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February 11, 2020

China Redefines Global Insurance Market

Summary:

Although China’s insurance market has been rapidly growing for years, 2020 will likely be an important tipping point.

Photo Courtesy of Pexels

The insurance industry may have its roots in the West, but its future will be written in the East. Within 10 years, China will represent 20% of global insurance premiums. Within 20, it will become the world’s biggest insurance market, according to the Swiss Re Institute

Although China’s insurance market has been rapidly growing for years, 2020 will likely be an important tipping point, the year in which the global market can no longer afford to be detached from it. Here’s why—and what it means for the industry.

China’s insurance market has never been more dynamic than it is today. The country boasts 1.4 billion consumers, and, while the insurance penetration rate is less than 5%, it will quickly catch up with the average of 6.1% for the rest of the world. The  government’s target of achieving RMB4,500 billion in annual industry premiums is also predicted to be met this year.

Chinese insurers have scaled quickly, in part, through technologies that enable them to serve clients without any human involvement. But these are not enough to satisfy increasingly sophisticated demand, which is why China’s insurance regulator, the CBIRC, recently announced several significant measures to open up foreign access to the domestic market. 

As of the first of this year, foreign investors can now purchase a full stake in domestic Chinese life insurers. Look for the multinational insurers without an existing footprint in China to take advantage of this opportunity, potentially leapfrogging those that entered the market earlier via locally owned entities. Foreign entrants have frequently struggled to make headway in China’s challenging business landscape, but the cancellation of restrictions by the government represents a step change in the rules of engagement and will surely lead to more external investment in the sector.

See also: The Real Disruption From Robotics, AI  

Further changes – including the easing of requirements effectively limiting the access of foreign insurance brokers to just a handful of the largest firms – will start to have a lasting impact on the Chinese market during the coming year.

As China opens its insurance market to the world, Chinese insurers are eager to create their own growth opportunities abroad. Their internationalization has been accelerated by the demands of China’s economic development strategy, the Belt and Road Initiative (BRI). Since its launch in 2013, more than 60 countries have signed on to projects with China or indicated an interest in doing so, according to the CFR. Whether a new port, railway or power plant, each project has required insurance coverage, thereby creating a global portfolio for Chinese insurers. 

Last year, leading Chinese insurers such as China Re and ZhongAn went one step further and announced corporate initiatives with partners across Latin America, Europe and Southeast Asia — key growth corridors for the BRI. This year, look for a Chinese insurer to capitalize on the hardening reinsurance market and make a strategic acquisition in the service of the BRI. This will provide the insurer with a more stable platform to serve Chinese companies engaged in BRI projects, while also empowering them to support China’s growing investment focus in the international business services, financial services, retail and technology sectors.  

Ultimately, the international M&A activity likely to be driven by Chinese interests this year will give a new edge to the global insurance market. To some, these new entrants will appear threatening. To others, in particular those with an understanding of China and Chinese culture, the new entrants will rightly represent a stimulus for growth and expansion. 

In turn, Western insurers have centuries of experience to share with their Chinese counterparts. Infusing China’s already successful ecosystem with corporate processes that are transparent, progressive and responsive will help the market to benefit society and achieve sustainable growth. 

China has long been a strategic growth destination for the global insurance market, albeit a challenging one to navigate. But macroeconomic, regulatory and commercial trends now clearly indicate that the time has come not only for that to be a realistic prospect, but for Chinese insurers and their Western counterparts to work more closely together on a much broader stage around the world. 

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About the Author

Philip Bilney is the founder and chief executive of Hong Kong-based Rare Earth Insurance Partners, a marine and speciality lines intermediary providing a cloud-enabled inward and outbound reinsurance broking service connecting Greater China with international markets.

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