Amid uncertainty over the US-China trade war, the long-awaited liberalization of the booming Chinese insurance industry will offer vast opportunities for foreign life insurance companies, says GlobalData, a leading data and analytics company.
GlobalData forecasts the Chinese life insurance market grow to a compound annual growth rate (CAGR) of 9.6% from CNY2.1 trillion (US$316.6bn) in 2018 to CNY3.3 trillion (US$484bn) in 2023. Though the market is expected to witness a modest growth, the share of foreign insurers is low.
As of December 2019, 50 foreign insurers are present in China, of which 28 are life insurers. In the first half of 2019, foreign insurers reported 44.8% year-on-year growth in premium income to CNY172.2bn (US$25.9bn). They held a share of 6% in the overall Chinese insurance industry and 8.1% in the life insurance market in 2018.
To further improve the environment for foreign investment, the China Banking and Insurance Regulatory Commission (CBIRC) increased the foreign ownership limit in the life insurance industry from 51% to 100% effective from 1 January 2020.
Ashish Raj, Senior Insurance Analyst at GlobalData, comments: “Increased foreign participation is likely to bring more benefits for mainland consumers.”
To enhance the participation of foreign insurers, CBIRC relaxed the stringent requirements of at least 30 years of operating experience for any foreign insurer before entering the market. CBIRC also relaxed the mandatory condition for foreign insurers to establish a representative office in China for at least two years before applying for authorization.
However, the authorization and licensing process for foreign insurers and their branch offices and call centers in China is complex, tedious and time-consuming.
The business license is granted in two stages, wherein a preparatory license is granted in the first stage and an operating license in the second stage. In addition, there is a gap of maximum 12 months between these stages.
An authorized company must obtain a separate license to establish branch offices and call centers. Additionally, approval is required at a provincial level for business expansion across the country. Even though AIA, a Hong Hong-based life insurer, holds 100% stake in its Chinese subsidiary since 1992, its presence is limited to only two provinces and four cities.
Furthermore, the solvency requirements for insurers differ based on their business structure, risk profiles and risk management capabilities.
In addition, a foreign-funded insurer must maintain a minimum capital requirement of CNY200m (US$30.2m) or an equivalent amount in a freely convertible currency.
Raj concludes: “The Chinese life insurance industry is a lucrative market for foreign insurers but there are sizable entry barriers. The removal of limits on foreign ownership can lead to the overall development of the life insurance industry. Large foreign insurers are expected to apply for new licenses while existing foreign life insurers are expected to increase their stake in the operating joint ventures.”