Insurers facing squeeze

PUBLISHED : Tuesday, 13 December, 2011, 12:00am
UPDATED : Tuesday, 13 December, 2011, 12:00am


Major international insurance companies have faced a tough year globally, especially in Asia where domestic companies have been dominating local markets.

Now a report released by a major accounting firm shows that foreign insurance companies on the mainland are facing challenges in terms of regulation and competition from domestic firms.

PricewaterhouseCoopers' (PwC) fifth Foreign Insurance Companies in China report shows that domestic insurers in China are increasing their market dominance and, to top it all, major mainland banks, such as Bank of China, ICBC and Agricultural Bank of China, are also encroaching into the traditional insurance marketplace by selling insurance-related products.

Apart from these issues, foreign insurance companies also face the tough task of retaining and hiring talented professionals, the report says.

'It hasn't got any easier for foreign insurance companies to operate in China since we released our last report a year ago. In fact, since then, some new rules have been established to regulate the industry. One in particular - the limited number of insurance companies being allowed to distribute their products through the bancassurance channel - has unsettled many of the foreign players,' says Peter Whalley, PwC Insurance leader for Hong Kong. 'While this may benefit companies with a good partnership with banks, others, particularly the smaller insurers, may lose out,' Whalley adds. This has resulted in several shareholding changes, with an increasing number of mainland banks replacing other domestic companies as joint-venture partners.

Foreign insurers expressed interest in taking a share in their Chinese peers, a move they feel will help them in expanding geographically in China. They are also supportive of dual investments, where foreign insurers are allowed to invest in more than one insurance entity.

The 18 life insurance companies that participated this year identified increasing competition from domestic insurers, such as China Life and Ping An, and the war for talent as posing the greatest challenge. Their 10 property and casualty counterparts, on the other hand, still consider China's tight regulatory environment as the top concern. Foreign insurance companies point out that the market share for life insurers in the mainland market is 5 per cent, compared with an abysmal 1 per cent for property and casualty insurers, the lowest in Asia.

The report says that the figures are not expected to change dramatically in the next three years. The announcement in May that foreign insurers will be allowed to enter into the mandatory third party liability market may help enlarge the pie.