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THE CHINA COLUMN: The golden era of China’s insurance industry

China has the world’s fastest growing insurance market today. Just like in banking, its insurance industry also has a Big Four: Ping An Insurance, China Life, China Pacific Insurance and People’s Insurance Company of China (PICC).

A few days ago, Ping An Insurance posted a 28 per cent increase in its first-half net profit. Meanwhile, PICC Property & Casualty, China’s largest non-life insurer, also reported net income surging to its highest level since the first half of 2007, a clear sign that China’s insurance industry’s golden era has arrived.

Key growth drivers

China’s insurance market surprisingly grew 14 per cent during 2008, when the global financial crisis hit developed countries. There is no doubt that strong economic growth in China has laid a solid foundation for the rapid development of the domestic insurance market. A sustained growth in average income has also driven the demand for insurance-related products.

As people’s accumulated wealth reaches a certain level, their need for various insurance products rises accordingly. China’s current per capita GDP has recently topped US$2k, and increasing disposable income plays a big role in boosting insurance companies’ revenue.

Last but not least, the rapidly growing insurance industry in China is strongly supported by the country’s unique population structure. The one-child policy is putting downward pressure on China’s retirement system. By 2035, there will only be one worker for each retiree, as opposed to six workers in 1975.

Building up a sales team

In such a fast-growing insurance market, distribution channels and the method of delivering insurance products are key means for insurance companies to gain competitive advantages. There are three main distribution channels in China’s insurance industry: sales agents, banks and direct sales. Of the three, sales agents are by far the most important and efficient channel.

The Big Four firms have all spent a great deal of effort developing and retaining sales personnel. According to research by the Insurance Association of China in 2009, China Life has 780,000 salespeople, Ping An Insurance has 420,000, and China Pacific Insurance has 250,000.

Salaries in the insurance industry can be attractive, according to the China Securities Journal. It is not abnormal for an insurance salesman to make 100k yuan per year. The range for sales managers is 150k yuan to 300k yuan.

A dilemma for foreign insurers

Foreign firms have faced a tough market in the past few years. According to the PricewaterhouseCoopers report Foreign Insurers in China, the market share for overseas life insurance companies was 4.7 per cent, while property and casualty firms only had 1 per cent.

International insurers are struggling mainly due to a joint-venture requirement on life insurance. Some of them feel trapped because they are unable to grow at a pace that would accelerate profitability. At the same time, they fear that if they leave the market, regulators would look unfavourably on any request to re-enter at a later date.

China’s insurance industry is still playing its own domestic monopoly game. Although foreign insurers’ commitment to the Chinese market remains strong, many find it hard to secure economies of scale and scope. While China’s regulators are considering further opening the market to foreign investors and insurers, there are no concrete plans currently in place.

Human resources a key concern

Staff turnover rates declined in 2009 during the economic downturn, but most foreign insurers expect to see a sharp rise in turnover this year as the economy rebounds. Meanwhile, a skill shortage in some functional areas persists. According to PwC’s report, foreign insurers still find it hard to recruit for sales-agent, sales-manager, investment management, telemarketing and head-office marketing roles.

Talent poaching is therefore a common way for domestic and foreign insurers to secure their own revenue targets. That, in turn, has pushed up HR costs and directly raised the salary bar in the insurance industry. One foreign insurer based in Shanghai mentioned in an interview with PwC that staff costs in Shanghai are on par with those in Hong Kong and Singapore.

Is insurance becoming as glamorous and prosperous a career choice as banking?

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Comments (3)

Comments
  1. Chines life insurance industry is experencing a painful period when all participants face a bottle-neck in business expansion. The traditional distribution channels, e.g. agency and bancassurance, are facing challenge, while the new channels, like telemarketing, DM, are not solid enough to support continuous growth. The biggest problem is that both the regulator and the insurers are not clear enough what the insurance can really help the clients in their life when the whole Chinese population is gathering fortunes. The life insurance industry is very weak to spur the purchasing wish from the ordinary people. More and more people seem reluctant to buy, or even think about insurance in their daily life. This is big obstacle !
    Edwin Si

  2. I like Ping An Insurance. Its wealth management products have very attractive returns.

  3. Chinese life insurance products normally are combined with some investment elements, which make it more like long term investment product with protection nature. I believe there is huge potential in health and retirement product in China. Because aging and expensive medical cost are creating solid demand.

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