Page 316 - 2017 White Paper
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7 White Paper on the Business Environment in China
processes for activities including opening new branches It would appear that “Decree 8” was a response to the
and offering specialty products (U.S. Foreign Commercial then-undisclosed 3 billion yuan fraud (approximately
Service 2009). By December 2009, 52 foreign insurers had $455 million) committed by the two largest insurers
established operations in China (Bloomberg 2010). in China Life Insurance Company (Group) and People’s
Insurance Company (Group) of China, both state-owned
Similar to the banking sector, foreign insurers are in 2009, which was revealed to the public in early
reportedly“struggling due to a joint-venture requirement 2011(Yan 2011).
on life insurance, unequal treatment, and stricter
regulations and solvency rules following the financial American International Group — a company which
crisis”, issues which reportedly led to “only three out of 24 was actually founded in Shanghai in 1919, several decades
foreign life insurers [making] a profit in 2008” (Bloomberg before the People’s Republic was proclaimed—made
2010). news in 2012 as a signatory to a non-binding agreement
to purchase $500 million-worth of shares in a Hong Kong
The discrepancy between insurance penetration and IPO planned by the People’s Insurance Company of China.
density in China and in other industrialized markets The agreement also included a planned joint venture
is illustrative of the strong growth potential for the between the two companies to sell life insurance within
Chinese insurance market. It was reported in 2007 that the Mainland (Barreto and Thomas).
China’s insurance penetration was 2.9 percent with a
density of $70 (Sigma 2008b). In comparison, the average Historically, foreign insurance companies have been
penetration in industrialized markets is reported at 9.2 permitted to sell optional auto insurance in China but
percent with an average density of $3,642 (Sigma 2008a). have been barred from offering Mandatory Third-party
Liability (MTPL) coverage. White Paper contributors
Reportedly, foreign firms’ market share in life and Dezan Shira & Associates note that “since most drivers
property insurance amounts to 5.6 (Song 2011) and 1 tend to choose the same insurer for both optional and
percent (Zhan 2011), respectively. compulsory coverage, China’s restriction ‘has effectively
blocked foreign firms’” (Ni 2012).
A 2009 Price Waterhouse Coopers study noted that
no new insurance licenses had been granted since In 2011 then-Vice Premier Wang Qishan, at a session of
October 2008, although a “relaxation” in that situation the U.S.-China Strategic & Economic Dialogue, indicated
was anticipated in late 2009 (Whalley, Liu, and Ling 2009). that foreign insurers may in the future be allowed to offer
MTPL coverage, “[in the hope that] experienced Western
This “relaxation” may have consisted of the February players will bring better pricing and underwriting
2009 announcement by the Standing Committee of practices to the country’s young, fast-growing market”
the NPC that amendments to the Insurance Law would (Ni 2012).
become effective on October 1, 2009. Among these
amendments were reportedly the abolishment of a By 2016, China is likely to surpass Japan as the world’s
restriction on reinsurance and adjustments to the second largest insurance market, the chairman of the
qualification requirements for major shareholders, China Insurance Regulatory Commission (CIRC) Xiang
among others (China Law Insight 2009). Junbo claimed this year. In the first eight months of the
year, China’s premium income reached 2.3 trillion yuan
In May 2010, the China Insurance Regulatory ($342 billion), a surge of 34.7 percent compared to the
Commission (CIRC) issued a new “Administration same period last year, according to data from CIRC. Last
Provision on Reinsurance Business” (CIRC Decree [2010] year, China’s total premium volume was $387 billion,
No. 8), which became effective in July of the same year. and was the third largest insurance market in the world
According to a KPMG brief on the new provision, “‘Decree’ in 2015, according to the Swiss Re sigma research report
8 aims to reinforce the supervision of the reinsurance (Xinhua 2016b).
business and promote the sustainable and healthy
development of the industry as a whole” (Zhang and Qin China’s insurance market faces a bright future as the
2010). government has set a penetration rate target of 5 percent
by 2020. To this end, the country has initiated policies
to encourage the development of natural catastrophe
316
processes for activities including opening new branches It would appear that “Decree 8” was a response to the
and offering specialty products (U.S. Foreign Commercial then-undisclosed 3 billion yuan fraud (approximately
Service 2009). By December 2009, 52 foreign insurers had $455 million) committed by the two largest insurers
established operations in China (Bloomberg 2010). in China Life Insurance Company (Group) and People’s
Insurance Company (Group) of China, both state-owned
Similar to the banking sector, foreign insurers are in 2009, which was revealed to the public in early
reportedly“struggling due to a joint-venture requirement 2011(Yan 2011).
on life insurance, unequal treatment, and stricter
regulations and solvency rules following the financial American International Group — a company which
crisis”, issues which reportedly led to “only three out of 24 was actually founded in Shanghai in 1919, several decades
foreign life insurers [making] a profit in 2008” (Bloomberg before the People’s Republic was proclaimed—made
2010). news in 2012 as a signatory to a non-binding agreement
to purchase $500 million-worth of shares in a Hong Kong
The discrepancy between insurance penetration and IPO planned by the People’s Insurance Company of China.
density in China and in other industrialized markets The agreement also included a planned joint venture
is illustrative of the strong growth potential for the between the two companies to sell life insurance within
Chinese insurance market. It was reported in 2007 that the Mainland (Barreto and Thomas).
China’s insurance penetration was 2.9 percent with a
density of $70 (Sigma 2008b). In comparison, the average Historically, foreign insurance companies have been
penetration in industrialized markets is reported at 9.2 permitted to sell optional auto insurance in China but
percent with an average density of $3,642 (Sigma 2008a). have been barred from offering Mandatory Third-party
Liability (MTPL) coverage. White Paper contributors
Reportedly, foreign firms’ market share in life and Dezan Shira & Associates note that “since most drivers
property insurance amounts to 5.6 (Song 2011) and 1 tend to choose the same insurer for both optional and
percent (Zhan 2011), respectively. compulsory coverage, China’s restriction ‘has effectively
blocked foreign firms’” (Ni 2012).
A 2009 Price Waterhouse Coopers study noted that
no new insurance licenses had been granted since In 2011 then-Vice Premier Wang Qishan, at a session of
October 2008, although a “relaxation” in that situation the U.S.-China Strategic & Economic Dialogue, indicated
was anticipated in late 2009 (Whalley, Liu, and Ling 2009). that foreign insurers may in the future be allowed to offer
MTPL coverage, “[in the hope that] experienced Western
This “relaxation” may have consisted of the February players will bring better pricing and underwriting
2009 announcement by the Standing Committee of practices to the country’s young, fast-growing market”
the NPC that amendments to the Insurance Law would (Ni 2012).
become effective on October 1, 2009. Among these
amendments were reportedly the abolishment of a By 2016, China is likely to surpass Japan as the world’s
restriction on reinsurance and adjustments to the second largest insurance market, the chairman of the
qualification requirements for major shareholders, China Insurance Regulatory Commission (CIRC) Xiang
among others (China Law Insight 2009). Junbo claimed this year. In the first eight months of the
year, China’s premium income reached 2.3 trillion yuan
In May 2010, the China Insurance Regulatory ($342 billion), a surge of 34.7 percent compared to the
Commission (CIRC) issued a new “Administration same period last year, according to data from CIRC. Last
Provision on Reinsurance Business” (CIRC Decree [2010] year, China’s total premium volume was $387 billion,
No. 8), which became effective in July of the same year. and was the third largest insurance market in the world
According to a KPMG brief on the new provision, “‘Decree’ in 2015, according to the Swiss Re sigma research report
8 aims to reinforce the supervision of the reinsurance (Xinhua 2016b).
business and promote the sustainable and healthy
development of the industry as a whole” (Zhang and Qin China’s insurance market faces a bright future as the
2010). government has set a penetration rate target of 5 percent
by 2020. To this end, the country has initiated policies
to encourage the development of natural catastrophe
316
