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Jun 2022

Taking Tiger Mountain by Strategy (again)

Source: Asia Insurance Review | Oct 2021

Until relatively recently, many global insurers seeking growth prospects were focused closely on China as the only game in town. India, of course, holds much promise too – but China was very much the main hope for growth.
On the face of it, China is a vast market with low insurance penetration and an economy that is still booming in spite of the body-blow delivered by COVID-19. The World Bank is projecting GDP growth of 8.5% for the nation in 2021.
On the one hand, China is home to more than 1,000 US-dollar billionaires, according to the Hurun Global Rich List. On the other hand, 43% of the population – or 600m people - survive on a monthly income of $154.
It is not hard to see why there has been a recent drive for ‘common prosperity’ – or why the market opportunity for insurance growth is not a straightforward one.
Munich Re member of the board of management responsible for the Asia Pacific and Africa division Dr Achim Kassow told Asia Insurance Review back in April, “GDP growth projections and Munich Re research basically tell us that by 2050, the China primary insurance market should be larger than the US market. That puts things into perspective. If you look ahead 20 years at the projections, you see a market that represents the upside. For me it’s pretty clear there is no second China. There will always be changes and you need to adapt in a very agile way, but the nature of China is a long-term play. It’s not about the quarter. It’s not about the year. It’s always keeping in mind this is a huge transformation story that is a US-sized market opportunity.”
This was not an uncommon view amongst foreign players before the recent ‘common prosperity’ drive began to be manifest in multiple areas.
One of the biggest shifts in policy concerns a much closer monitoring of data collection and storage and this will affect information collected by foreign insurers in the China market.
The Personal Information Protection Law, for instance, which is slated to come into force in November, makes it illegal to export data from the country without a security assessment by the Cyberspace Administration of China or its equivalent.
Meanwhile the Data Security Law, which was enacted in September, and which specifically targets, amongst other things, data relating to people’s welfare, must remain within China with requests to export such data overseas decided on a case-by-case basis.
Foreign insurers and reinsurers will have no option but to establish data centres in China – which may be a cost of doing business that they had not foreseen. Adapting their back-office systems to cope with the as-yet-in-development ‘digital renminbi’ could also be another cost as well as a systemic wrinkle they had not foreseen.
Perhaps more acutely, the drive for ‘common prosperity’ is really aimed at the indigenous Chinese population and not about the prosperity of foreign shareholders and so it is likely that the playing field may be tilted to favour domestic winners.
The crackdown on excessive wages in China, wealthy entrepreneurs giving away swathes of money to charitable causes, restrictions on children’s online gaming to three hours per week, the education sector becoming not-for-profit and other substantial policy changes hint at a society for which it could be increasingly difficult to price political risk.
In a nutshell, ‘common prosperity’ looks like a purely domestic play – and there may be no room for non-domestic players.
Paul McNamara
Editorial director
Asia Insurance Review
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