China’s leadership has decided to reopen the nation to the world after a long stretch of some of the toughest anti-COVID measures seen anywhere.
The reopening – and the speed at which it happened – took many by surprise. As we reported in the last issue of Asia Insurance Review, China’s life and health insurance industry swiftly decided to withdraw low-cost policies that had been implemented during the early stages of the pandemic. Insurers were worried that they could be exposed to an expected wave of COVID infections following the opening.
It is estimated that some millions of Chinese will die from COVID over the course of 2023 and insurers feel that they cannot be on the hook for many of the costs associated with the rapid spread of the virus through the population.
Another immediate effect of the reopening is forecast to be a surge in international travel as Chinese travellers are freed to venture overseas once again. While many nations have decided to insist that all travellers from the mainland secure a negative PCR test before they start out, this is not expected greatly to diminish the numbers of Chinese travelling overseas.
This could cause insurers offering travel cover a headache as they seek to draft policies that are both fair and affordable. As with travel cover during the height of the pandemic, it is likely that nations hoping to welcome Chinese tourist will also insist that they have proper COVID insurance to ensure that there is no costly burden imposed on their own domestic health services.
On the upside, the reopening of China will hopefully mean that the economy will emerge from the COVID-induced doldrums and growth will pick up.
The insurance asset manager, however, might have a tougher time looking for growth stocks in China than before the pandemic. During the past few years, the issue of ESG compliance has bubbled up to the surface and become a major focus for most institutional investors. Their fear is that if they do not do their ESG due diligence thoroughly, it could cost them dearly down the line.
There can be a perception that ESG means something different in a Chinese context. Issues like freedom of speech, surveillance, emissions targets and civil and religious rights have been recognised as core principles for most large western institutional investors and they will want guarantees that companies in their portfolio are not going to be found lacking in these areas.
Being compliant with UN principles on sustainability is becoming crucial for investors – but perhaps less so for corporates in China.
There is a burgeoning service industry growing up around the analysis of ESG compliance and where a stock is found to be deficient, it has to be sold and more appropriate assets sourced.
Failing to disclose will also not be an option – since the acid test is that a stock will be considered non-ESG-compliant until proved otherwise.
While it is hoped that 2023 will prove to be the year that growth takes off once again, it would be naïve to ignore the fact that things are not the same as they were before the pandemic – and there is still a war going on that is wreaking havoc with many industries. And when the shooting war is done, it could still take a considerable time until global growth is assured.
Asia Insurance Review