New opportunities as China accelerates financial sector opening-up

next 3-5 years critical for foreign insurers to develop market foothold

  • In 2019, China became the world's second largest insurance market with annual premium income hitting USD0.63 trillion dollars, but insurance penetration is still far behind those of developed markets
  • There are now more options for foreign insurers to enter or re-enter China and capitalize on the opportunities presented by new opening-up policies
  • Competition from foreign insurers will push domestic insurers to learn from global best practices and shape a better insurance industry

Published Date: 23 June 2020

As China continues to ease market access restrictions on foreign insurance companies, competitive dynamics in its insurance market are changing. In 2019, premium income from foreign or Sino-foreign JV insurance companies in China increased by 29.9 percent year on year, more than double the 12.2 percent growth of purely domestic players. The total market share of foreign and JV insurers increased by 1 percentage point to 7.2 percent.

Today, Deloitte China publishes China market opportunities for foreign insurance companies under new opening-up policies, a white paper that uses comprehensive analysis and insights to explore China's insurance sector's huge growth potential.

The new opening-up measures removed the requirement that foreign insurers must have operated for at least 30 years before entering the China market; ended the ownership cap on Sino-foreign JVs to allow wholly foreign-owned insurers to operate in China; and abolished rules specific to foreign insurers, leveling the regulatory playing field.

"With the full implementation of less restrictive market access policies, the market share of foreign insurance companies is set to increase further," says Martin Wong, Deloitte China insurance sector leader. "Competition from foreign insurers will push domestic insurers to learn from global best practices and foster better corporate governance, risk pricing and investment management. This will help bridge the gap between China and more developed insurance markets."

That said, the white paper also highlights two long-standing barriers for foreign insurance companies doing business in China. First, a company needs to meet certain criteria before its application for an insurance license is accepted. For foreign insurers, the process from applying for a license to final approval can take a couple of years. After obtaining an insurance license, an insurer still needs to meet regional regulatory requirements when opening in different regions of China, which requires at least 3-5 years' preparation if it plans to open in more than 10 provinces. Second, it takes at least 3-5 years, and substantial investment, for a foreign insurer with no existing presence or partnership in China to build a direct sales/agent network that covers multiple provinces.

Since the new measures were rolled out, several foreign insurance companies have sought to increase their stakes in existing JVs to become majority shareholders. Others are setting up new wholly- or majority-owned insurance institutions through acquisitions, new JVs or strategic partnerships. The new opening-up measures are not yet fully in effect, so it is too early to assess their impact on insurance license applications and approvals. Of the 36 approvals granted by the China Banking & Insurance Regulatory Commission (CBIRC) in 2019, 15 were related to foreign insurance companies.

"The new opening-up measures will give foreign insurers a new opportunity to rethink their business models in China. They will be considering how to best capitalize on the opportunities the new opening-up policies present," suggests Jimmy Chan, Deloitte FSI Financial Advisory Leader. "Nevertheless, in M&A, buyers will need to be prepared to deal with the complex shareholding structures of most domestic insurers. This makes acquisitions a challenge that requires early negotiations and due diligence with multiple shareholders."

"A JV or partnership with leading Chinese insurance technology (insurtech) companies is another option for foreign insurance companies to quickly access multiple millions of customer data points, better understand those customers' needs, develop customized products and conduct precision marketing," Jimmy adds.

In the meantime, COVID-19 has prompted a surge in online insurance sales. It is also a powerful accelerator of traditional insurers' business model transformations, and is facilitating more partnerships between foreign insurers and technology companies.

Martin concludes, "The next three-to-five years will be critical for foreign insurers' China market development amid opening-up. Additionally, many small- and medium-sized local insurers face operational challenges and are seeking new investors and business growth, which is creating more opportunities for foreign insurers." 

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