Survey finds Chinese insurers face shortage of risk management professionals

PUBLISHED : Tuesday, 19 July, 2016, 6:08pm
UPDATED : Tuesday, 19 July, 2016, 10:58pm

Chinese insurers lack sufficient risk management professionals and tools as they establish a framework to cope with the introduction of a new risk-oriented solvency system, an industry survey found on Tuesday.

In May and June the accounting firm PwC surveyed insurers on their views of the new mainland Chinese solvency supervision system that took effect this year. The 76 respondents accounted for 80 per cent of China’s insurance market with combined premiums of 1.9 trillion yuan (HK$2.3 trillion) in 2015.

The new solvency supervision system, known as C-ROSS, has been running in parallel to the former scale-oriented solvency system on a trial basis since 2015.

“The Chinese insurance industry needs at least four to five years to build up a comprehensive and effective risk management system,” said Jimi Zhou, a PwC consulting partner. “Chinese insurers are still at an early stage of risk management and are short of professionals in numbers and experience.”

He also said many insurers haven’t devoted enough resources and investment into beefing up their risk management capabilities, only seeing it for compliance purposes.

The insurance regulator is trying to spur insurers to improve their risk management through a solvency aligned risk management requirement and assessment, or SARMRA.

The Chinese insurance industry needs at least four to five years to build up a comprehensive and effective risk management system
Jimi Zhou, PwC

Insurers said they expect the industry average under the assessment to rise to 78 this year from an industry self-assessment average of 71 in 2015. The official rating could be 5 points less as insurers may be more optimistic than regulators on the assessment, PwC said.

About 54 per cent of respondents said they expect their SARMRA to stand above 80, which represents better risk management.

If SARMRA is above 80, each point is equivalent to a 0.5 percentage point lower capital requirement. For example, if an insurer’s minimum capital requirement is 1 billion yuan, a SARMRA of 81 means 5 million yuan less in capital requirement and an SARMRA of 79 means 5 million yuan more.

Chen Wenhui, vice chairman of the China Insurance Regulatory Commission, wrote in an article published by China Finance, a financial magazine under the People’s Bank of China, that the assessment, seen as an innovation in terms of industry supervision, will be one of the key priorities for C-ROSS supervision this year.

The CIRC will run the assessment between June and October, Chen said. Insurers with better risk management ratings could benefit from up to 10 per cent lower capital requirement while poor risk management could translate into as much as 40 per cent more capital requirement.

The survey covered life insurers, property and casualty insurers, reinsurers, pension insurers and health insurers.