1998 is a significant year in China. AIA moved back in Shanghai as one of their many foreign operations today. It marked the very first year of the return of foreign insurance companies in China after a long absence in the country when they were rejected from operating some five decades ago. Since then, other companies followed in – Cigna, AXA, Allianz and several other aiming to tap the nearly 1.5 billion people with few options for life insurance.
However, many companies have overblown their research and development. Their optimism turned out a failure as life insurance premiums represent just 2.2% of China’s gross domestic product against Taiwan’s 13.6% and Hong Kong’s 9.9%. Just June of this year, foreign companies only took 4.7% of premiums paid in China. Their revenues were on the rise but still it was a huge step backwards in share.
The problem was simple, foreign companies underestimated the strength of China’s current insurance companies such as China Life and Ping An. China’s foreign insurers policy is stricter, as they don’t have a nationwide license. They are require to get separate permit for every city and province they want to do business with.
Moreover, there is a problem with joint ventures as all foreign insurers must need to work with local partners. Essentially, there is no room for a holistic growth for the foreigners as it needs to be divided among local investors. For example, Canada’s Manulife is teamed up with oil company Sinochem, while United Kingdom’s Aviva partnered with food company Cofco.
A further concern for foreign entrants is the undeveloped state of China’s capital markets. The bond market is small. Normally, it would take one to have an EXTREMELY good connections to penetrate the market. In general, it will be hard for foreigners competing against their domestic rivals. But by slowly eating up until a respectable amount of pie is consumer, it will be possible only in the longer term. For now it might not be the most perfect alternative.