Liu Baocheng, Professor, University of International Business and Economics
With a population base of over 1.3 billion, steady economic growth for more than two decades, and now being a new member of the WTO and so committed to opening its financial service market, China has every reason to stand out as the new El Dorado for foreign insurance firms.
The growth rate of China's insurance industry has been exceptionally striking. Total income from premiums topped US$25.7 billion in 2001 compared with US$56 million in 1980 “ an increase by a factor of 459 within a matter of 21 years .
A brief historical account may help to explain such a surge. Insurance, along with all other industries in China, was subject to government manipulation under command economy policies. The domestic insurance industry was completely eradicated following the resolution by the National Finance Conference in 1958 and only the part relating to overseas insurance was retained. It was not until 1979 when the State Council approved the proposal filed by China's central bank “ the People's Bank of China (PBOC) “ that it gradually resumed operation. Before 1986, when the Xinjiang Farm Production Insurance Company was established, the Chinese insurance market was a state monopoly operated by the People's Insurance Company (PICC) acting as an affiliate of PBOC. Initially, no more than 30 products were offered . In 1988, the Shenzhen Ping-An Insurance Company was formed “ the first company with shareholders operating in south- eastern coastal regions . The founding of China Pacific Insurance Company with investment from China's Communication Bank and which was operating on a national level in 1991 symbolized the market's shift from a monopoly to an oligopoly. In 1992, the first foreign insurance firm was permitted to begin operation in China. In 1995, the passage of PRC Insurance Law provided the first across- the-board regulatory structure over the insurance market.
Contributing to this dramatic growth rate is the process of liberalization in the insurance sector, although it has been far slower than it could have been, particularly in the eyes of foreign firms on the waiting list for approval to operate in China. In 1999, the state council permitted the expansion of insurance fund appropriation, ie indirect participation in the stock market through financing of a security investment fund. By the end of 2001, 52 insurance firms were in operation, among which five were state-owned, 15 were share-held, 19 were joint ventures with at least one foreign party, and 13 were wholly owned by foreign firms. The number of insurance entities almost doubled in two years. More interestingly, the number of foreign invested insurance firms exceeded the number of Chinese firms for the first time in history, although the major market share is still in the hands of state-owned domestic firms. (see Table 6.6.1.) Firms specializing in insurance brokerage emerged on the scene, with seven in operation and another seven under review. The number of insurance products offered exceeded 1,000.
Year | State owned | Share-holding | Joint ventures | Foreign owned | Total |
---|---|---|---|---|---|
1999 | 4 | 9 | 4 | 11 | 28 |
2001 | 5 | 15 | 19 | 13 | 52 |
Most of the substantive increase took place during the latter half of the 1990s (see Figure 6.6.1)
The total assets of China's insurance companies were US$56 billion in 2001. The industry turned over US$25.7 billion in premiums, accounting for 2.2 per cent of the country's GDP. It registered an increase of 32.2 per cent over the previous year, according to Yongwei Ma, chairman of the China Insurance Regulatory Commission (CIRC). Of this, US$17.37 billion, or 67.5 per cent of the total premium income came from life insurance. This marked a 42.8 per cent increase over 2000. A total of US$3.69 billion was paid out to insure property, or 51 per cent of property insurance premiums. Life insurance income increased by 14.4 per cent to US$12.07 billion, accounting for 62 per cent of the total premium income, and US$2.66 billion was paid out against life liabilities. (see Table 6.6.2)
Insurance items | Insured amount | Premium | Indemnity & payout |
---|---|---|---|
Property Insurance Firms | 16,152.1 | 60.8 | 30.8 |
Corporate Properties | 6,960.3 | 11.8 | 5.1 |
Household Properties | 582.9 | 1.3 | 0.4 |
Automobiles | 3,404.1 | 37.3 | 20.3 |
Ships | 983.4 | 1.1 | 0.9 |
Cargo | 1,773.5 | 3.6 | 1.6 |
Satellites & Nuclear Energy | 266.7 | 0.3 | 0.2 |
Construction and Installation | 335.7 | 0.6 | 0.2 |
Risks & Liabilities | 1,845.5 | 4.8 | 2.1 |
Liabilities | 668.2 | 2.1 | 1.1 |
Warranties and Guarantees | 54.1 | 0.2 | 0.1 |
Export Credits | 38.8 | 0.3 | 0.1 |
Farming | 49.9 | 0.4 | 0.3 |
Others | 1,034.5 | 1.8 | 0.5 |
Life Insurance Firms | 34,705.8 | 99.0 | 21.8 |
Life | 6,928.2 | 88.2 | 17.4 |
Health | 2,727.7 | 2.8 | 1.2 |
Third Party Liabilities | 25,049.9 | 8.0 | 3.2 |
Total | 50857.9 | 159.8 | 52.6 |
Before the open -door policy in 1978, the number of people employed in the insurance sector was no more than 200. In 2000 there were 8,828 organizations engaged in the insurance industry. There were 166,602 full-time employees, nearly 50 per cent of whom were college- educated . This figure does not include the approximately 800,000 insurance representatives selling insurance across the country. The number of employees in Chinese insurance firms was 163,743, whereas those working for foreign insurance firms was 2,432, only 1.46 per cent of the industry's total work- force (see Table 6.6.3).
Insurance companies | Number | Number of staff | Number of women |
---|---|---|---|
Chinese insurance firms | 13 | 164,170 | 60,534 |
(a) State-owned firms National head offices | 4 | 1,047 | 415 |
Provincial level | 63 | 6,960 | 2,284 |
Cities under separate fiscal plan | 28 | 1,457 | 641 |
Outlets in provincial capital cities | 24 | 2,865 | 1,111 |
Subsidiaries at prefecture level | 910 | 34,675 | 12,811 |
Outlets in prefecture cities | 103 | 1,720 | 747 |
Subsidiaries at county level | 4,313 | 57,204 | 18,883 |
Outlets at county level | 915 | 10,157 | 3,237 |
Out-placed offices and outlets | 1,892 | 3,142 | 1,250 |
Insurance colleges | 4 | 427 | 186 |
Other | 29 | 586 | 198 |
(b) Private companies Head offices | 9 | 3,000 | 1,231 |
First tier subsidiaries | 86 | 24,522 | 10,897 |
Second tier subsidiaries | 34 | 5,074 | 2,155 |
Branches | 197 | 9,789 | 3,881 |
Out-placed offices and outlets | 185 | 1,474 | 597 |
Other | 11 | 71 | 28 |
Foreign firms | 21 | 2,432 | 1,359 |
Joint ventures | 7 | 688 | 409 |
Foreign subsidiaries | 12 | 1,659 | 899 |
Foreign branches | 2 | 85 | 51 |
Note: The number of employees does not include sales representatives. |