IT is, perhaps, an exaggeration to say Raymond Chan is walking a tightrope. However, the general manager of Shanghai-based Zhong Hong Life Insurance, the mainland's first joint-venture insurer, is negotiating a narrow path that could land his newly established firm into a host of pitfalls. 'Personal insurance only started 6 years ago in China,' Mr Chan said. 'And there are many people in the industry who lack experience.' Lack of professionalism and misrepresentation have been an unfortunate hallmark, due in no small part to a rapid growth of business and a simultaneous rise in the number of sales agents pounding city streets flogging an expanding variety of personal life, accident, annuity, and endowment policies. During the past eight years, the country's premium income has increased tenfold, from 10 billion yuan (about HK$9.3 billion) in 1990 to 108 billion yuan last year. In the same period, the number of firms and agents vending policies has doubled. There are now 21 insurance companies and more than 200,000 agents selling policies nationwide. The company - a 51-49 partnership between Canada's Manulife (International) and the Sinochem Group subsidiary China Trust and Investment Corp for Foreign Economic Relations and Trade - has been selling policies for only 18 months. Last year during its first full year of operations, the company drew premium income of 10 million yuan, a figure which Mr Chan believes will double this year. To do so, he said, the company is relying on the professionalism and dependability of its agents. The commission-based agency system, like personal insurance itself, is a new phenomenon in the mainland. It was only introduced in 1992, when American International Assurance (AIA) was granted the mainland's first foreign licences to sell life and general insurance in Shanghai. Arriving amidst government reforms that spelled a retreat in state-provided, cradle-to-grave welfare benefits, it proved an unprecedented opportunity. Within three years, AIA's life operation grew to more than 4,000 agents with sales reaching 30,000 new policies a month. The company dominated underwriting of new non-group policies in the city and its tactics proved revolutionary. The mainland's largest insurer People's Insurance of China, along with smaller firms such as China Pacific and Ping An, were forced to match AIA's canvassing strategy, building their own agent forces to blanket city neighbourhoods. Insurance premiums in the city doubled and doubled again, reaching 8.76 billion yuan last year, of which life premiums constituted more than 65 per cent. The heated competition, however, also created the unlikely phenomenon of domestic life insurance companies offering above-bank interest rates on many of their annuity and endowment policies. As mainland insurers are restricted by the central People's Bank of China (PBOC) to deposit premium income in fixed deposits and government bonds, that decision proved disastrous. In October, the PBOC announced interest rate cuts which drove average annual rates of return on life insurance products on average 2 to 3 percentage points higher than the rate on one-year bank deposits. Ping An, for example, was forced to withdraw several of its annuity products, including its key pension insurance policy which it sold through 1,200 Shanghai banks. Although mainland insurance firms refuse to discuss losses, industry wide ratio of profits to premiums fell to 2 per cent last year from 3.9 per cent in 1996. As mainland premium income doubled between 1995 and last year, profits increased only to 2.5 billion yuan from 2.3 billion. For Zhong Hong, which offers a selection of endowment and annuity products along with its personal accident and life policies, last year's interest rate debacle proved instructive. 'We have our in-house rules and we're sticking to them,' Mr Chan said. Although central bank officials have stated repeatedly the mainland would eventually open 24 coastal cities to foreign competition, Mr Chan also said that recent events would ensure this process proceeded slowly. Only Shanghai and Guangzhou presently are open to foreign firms, although sources said Beijing would soon follow. Mr Chan said foreign firms would continue to enjoy less than 1 per cent of the mainland insurance market for some time to come. The focus of foreign competition, he added, would remain in Shanghai. In the next several months, Zhong Hong will be joined by several other joint-venture insurance firms. They include Winterthur Swiss Insurance, Germany's Allianz and Aetna of the US. Since the start of the year, Colonial Mutual Group of Australia and AXA-UAP of France also received central bank approvals to form joint-venture life insurance companies in Shanghai.