Breaking through the Wall – experts’ advice on the Chinese insurance market

Breaking through the Wall – experts’ advice on the Chinese insurance market | Insurance Business Asia

Life & Health

Breaking through the Wall – experts’ advice on the Chinese insurance market

It all comes down to risk appetite and patience

Life & Health

By
Kenneth Araullo

With growth as vast as its actual geographical area, the Chinese insurance sector is expected to dominate across global lines with its huge population and relatively healthy appetite. In fact, a certain giant German insurer predicted that the revenue from the eastern nation’s insurance market will continue to grow by 8.1% yearly for the next decade, significantly higher than the global average of 5.2%.

With potential slowdowns in store due to the cost-of-living and inflation crises, it’s these figures that make the insurance sector in China one of the most attractive for companies looking to seriously grow. And if we take McKinsey partners Charlene Wu (pictured left) and Bernhard Kotanko (pictured right) at their word, taking part in this incredible growth opportunity is just a matter of reading the market properly.

“China’s insurance market is recovering well post-COVID, as illustrated by the Q1 growth rates for international insurers in China,” Kotanko said in conversation with Insurance Business Asia. “China’s society continues to be in need for protection for families, additional health insurance complementing the public system and especially in long-term retirement funding.”

Finding an opening

Kotanko said that the government’s five-year plan supports the development of various sectors across the growing nation, including the insurance industry. He gave a special mention to pensions, which was further developed into a new scheme in 2022. Under it, the fledgling private pension account has drawn $2.9 billion ever since its inception in November last year.

“As indicated in the five-year plan, the Chinese government supports the development of the insurance sector, especially in areas like pension,” Kotanko said. “From a global perspective, China remains one of the most attractive structural growth opportunities in insurance. We estimate that Asia ex-Japan (AxJ) contributes close to 40% of global growth in life insurance – and China is the biggest contributor to this number.”

For some international insurers, making a venture in China can be a hit-or-miss affair. Kotanko said that these result from what is basically a poor understanding of the market, which is vastly different from a lot of other international sectors.

“China has actually been quite open and interested to invite insurers into China as a means to professionalise the sector and also to further enhance risk mitigation and diversification,” he said. “Insurance risks are best managed when these are broadly shared and diversified. MNC insurers have long been active in China and some of the leading players in growth, innovation and value creation are international. However, other players have faced challenges in dysfunctional joint ventures, a lack of sustainable local business building and scaling, and in optimising value creation. The regulation does further support the role of international insurers.”

Tips for those who get there

Recent findings from McKinsey revealed that the life insurance market in China is projected to grow by as much as 30% to 40% from 2021 to 2025. For those who have managed to cut into a slice of that enormous pie, staying afloat may be the biggest hurdle ahead. That said, Wu did have some advice for companies to cope with the different market conditions.

“First is to find your niche or market space to compete in,” Wu said. “A me-too model is not sustainable in the current competitive environment.”

Competitive is a bit of an understatement, especially for the Chinese insurance market. The Forbes Global 2000 list for 2023 included both Ping An and China Life in the top 100, a not-so-mean feat given that there are only a handful of other international insurers that made the same cut.

“The second bit of advice is to tailor your business to specific market dynamics,” she said. “This requires strong, empowered local talent.”

“Finally, take a long-term value creation and growth view,” Wu said. “China is a market that will allow tremendous growth for the coming decade, but MNC insurers will also have to navigate volatility along the way. This requires a certain risk appetite and patience.”

As for geopolitical concerns, Wu believes that international insurers can still thrive in China, even if they are based in its closest economic rival, the United States.

“We see several flourishing joint ventures between US MNCs in insurance and asset management, including with public institutions in China,” Wu said. “We live in an interconnected world and business partnerships can be a positive bridge-builder everywhere in the world.”

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