China’s Banking Insurance Regulatory Commission (CBIRC) recently announced that Willis Towers Watson, the leading global advisory, broking and solutions company, has been granted permission to operate as a fully licensed foreign broker in the country.
Commenting on the announcement, Willis Towers Watson’s Head of Asia, Scott Burnett, said “This latest announcement speaks to the long term commitment of our company to China and the recognition of our reputation and relationships not only in China but across the globe. The expanded license represents a significant vote of confidence by the CBIRC in Willis Towers Watson, our capabilities and our expertise.”
The latest development comes in the heels of Chinese President Xi Jinping’s latest efforts to liberalize China’s markets to foreign operators.
China insurance market
Access to China’s insurance market could provide Willis Towers Watson a strategic advantage given the large addressable market and systemic macro and demographic changes impacting the country.
According to investment bank Credit Suisse, China’s insurance market has seen a rapid expansion in the last decade with annual life insurance premium growing an excess of five times from $10bn in 1999 to a forecasted $50bn in 2018.
Demographic trends have buoyed the market expansion driven predominantly through a mix of factors including: (i) aging population, (ii) wealth portfolio reallocation, (iii) rising demand for healthcare, and (iv) lifestyle upgrades.
China’s rapidly growing aging population is one of the largest in the world, and is projected to be the fastest growing. In 2016, 139 million or 10% of China’s population was over 65 years of age, and by 2050, it is expected to rise 331 million or 25%. Coupled with a rapidly growing dependency ratio that is projected to be the fastest growing by 2050, significant opportunities are evident in life insurance.
Wealth reallocation from non-financials to financials will likely be a driver to insurance premium growth in the next decade. In China, the majority of the High-Net-Worth Individual (HNWI) and affluent classes allocate their wealth in non-financial instruments, namely real assets as well as financing to private companies.
As the Chinese government clamps down on an overheating housing market, portfolios have been seen a moderate re-balancing to tax-efficient asset classes (i.e. insurance).
Insurance and pension allocations stand at 18% in Asia compared to 30% for the developed countries. China, with its current 7% allocations will likely engender significant upside in the foreseeable future.
Such a trend will see additional insurance policies purchased by the new emerging middle class and HNWI. According to Chinese insurance giant Ping An, each affluent middle class individual has approximately 3.3 insurance contracts compared to 10.6 for HNWIs.
China’s brokerage market is heavily concentrated on in-house brokers from State-Owned Enterprises (SOEs). According to Clyde & Co., global law firm with an active insurance practice, Chang’an Insurance, Beijing Union Insurance, and Jiang Tai Insurance controlled nearly a quarter of the market with foreign-funded insurance brokers in China attaining an approximate market share of 15%.
The largest three foreign-invested insurance brokers include AON-COFCO, Willis and March. Their combined market share is approximately 90% of the 15% as delineated earlier.
Better insurance products
With respect to the reforms exclusive to foreign-invested insurance brokers, Chinese regulators have removed limits to their business scope to not just be exclusive to large-scale aviation, maritime, and transportation insurance brokerage and reinsurance.
According to Winston and Strawn, a multinational law firm, the liberalization of this scope allows foreign-funded brokers to play in the rapidly growing and large addressable markets of individuals and medium-sized businesses.
Additionally, it is expected that the liberalization could see these foreign-funded brokerages also be permitted to draft insurance plans for applicants, select as well as process insurance formalities, and provide risk management services to other businesses approved by the CIRC.
The result of the opening-up measures on the Chinese insurance brokerage market will likely result in foreign-invested insurance companies playing a more prominent role in the Chinese insurance brokerage market.
Foreign-funded insurance brokerages generally have a faculty of experience in risk assessment before entering into an insurance agreement as well as loss mitigation post-signing, and settlement of claims post-losses. The lifting of restrictions by the Chinese government will likely spawn increased choice to enterprises and individuals for insurance products going forward.