China’s Property Insurance Market

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Insurance Market in China

The global financial crisis has affected people’s disposable income, which is expected to have an effect on the demand for insurance. In 2009, falling disposable income, new accounting policies and industry adjustment are a few challenges that China’s insurance business is supposed to face.²⁴ However, in the early 2010, we find the property insurance premium volume of 2009 was growing up around 19% while the property insurance markets declined sharply in the other countries. Without any doubts, it is expected that the development in China’s property insurance market will continue to rise up dramatically.

In this chapter, the current China’s property insurance market will be discussed and the property insurance products will be evaluated as well. In particular, the main insurance products will be clarified, such as the motor, property, liability and microinsurance products. However, in China, export credit insurance and agricultural insurance are policy-oriented function of insurance products and the policy-oriented insurance is strongly supported by the government. Also, disaster insurance is with the characteristic of national policy. As a result, this chapter is only focused on commercial property insurance products. After that, the insurance marketing channels and reinsurance markets will be stated respectively. At last, it is critical to mention the dilemmas of foreign property insurance companies in China in order to view the competitiveness and potential development of the whole property insurance industries.

4.1 China’s Property Insurance Market

China’s insurance market is still at a phase of relative immaturity in spite of rapid economic growth in recent years. Historically, the role of the State and affordability were significant constraints on demand for insurance. Social and economic reforms are possible to encourage demand for property insurance. Liability,

24 See “The China Insurance Market,” Towers Watson Newsletter, December 2008, available at http://www.watsonwyatt.com/asia-pacific/pubs/China_insurancemarket/

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credit, property, pensions, and health insurance should also be promoted and increased.

Although China’s economy is going up at one of the fastest speed in the world, it has difficulties in comparison to the growth of its property insurance industry. With the long-lasting achievement of economic reforms that was in progress since the late 1970s, there has been a swelling demand for insurance policies. This is partly owing to the increasing income and higher quality of life demands, and partly owing to the development of a more market-oriented social security structure. China removed geographical and most business boundaries on foreign insurers in 2004 to comply with WTO promises made upon its access into the global trading group. Fifty-two overseas insurers have built local operations, the CIRC said in December 2010, almost tripling from 18 before the nation became a member of the WTO on Dec. 11, 2001.

China has permitted foreign property and casualty firms to insure large-scale risks nationwide upon succession of WTO. Chinese insurance carried on developing in 2008-2009 and the total premium in Chinese property insurance market was RMB367 billion. The property insurance penetration was 1.1% in 2009 and the insurance density was USD40, increasing by around 18.7% from 2008. However, the insurance market in China still keeps largely untouched. With the low insurance penetration and density, China stands far behind than the global average of insurance industry scale.

In the first half-year of 2010, all the property insurance companies produced around RMB201.7 billion premiums from property insurance. The growth rate reached 33.5%. Table 2-4 gives out the market share of all property insurance companies in 2010, we can see that of total premiums, the three biggest companies held 66.3%, including PICC Property’s share of 39% with RMB 81.4billion in premiums, Ping An Property’s share of 14.3% with RMB29.9 billion in premiums, and Pacific Property’s share of 12.9% with RMB27billion in premiums. As the foreign property insurance companies, Chartis Insurance Company China Limited remained the top foreign non-life insurer, with premium income of RMB0.7 billion in the first eight months in 2010. This is an increase of 22% compared with the same period last year.

Besides, the claim payment in the first half-year of 2010, the total claim payment is RMB147.3billion and RMB75.93 billion in the property insurance business, grow

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6.3% compared with the same period in 2009. The underwriting profit²⁵ is RMB3.96 billion and completed by 24 property insurance companies. The motor insurance starts to turn loss into profit and the underwriting profit is RMB2.27 billion.

Table 4-1: Market Shares of All Property Insurance Companies in China─2010 Premiums (RMB billion) Market Share (%)

PICC Property 140.2 38.40

Ping An 55.5 15.21

Pacific Property 46.6 12.77

China United Property 17.9 4.91

Other Chinese firms 101.11 27.70

Foreign firms 3.8 1.04

Total 365.1 100.00

Source: China Insurance Regulatory Commission, the Statistics of Property Insurance Premiums http://www.circ.gov.cn/

Where non-life insurance businesses are concerned, PICC Property & Casualty Insurance is the biggest player, which accounted for 42.5% of market share in 2007, 39.92% of market share in 2009, and took up 38.4% of market share in 2010 (table4-1). Although the market share is decreasing step by step, the whole property insurance market is still controlled by the state. China Pacific Property Insurance and Ping An Property & Casualty Insurance ranked second or third in turn with a smaller market share respectively compared to PICC.

PICC Property, Ping An, and Pacific were the companies with the longest histories and the biggest national branch networks. Most other companies were new and only ran business in limited areas. The top three companies have been decreasing steadily for 10 years and this trend would continue as new companies developed.

However, most scholars recognize that the Chinese insurance market still desires time to turn into a more mature market with a balanced structure.

Domestic non-life insurers’ gross premium income grew by 32% and stood at RMB268.9 billion from January to August in 2010. The growth was driven by people rising demand and constant insurance product innovation. During the 2006-2010

25 Underwriting profit consists of the earned premium remaining after losses have been paid and administrative expenses have been deducted. It does not include any investment income earned on held premiums.

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period, as Chinese people spend more money on cars, houses, education and travel, the establishment of enterprises, and national construction, the insurance demand remains growing continually, according to a document released by CIRC. With a 1.3 billion population and an aging society, insurance will be viewed as a greater role on the improvement of social services.

China gives their promises to create a healthy environment for the development of the insurance industry before 2010, with improved legal system and people's enhanced awareness towards insurance. The government encourages insurance companies to explore markets, introduce more product varieties, improve the service, and set up the risk-control and solvency system. China plans to build a modern insurance industry with large insurance companies to face the international competitiveness.