Insurance was one of the key subjects in the 15-year negotiations on China's World Trade Organization (WTO) membership. "China's WTO entry will bring fundamental and revolutionary changes to the Chinese insurance industry." said Ma Yongwei, Chairman of the China Insurance Regulatory Commission (CIRC). The sector will face unprecedented opportunities as well as challenges, he added.

On November 22, Meng Zhaoyi, Deputy Director of CIRC's International Department, revealed in detail China's commitments to the WTO in the opening of its insurance sector, which presented a rosy prospect for foreign insurers that have been coveting the Chinese insurance market.

"China's insurance market has huge potential for development." said Long Yongtu, Chief Negotiator of the Ministry of Foreign Trade and Economic Cooperation. Both Chinese and foreign insurers can benefit from China's endeavor in opening its insurance sector, as long as they join together to foster and tap the Chinese market, he noted.

A lucrative market

Foreign insurance firms favor the Chinese market mainly because of its huge demand potentials. Since its resumption in 1980. China's insurance sector has developed rapidly, with the annual increase of premium revenue surpassing the national GDP growth rate. Meanwhile, judging from its aggregate, the Chinese insurance market still lags far behind the world average, which indicates its huge potential for development.

At a recent international symposium, Yuan Li. Deputy Director of CIRC's Department of Policy and Regulations, pointed out that the small aggregate scale is currently a prominent problem handicapping China's insurance sector. China now has 33 insurance companies, eight of which are national insurers and the remainder regional. Of these, 13 are Chinese-funded, while 20 arc either exclusively foreign-funded or are joint ventures.

Per-capita premium revenue in China was 127.7 yuan ($15.4) last year, as against the world average of US$360. The proportion of premium revenue in GDP stood at 1.8 percent, compared to the world average of 7 percent. Both indicate that the Chinese market is far from saturated.

Yuan said that, according to the 10th Five-Year Plan (2001-05) for the development of the insurance sector, national premium revenue is expected to reach 280 billion yuan ($33.7 billion) in 2005, with an annual increase of 12 percent during the period. The proportion of premium revenue in GDP will rise to 2.3 percent, while the per-capita premium will be up to 230 yuan ($27.7), striving to approach the average level of developing countries. Total assets of the insurance sector will exceed 1 trillion yuan ($120.5 billion), tripling that of 2000.

An official from the United Nations Conference on Trade and Development (UNCTAD) pointed out that with China's accession to the WTO, its insurance market will he further opened to both domestic and overseas businesses, and demand For insurance products will increase sharply. He believes that with sustained growth of the GDP, China and other Asian countries will be the regions most likely to provide an increasing demand for pension, life, general, and health insurance services. He noted that after China's accession to the WTO, the huge population on the Chinese insurance market that urgently needs to be insured would contribute to diversifying opportunities for various insurers exploring the Asian market.

While China's sustained and rapid economic growth is stimulating the insurance demand of its citizens, its huge population and progressing social security system reform incite the longing of foreign insurers for the Chinese market. The reform of pension, medical, unemployment and other social security programs provides a large development space for commercial insurance. Meanwhile, the shrinking family size, prolonged average life expectancy and aging population have resulted in a rising demand for pension insurance. For insurers, especially life insurers, China's 1.3 billion population is a more convincing, lucrative factor.

As China's insurance sector is still in the primary stage of development, for insurance magnates of developed countries, earlier entry means a larger share in the Chinese market.

Competition and Pressure

The accelerating entry of foreign insurance firms after China's WTO accession means the beginning of fiercer competition. Compared to their Chinese counterparts, foreign insurers dominate competitive superiority. The Chinese insurance sector has resumed operation for merely 20 years. Its total assets stand at 337.4 billion yuan ($40.7 billion), while those of a medium-sized foreign insurance company arc normally more than $100 billion. There are also big gaps in terms of managerial expertise.

In fact, foreign businesses have already posed a big pressure on Chinese insurers. A pilot city for opening local insurance market to foreign businesses. Shanghai now has 12 foreign-funded insurance companies, which have occupied 13 percent of the local life insurance market. In Guangzhou, another pilot city, two foreign-funded firms - American International Assurance and CITIC-Prudential - have taken 12 percent of the local life insurance market in the first three quarters of this year.

The accelerating entry of foreign insurance firms also means the arrival of more opportunities, noted CIRC Chairman Ma Yongwei. He said China's WTO entry ushers in a new all-round opening stage of the country's insurance sector. The expansion of the insurance market and the breaking of monopoly are pushing domestic companies to update their products and improve services, and the accelerated corporation system reform is narrowing the gap between domestic and overseas insurance sectors. In addition, the opening will lead to changes in the growth mode of the Chinese insurance sector and to an increase in the number of market players, thus promoting the internationalization of Chinese insurance business.

A senior insurer who has been in the business for several decades said foreign companies would bring a more positive impact on China's insurance business. He noted that, unlike other sectors, the insurance business is not subject to policy protection, from marketing strategy to insurance terms. Therefore, domestic companies may adopt foreign strategics. For example, after opening in Shanghai in 1992, American Du Pont practiced an agent marketing strategy and soon grabbed a considerable share of the local market. Less than three months later, however, domestic companies also learnt to use this modern marketing means. Tens of thousands of sales agents paid door-to-door visits to sell goods, which not only helped publicize their companies, but also helped them take back lost markets.

Zhang Weigong, head of CIRC Jiangsu Office, believes China's WTO entry will bring more benefits to ordinary Chinese people. Insurance products will be more diversified and more suitable for the needs of ordinary people. Fiercer market competition will lead to better service and more stable profits in the insurance sector. As a result, the burden of citizens will be reduced.

In the face of the challenges brought by China's WTO entry, China is adopting active measures to accelerate the system reform and mechanism transformation of Chinese insurance companies.