Foreign insurance companies are still struggling to expand their business in China as reforms and deregulation slowly change the face of the industry.

Two decades after China opened its market to foreign insurers, the combined market share of 28 overseas life insurance companies stood at 5.5 percent in the first half, up by half a point from a year earlier.

Shanghai Daily caught up with Guy Mills, president and CEO of Manulife-Sinochem, to discuss how his company operates in the highly competitive market.

Manulife-Sinochem is a venture between Toronto-based Manulife and China’s Sinochem Finance Co. It was the first joint-venture life insurance company formed in China, with a market presence of more than 18 years.

It is now the ninth largest foreign life insurer in China in terms of premium income, according to the China Insurance Regulatory Commission.

Mills has headed the joint venture for three years.

Q: What changes have you seen in Chinese customers in the past three years?

A: First of all, the level of household wealth has continued to rise faster than in any other market where we operate. At the same time, customers’ expectations for quality of life are also increasing very rapidly. The second interesting point is how Chinese consumers allocate their assets. Every three months we do a survey on investment sentiment in different markets. We find the Chinese holding a lot of cash, and they don’t use mutual funds very much, compared with more mature markets like the US and Singapore. It’s an odd environment where, on the one hand, people hold cash and invest in illiquid assets like real estate, and, on the other hand, there is quite risky investment behavior like in the stock market.

The third amazing thing happening here is how quickly the e-commerce and Internet finance businesses have taken off. Three years ago, there was only a tiny bit of Internet finance. Now it is exploding. What’s exciting for me in China, when I talk to colleagues from other places around the world, is the degree of innovation here in Internet finance. A lot of money has been invested and a lot of experimentation is underway. The public at large is very enthusiastic about new things. I often tell my colleagues they should be watching what’s happening in China to predict what can happen elsewhere in the world when it comes to Internet financing.

Q: How is your company developing its Internet insurance business?

A: We are investing a good deal of our time on this. We really want to know how our customers and future customers want to work with us digitally so that we can deliver services and products efficiently. Another key area for the whole industry is to improve the level of information available online and educate customers about the options they have. From our market research, we know that they are reluctant to be approached by sales persons, even at a bank. Customers feel as though agents have other interests, such as commissions. There is a trust issue. There are people who would like to do financial planning for themselves, but they just don’t have the resources. Calculators and simulators can be developed to let consumers know what they need to meet their own needs. We realize that a fairly large population would really prefer to buy everything online. So why not insurance? Over time, we will broaden the range of insurance products that are available online. I think maybe up to a quarter of insurance businesses will be transacted purely digitally by 2020. That’s quite significant.

Q: But products available on the Internet are relatively simple and low-profit, and people accustomed to buying things online tend to be younger and less wealthy. Is that a challenge for Internet insurance?

A: If you look to buy insurance products online, you will mainly see two products: simple travel insurance or investment type products. From a regulatory standpoint, it is possible for companies with sufficient size and the right licenses to offer more sophisticated products online. It’s not a regulatory issue or risk issue, but the challenge is to give customers enough information and confidence so they choose the right solutions for themselves. From our experience in the US, financial advisers are costly and can only handle really high-asset individuals. So in the US there are so called robo-advisers — sophisticated computer systems that help individuals do their financial planning and asset allocation online. We are working with that kind of system in the US, and we can see that coming here as well.

Q: Who are your target customers?

A: Like in other Asian markets, our target market is always the emerging affluent population. We don’t reach out to the very wealthy because there is too much competition there from private banks and other institutions. It is not what we are best at. In China we specialize more on young families and juvenile products. We were the very first insurance company in China to come out with products specifically tailored to children and women. That has been our specialty, and we continue to focus on that segment, which is very large. The idea is we try to establish relationships when people need us most — when they have a child — and then try to keep them with us. We tend to sell long-term products rather than pure investment-type ones. We have been profitable with this strategy for at least six years. China is one of the fast growing markets for the Manulife group around the world in terms of both profit and revenue. It has enormous future potential because of the greater population and rising wealth.

Q: Manulife received a license in June for its agents to market mutual funds. What expectations do you have for that sector?

A: In fact, we are the only company doing that. Three other domestic insurance companies acquired license to distribute mutual funds, but they are not doing it through their agents. When it comes to financial planning, insurance is good for many things but not everything. When I started working for Manulife in Canada 20 years ago, we started to sell mutual funds through agents. Now it’s almost half of the business. As people get wealthier, they take care of their insurance needs earlier in their life and get more interested in investing when they accumulate wealth. That’s where mutual funds can be a very useful tool.

We worked very hard to get our license, and our asset management company Manulife-TEDA helped us with training and compliance. We see this as a long-term initiative. We have started with six products from Manulife-TEDA, mainly less volatile bonds funds for long-term financial planning. The business will be not profitable in the short term, but we believe as China continues to develop, mutual funds will be more significant in everyone’s assets. In more mature markets, mutual funds can be between 70 percent to 80 percent of a person’s net worth. There are a lot of opportunities.