS). Foreign insurers’ risk management experience in other markets means that they feel well-prepared for C-ROSS, with 61% of those polled believing they have adequate resources to implement C-ROSS requirements.
Another major development would be the Free Trade Zones (FTZ). Feedback from respondents highlighted uncertainty on how best to capitalise on the zones, but there were suggestions that a model allowing those inside a FTZ to roll out business to another FTZ would be a major step forward.
Thirdly, the introduction last year of Internet finance guidelines and the national “Internet Plus” strategy initiatives could create a paradigm shift for foreign insurers, by allowing non-insurers with comprehensive mobile networks and large customer bases to enter the arena, said Mr Zhao.
Adopting digital strategies and mobile technology offers significant opportunity for foreign insurance companies to expand their reach. Respondents cited digital marketing as one of their top priorities, with over 30% believing it will have a significant impact over the next five years on their business.
Despite the high level of importance placed on this channel, 74% of respondents said they were not confident that they could deliver on digital transformation, citing legacy systems, regulatory constraints and small customer bases as possible constraints.
Greater growth potential for foreign players
In addition, Mr Zhao said: “The joint venture structures of foreign life insurance companies are now being modified to break the regulatory bind that is so far restricting the growth of foreign players. Not only does this structure overcome both the foreign ownership restrictions and the distribution hurdles, it also adds essential local knowledge, an extensive footprint and global expertise to the mix. These combined factors create greater growth potential for foreign insurance companies.”