Home » Business » Biz Commentary
Foreign insurers poised for wider China market entry
By William Xiong |
May 17, 2012, Thursday
|
Print Edition
Print Edition
CHINA, already the largest automotive market by annual volume, had 100 million vehicles on the road last year, and that number is expected to expand by 20 million this year.
As a result, auto insurance is becoming an increasingly important part of financial services, with premium income growing 18 percent last year alone.
This market has been dominated by Chinese insurers. Foreign insurers have only about 1 percent of China's whole property and casualty insurance market, in which auto insurance accounts for a majority part, according to a PricewaterhouseCoopers survey published last December.
Third-party liability auto insurance is mandatory in China. On his recent visit to the US, Vice President Xi Jinping promised to open up that market to foreign insurers. Will it change the outlook of foreign insurers in China?
We think the impact of foreign insurance providers will be kept very limited, especially in the first three years of any opening up. Chinese insurance providers have significant advantages in sales networks and claims experience. Leading players like PICC, Ping An, and China Pacific Insurance have extended their networks to cover most auto dealers and established their brand awareness.
Over the last several years. Ping An Property & Casualty Insurance launched "one day claim" service, with free roadside assistance. PICC launched "pocket PICC" to allow customer to complete the claim process through cell phone application.
Long way to go
As a result, it will take many years and significant investment for foreign insurers to establish sales networks, dealer partnerships and claims systems in order to enter the broad Chinese automobile insurance market on a competitive basis. Regulatory approval to set up branches in different provinces will likely limit the speed of expansion. It might take up to one year to gain approval for any one of them.
However, in the long term, successful foreign insurers should be able to effectively penetrate the Chinese market by leveraging their extensive experience and expertise in running automotive insurance. Their ability to provide customer-focused products and data-driven pricing are advantages over local players, especially their mature mechanisms to identify and factor in various risks to maximize profitability.
As a starting point, although the challenge of stealing market share from dominant Chinese players looks daunting, there are some practical options.
Foreign insurers could target high-end customers in Tier 1 cities first. These customers include expatriates, existing holders of foreign health insurance and families with multiple cars. They are less sensitive and value tailored products and convenient service.
Joint ventures
Foreign insurers could also consider joint ventures with smaller Chinese players. That would be very effective in terms of expanding much needed territory coverage and quickly acquiring a customer base.
For local insurance providers, the entry of foreign rivals may not be the bad news it appears. As more foreign insurers consider entering the mandatory auto insurance market, they will be natural allies in advocating for looser regulatory controls on premium rates.
Premiums on mandatory auto insurance are now strictly regulated by the China Insurance Regulatory Commission. Insurers are required to lower premiums by 30 percent of the regulator's base rates if a policyholder had no liable traffic accident in the previous three years, according to the regulation enacted in 2007. Insurers have been losing money for the last several years on mandatory insurance, with 2010 losses totaling 9.7 billion yuan (US$1.54 billion). Even break-even in the mandatory insurance means a huge surge in overall profitability.
Automobile owners, in general will likely benefit from more competition because it will mean more options. The competitive pressure and operational experience foreign insurers bring in will push dominant local insurers to upgrade their services. High-end customers will experience early changes first because they are the initial targets of foreign insurers. For the mass market, the impact will be very limited in the near term.
As a result, auto insurance is becoming an increasingly important part of financial services, with premium income growing 18 percent last year alone.
This market has been dominated by Chinese insurers. Foreign insurers have only about 1 percent of China's whole property and casualty insurance market, in which auto insurance accounts for a majority part, according to a PricewaterhouseCoopers survey published last December.
Third-party liability auto insurance is mandatory in China. On his recent visit to the US, Vice President Xi Jinping promised to open up that market to foreign insurers. Will it change the outlook of foreign insurers in China?
We think the impact of foreign insurance providers will be kept very limited, especially in the first three years of any opening up. Chinese insurance providers have significant advantages in sales networks and claims experience. Leading players like PICC, Ping An, and China Pacific Insurance have extended their networks to cover most auto dealers and established their brand awareness.
Over the last several years. Ping An Property & Casualty Insurance launched "one day claim" service, with free roadside assistance. PICC launched "pocket PICC" to allow customer to complete the claim process through cell phone application.
Long way to go
As a result, it will take many years and significant investment for foreign insurers to establish sales networks, dealer partnerships and claims systems in order to enter the broad Chinese automobile insurance market on a competitive basis. Regulatory approval to set up branches in different provinces will likely limit the speed of expansion. It might take up to one year to gain approval for any one of them.
However, in the long term, successful foreign insurers should be able to effectively penetrate the Chinese market by leveraging their extensive experience and expertise in running automotive insurance. Their ability to provide customer-focused products and data-driven pricing are advantages over local players, especially their mature mechanisms to identify and factor in various risks to maximize profitability.
As a starting point, although the challenge of stealing market share from dominant Chinese players looks daunting, there are some practical options.
Foreign insurers could target high-end customers in Tier 1 cities first. These customers include expatriates, existing holders of foreign health insurance and families with multiple cars. They are less sensitive and value tailored products and convenient service.
Joint ventures
Foreign insurers could also consider joint ventures with smaller Chinese players. That would be very effective in terms of expanding much needed territory coverage and quickly acquiring a customer base.
For local insurance providers, the entry of foreign rivals may not be the bad news it appears. As more foreign insurers consider entering the mandatory auto insurance market, they will be natural allies in advocating for looser regulatory controls on premium rates.
Premiums on mandatory auto insurance are now strictly regulated by the China Insurance Regulatory Commission. Insurers are required to lower premiums by 30 percent of the regulator's base rates if a policyholder had no liable traffic accident in the previous three years, according to the regulation enacted in 2007. Insurers have been losing money for the last several years on mandatory insurance, with 2010 losses totaling 9.7 billion yuan (US$1.54 billion). Even break-even in the mandatory insurance means a huge surge in overall profitability.
Automobile owners, in general will likely benefit from more competition because it will mean more options. The competitive pressure and operational experience foreign insurers bring in will push dominant local insurers to upgrade their services. High-end customers will experience early changes first because they are the initial targets of foreign insurers. For the mass market, the impact will be very limited in the near term.
- About Us
- |
- Terms of Use
- |
-
RSS - |
- Privacy Policy
- |
- Contact Us
- |
- Shanghai Call Center: 962288
- |
- Tip-off hotline: 52920043
- 沪ICP证：沪ICP备05050403号-1
- |
- 互联网新闻信息服务许可证：31120180004
- |
- 网络视听许可证：0909346
- |
- 广播电视节目制作许可证：沪字第354号
- |
- 增值电信业务经营许可证：沪B2-20120012
Copyright © 1999- Shanghai Daily. All rights reserved.Preferably viewed with Internet Explorer 8 or newer browsers.
