Property may be the best policy for foreign firms

Foreign non-life insurers that were this month granted access to China's 300 billion yuan car insurance market may be able to use their expanded customer base to gain a greater foothold in the mainland's fast-growing property cover market.

On February 16, the mainland government announced that foreign insurers would be allowed to begin selling motor third-party liability insurance (MTPL) to motorists.

Industry practice is to package non-profitable motor insurance policies with offers of property cover, opening a new avenue to foreign firms, which currently hold just a 1 per cent share of the mainland's property and casualty insurance market.

Data from the China Insurance Regulatory Commission, published by Xinhua, shows that life insurance premiums were down 8.6 per cent to 972.1 billion yuan in 2011, while property insurance premiums were up 18.5 per cent to 461.8 billion yuan.

'Opening up the MTPL insurance business to foreign insurers will certainly lure some of the business away from domestic insurers,' Sally Yim, a senior credit officer at ratings agency Moody's, said in a research note.

'However, we believe domestic insurers will still maintain their market share lead over the next three to five years because of their competitive advantage in scale, brand recognition and distribution.' Currently, MTPL is loss-making as a standalone business, according to Yim.

While unwilling to make detailed forecasts, analysts said property business written by foreign insurers was likely to show a 'hefty jump' as they piggy-backed into the market on their new MTPL insurance business.

'Due to the low base factor, foreign insurers have reasons to cheer for the opening up,' Guotai Junan Securities analyst Peng Yulong said.

'However, they won't pose a real threat to domestic rivals unless all regulatory hurdles are removed,' Peng added.

In a December report, financial services group PwC said foreign insurance companies would find it difficult to enter the MTPL market given their 'skeletal' branch networks.

The 20 foreign non-life insurers operating on the mainland now have only 1.2 per cent share of the overall casualty and property insurance market, while China's top three non-life insurers, PICC, Ping An, and China Pacific, together control more than two-thirds of the market.

Foreign property insurers may not sell policies in regions where they don't have a licence, and these geographic restrictions will hamper their growth, Lynn Yang, a partner with law firm Norton Rose, said.

'The China Insurance Regulatory Commission is not likely to fast-track approvals for foreign insurers' regional expansion any time soon,' she said.

'Foreign insurers, with their skills and expertise in managing motor insurances abroad, are keen to tap the mainland business.'