Foreign insurers benefit as China frowns on high-risk insurance products

Regulatory restrictions and lack of interest in insurance's protective nature hobble foreign firms

Foreign insurers benefit as China frowns on high-risk insurance products

Insurance News

By Gabriel Olano

Foreign-owned insurers are gaining market share in China, partly due to Beijing’s crackdown on aggressive investment by a number of local insurers.

An expanding Chinese middle class and growing wealth has led to rising demand in insurance. While local insurers may offer high returns, the government’s efforts to curb their aggressive short-term investments have exposed the risks associated with their insurance products. This has led quite a few consumers to prefer the more stable offerings of foreign-owned insurers.

“We have the differentiated strategy by focussing on selling protection products ... and we reaped the benefit of that,” John Cai, regional chief executive of Hong Kong-based AIA, told Reuters. Cai was referring to the 60% increase in AIA’s value of new business in mainland China for 2017, up from 54% in 2016.

Foreign insurers, which include big global names such as AIA, Prudential, and Aviva, have operated in China for a long time. However, their combined market share has yet to exceed 10% due to regulatory restrictions and consumers’ attitude towards insurance as an investment instead of as a protection tool.

Current regulations cap foreign ownership in Chinese insurance joint ventures at 50%. AIA is an exception as it was set up before the limit was introduced, thus it is fully foreign-owned.

The government said last year that it will raise the ownership threshold to 51% for foreign insurance joint ventures in 2020, and will allow full foreign ownership by 2022.

While Chinese insurance giants such as Ping An Insurance Group and China Life Insurance dominate the market with combined life insurance market share of around 90%, the regulator-led clean-up of the insurance sector has upended several smaller insurance players.

Last month, the China Insurance Regulatory Commission seized control of Anbang Insurance Group due to its risky investments and economic crimes allegedly committed by its chairman.

Assets held in universal life insurance, the bread-and-butter product of Anbang and similar insurers, decreased by around 50% last year due to the crackdown.

This leaves room for foreign-owned insurers to grow into.

Many foreign insurers are concentrating on smaller cities, where insurance penetration is lower than 3% of GDP. The low penetration rate in China and its positive economic prospects are some of the top factors that attract foreign insurers to the market.


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