I attended the LIMRA-LOMA's 19th annual Strategic Issues Conference held in Beijing, China last week. (As you already know, LIMRA-LOMA is the world’s largest association of life insurance and financial services companies with over 1,200 institutions as member organizations from across 70 countries). The two-day session explored the fundamental realignment of the insurance industry, and the new game, new rules, and new reality within which the Asia/Pacific carriers are competing in.
An interesting segment that caught my attention at the meet was the executive panel entitled "A Vision for China", which featured the senior management from two of China's domestic insurance behemoths - Chao Yang (Chairman, China Life Insurance, the country's largest life insurer with a market share of 41.5% in 2009) and Ronglu Zheng (General Manager, Taiping Life Insurance), together with international peers – Eric Chang (President, Aviva-COFCO Life Insurance) and Renzo Isler (General Manager, Generali China Life Insurance).
In the one hour discussion, these gentlemen covered a plethora of topics ranging from the primary growth drivers for the Chinese market, to core expansion challenges (and specifically those pertaining to foreign-funded carriers).
On the first issue – the panelist were in unison that China's insurance sector has been at the receiving end of an excellent streak of economic growth (China's average annual gross domestic product (GDP) grew 9.3% between 1989 and 2010), expanding a multiple of 2-3 times the GDP growth. Nonetheless, life and non-life insurance penetrations remain a mere fraction of that for global markets and amongst the lowest in Asia/Pacific. As such, continued economic expansion, commendable structural changes, increased household wealth, rising educational standards and consumer awareness, urbanization and increased demand for privately owned properties and vehicles, and the influence of regulatory transformations such as healthcare reforms will stimulate immense growth opportunities within China's insurance sector.
Herein, Renzo from Generali China Life directed attention to China's insurance regulator's (CIRC's) implementation of healthcare reforms that are due to be rolled out this year, and how these would encourage an expansion in the role of commercial health insurance in the national healthcare system and influence individuals and enterprises to meet needs not covered by the national basic healthcare system though health insurance.
On the question of immediate issues facing the sector, an obvious concern noted by all panelists was that from intensifying market competition being triggered by the entrance of foreign and private sector insurers and these denting the monopoly of China's big insurance groups to some extent. (Note: CIRC has been supporting the development of a more diverse marketplace by offering preferential policies to smaller and foreign firms to encourage greater competition, a more diverse market, efficient price competition and innovative offerings.)
Even then, foreign-funded carriers have not seen quick traction - domestic insurers remained dominant in both the life and the property segments, with local insurers capturing 96% of premiums from the life and 99% from the property markets, respectively. And why is this the case?
The panelists pointed to the fact that when it comes to operating a joint venture with a domestic financial institution, shareholders and management team are sometimes not unified in crafting strategies and aligning the goals of the insurers. New entrants also have to tackle encumbrances such as the lack of data and underwriting track records, cultural and language barriers, differences in corporate governance and accounting issues (for instance, Eric from Aviva-COFCO Life Insurance mentioned having to be compliant with Solvency II and being disadvantaged when local peers in China are not required to do likewise), and being restrained by a much smaller channel distribution reach in comparison to local players that have the backing of (literally) an army of hundreds of thousands of insurance salespeople.
Being unable and impractical to compete on distribution strategies and pricing, foreign-based insurers have been circumventing these impediments by exploiting competitive differentiation that sets them apart from local incumbents. These include stressing their expertise in specific market segments and deliberately distinguish themselves via more targeted, personalized distribution networks, excellent customer service, and sophisticated product designs.
To find out what else transpired during the rest of the sessions at the conference, and to read my discussion notes from one-to-one time with the President and CEO of LIMRA-LOMA, have a look at the Perspective document: "Insights from the LIMRA-LOMA Strategic Issues Conference for Asia/Pacific Insurers" at http://www.idc-fi.com/getdoc.jsp?containerId=FIN227902
Do also look out for another forthcoming report entitled: "Business Strategy: Issues and Initiatives of Regional Insurers – A 2011 Executive Survey". This piece illuminates the findings from our executive survey conducted onsite at this conference, pulling together submissions from a diverse range of senior level participants across Asia/Pacific. The survey covers the fundamental issues around strategies for premium expansions, cost management and risk mitigation, and technologic planning.