The challenge for insurers in capitalising on China’s potential can be summed up in one word: Access. It is a complex market that requires specialist insight – the kind of insight that comes from being ‘home grown’, rather like Hong Kong-headquartered Peak Re. We spoke to Lawrence Cheng and Helen Qian to gain first-hand insights about how the reinsurer’s unique capabilities allow it to leverage China’s growth potential.
China is almost universally acknowledged to be the market with the most growth potential for every type of financial service – including insurance. This is manifest in initiatives such as the Greater Bay Area (GBA) that knits together the semi-autonomous territories of Hong Kong and Macau with 11 surrounding cities in southern China, including Shenzhen and Guangzhou.
Hong Kong-headquartered Peak Re has a special focus on China and is adept at finding new business lines across the insurance spectrum - from health to motor to Nat CAT. Peak Re managing director, underwriting, Lawrence Cheng believes, for example, that China’s growth will spur further insurance demand from affluent Chinese consumers seeking better healthcare services.
“China’s high net worth see Hong Kong as a choice for better healthcare, and Hong Kong’s life market which has been growing in double digits in the last few years, sees it as an opportunity to cross-sell health policies,” he said.
Perhaps one of the most visible symbols of the GBA vision is the bridge that connects Hong Kong and Macau to the mainland Chinese city of Zhuhai by road. Currently, drivers would need three separate motor policies to travel across the different sub-regions, in order to be insured for the entirety of the trip.
However, regulators and local insurance companies are pushing hard for a provision which requires drivers to have only a single motor policy issued from Hong Kong in order to undertake the trip, said Mr Cheng.
Better understanding of risk
As a Hong Kong-based reinsurer with strong roots and great experience in the mainland market, Peak Re is in a unique position to act as a gateway in managing and transferring risk within both Hong Kong and China.
However, Mr Cheng, who is also the co-head of property and casualty business at Peak Re, warns there is still work to be done in harmonising the different legal, tax and currency regimes in the various territories in order for the GBA vision to reach maximum potential.
He also pointed out the risk concentration and CAT exposure within the GBA region, with combined GDP of $1.5tn would make it the third largest bay area economy in the world. With the devastation caused in southern China and Hong Kong by typhoon Mangkhut last September and Hato in 2017, sound risk management is essential to ensure that the GBA’s economic and social resilience against natural disasters is secured, he said.
Meanwhile, Peak Re managing director and head of China market Helen Qian believes there is now greater awareness among local governments in China of the importance of transferring risk to the insurance sector to ensure prudent management of natural disasters.
“Both the central and local governments are buying CAT cover and transferring their liabilities to the commercial insurance sector, and I see this trend is becoming more popular in the big cities and provinces,” she said.
While the motor segment continues to drive growth in China’s general insurance segment, there are many opportunities for new products in other lines of business. Ms Qian cites China’s push to introduce an environmental liability insurance plan as one such example. Although the idea was first proposed more than a decade ago to control pollution, product design is complicated and needs consistent understanding of risk between local governments and insurance companies, which requires specialist risk, actuarial and legal inputs.
Peak Re’s international business profile allows it to draw on its experience in other markets in offering risk assessments and suggestions for insurers looking to design the product, she said.
A fast-maturing insurance market
Insurance regulation in China has become more sophisticated in the last few years to ensure better risk management, governance and consumer protection.
From a reinsurance perspective, insurance companies are having to look at their products and portfolio in a very risk-focused way and are demanding more guidance on risk control and mitigation, said Mr Cheng.
The China growth story has only just begun. A