Axco Insurance Information Services has released its latest country report on China, highlighting the continued dominance of domestic insurers but offering hope to foreign companies that increased market penetration is possible.
In spite of China’s 2004 World Trade Organisation(WTO) commitments to allow foreign insurers to expand across the country, entrenched disadvantages continue to result in a disappointing market share. Such disadvantages include domestic premium rates being significantly below foreign insurers' minimum technical rates, forcing them to write highly selective accounts as well as the necessity of foreign insurers to adhere far more strictly to CIRC regulations.
In recent years, the need for fresh capital to sustain the industry’s rapid growth, as well the China Insurance Regulatory Commission’s(CIRC) preoccupation that the unconvincing business strategies of existing insurers is a potential threat to market stability, has, however, resulted in a new willingness to allow well-capitalised foreign insurers to acquire controlling shares in smaller domestic companies. Recent examples include AXA’s acquisition of 50% of Tianping Auto and Starr Indemnity’s purchase of 57.8% of Dazhong. In addition, Swiss Re Corporate Solutions is waiting for regulatory approval for its full takeover of Sun Alliance Insurance(China).
Tim Yeates, executive director at Axco comments “China’s rapid economic growth and transformation into an economic powerhouse means that it has naturally been of great interest to insurers even with significant hurdles.
The low market share of foreign insurers is itself a legacy of restrictions and systemic disadvantages so the traditional state-owned domestic providers will continue to dominate the market in the short-to-medium term. But the evidence suggests that, with time, the Chinese market will become more accessible to foreign insurers. Key growth areas for foreign insurers so far have been in the major liability classes such as marine cargo, product liability, and D&O.”
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