Commercial Insurance China

China’s Property and Casualty Insurance Market Set to Take Off

China’s insurance market is expanding steadily, and foreign companies must build up their operations to remain competitive.

by Eric Zheng

At a property insurance policy meeting in Shanghai, an insurance company representative asked a policy holder whether he would renew his policy. “No,” said the client. “May I know why?” asked the insurer. “Well, I didn’t win,” the client replied, referring to the fact that he had no losses in the covered period and, therefore, did not “win” any claims.

Many Chinese consumers share this attitude toward insurance. They often do not view risk mitigation as an insurance policy’s primary objective. Instead they want to get something back in claims. Otherwise, they would consider the policy a waste of money.

Though China’s property and casualty (P&C) insurance market has expanded quickly in recent years, the industry remains underdeveloped and many consumers have a weak understanding of the purposes and benefits of insurance policies. (P&C insurance, also known as non-life or general insurance, refers to non-life commercial and consumer insurance such as auto, liability, property, and short-term accident and health insurance.) As awareness of insurance increases in China, foreign companies must pay careful attention to changes in the market and new prospects for growth. P&C insurance companies that do not understand the China market may risk being left behind.

China’s insurance industry makes rapid strides

Though the roots of China’s insurance industry extend back more than 100 years, the industry nearly disappeared from 1949 until China reopened to the outside world in the late 1970s. China’s contemporary insurance industry is thus only about 30 years old. China’s P&C insurance market has developed rapidly in this span, driven by the country’s booming economy.

In the first decade of the twenty-first century, China’s P&C insurance premium volume nearly quintupled on a nominal basis from ¥60.8 billion ($9.2 billion) in 2000 to nearly ¥300 billion ($45.5 billion) in 2009, expanding at a compound annual growth rate (CAGR) of 19.4 percent, according to statistics from the China Insurance Regulatory Commission (CIRC) and Chartis Insurance Company China Ltd. Factoring in the renminbi (RMB) exchange rate appreciation against the US dollar during this period increases China’s P&C premium growth to 22.2 percent compared with a world average of 7.2 percent. Even in as difficult a year as 2009, Swiss Re research shows China’s P&C insurance premiums achieved a nominal increase of 19.7 percent over 2008. By comparison, North America’s nominal premium volume shrank by 2.3 percent, and the world average dropped by 2.1 percent (see Figure 1).

The insurance markets in China’s coastal regions rose the fastest over the past three decades. The top 10 provinces and municipalities in China by P&C insurance premium volume are located mostly in coastal regions such as Guangdong, Jiangsu, Shandong, Shanghai, and Zhejiang (see Table 1). Expansion in these regions has been driven primarily by robust economic growth and, in several cases, by the fact that the regions were opened to foreign insurance companies before China’s other areas.

Rapid P&C market expansion in recent years was fueled in part by extraordinary growth in the auto insurance sector. China has become the largest auto market in the world, selling more than 18 million cars in 2010. Car owners in China are required to purchase auto insurance, which accounts for more than 70 percent of the total P&C insurance premiums. Excluding auto insurance reduces China’s P&C insurance market CAGR from 18.3 percent to 13.6 percent from 2002 to 2009 on a nominal basis.

Despite the rapid rise of China’s P&C business in recent years, insurance awareness and penetration remain low. The P&C insurance penetration rate (total premiums as a percentage of gross domestic product [GDP]) was roughly 1 percent in 2009, compared to the average global P&C insurance penetration rate of 3 percent. Though China achieved a milestone in 2010 by overtaking Japan as the second-largest economy in the world, China’s total P&C insurance premium volume is only about half of Japan’s. The May 2009 Wenchuan, Sichuan, earthquake highlighted China’s low insurance penetration rate. According to PRC government officials, losses from the earthquake totaled ¥845.1 billion ($128 billion), but insured losses reportedly amounted to ¥1.8 billion ($274 million), or about 0.2 percent of total losses.

Domestic P&C insurers

China’s P&C insurance market is dominated by three domestic giants: PICC Property & Casualty Co. Ltd. (a subsidiary of People’s Insurance Co. [Group] of China Ltd.); Ping An Property and Casualty Insurance Co. of China, Ltd.; and China Pacific Property Insurance Co., Ltd. Other domestic insurers have proliferated in recent years with support from the PRC government, and many insurers have established national networks. China had 34 domestic P&C insurance companies at the end of 2010, compared to a single insurer (PICC) in the 1980s. As a result of extensive networks and the expanding auto insurance market, domestic P&C insurers enjoy a dominant market position with a national market share of nearly 99 percent. Auto insurance accounts for about 73 percent of domestic P&C insurers’ portfolios on average, and in some cases comprises more than 90 percent.

The rising number of insurance companies in recent years has led to increased competition, particularly in markets with a high concentration of insurers. For example, there are 34 P&C insurers in Shanghai alone, 9 of which are foreign. Despite their dominant market position, many domestic companies have operated at a loss in recent years because of cut-throat competition for auto insurance market share; nearly half of domestic P&C insurers reported an operating loss in 2009. Domestic firms’ operating results improved in 2010 following aggressive measures by CIRC to standardize market behavior.

Foreign P&C insurers in China

Because of regulatory constraints, most foreign P&C insurance companies that entered China before 2006 were set up as branches instead of locally incorporated subsidiaries. Most of them, however, converted to locally incorporated subsidiaries (or wholly foreign-owned enterprises [WFOEs]) by 2007, after China began allowing foreign P&C companies to establish WFOEs as part of its World Trade Organization (WTO) commitments. Nearly all foreign P&C insurance companies that entered China after 2007 chose to invest as a WFOE (see Advantages of the Wholly Foreign-Owned Enterprise Structure for P&C Insurance Companies).

Main product lines of foreign P&C insurers

Foreign P&C insurers may offer nearly all types of P&C insurance in their licensed territories. Such product lines include cargo transport, construction, enterprise property, liabilities, and short-term accident and health insurance. Foreign P&C insurers tend to be niche players, focusing on product lines in which they enjoy a competitive advantage.

Chartis research shows that foreign P&C insurers have acquired significant national market share in cargo transport and liability insurance, accounting for 13.4 percent and 8.2 percent market share, respectively, in 2009. These companies’ strong international service networks and underwriting expertise offer a competitive advantage. Foreign insurers also have a relatively high market share in cargo transport insurance because the PRC government does not place geographic restrictions on the cargo transport insurance market. Foreign P&C insurers can thus conduct cargo transport insurance business outside their licensed territories, even with a limited number of branch operations.

Export product liability insurance is another niche product offered by several foreign P&C insurers. As a result of China’s rapid export growth, several foreign P&C insurers have significantly expanded their cargo transport and product liability insurance businesses. These product lines suffered during the recent global economic downturn when China’s exports decreased, but they rebounded in 2010.

Limitations on foreign insurers

Though most P&C insurance product lines are open to foreign companies, mandatory third-party liability (MTPL) auto insurance remains off-limits because it is considered statutory insurance and is not part of China’s WTO commitments. As a result, most foreign P&C insurers are not involved in China’s auto insurance business. A few foreign companies have partnered with local insurers who provide MTPL auto insurance and offered additional commercial coverage for the local insurers’ customers as needed. Because the auto insurance business has struggled in recent years, CIRC reportedly may consider opening MTPL to foreign insurers with the hope of introducing international expertise and best practices to China.

A main challenge that most foreign P&C insurers face in China is the inability to expand geographically because of the limited number of branch licenses that PRC regulators approve. As a result of the influx of domestic companies into the P&C market and the tremendous growth of the auto insurance market, which is essentially off-limits to foreign insurers, collective market share of foreign P&C insurers has hovered around 1 percent in recent years.

In the absence of economies of scale, the 18 foreign P&C insurers operating in China collectively reported an operating loss of ¥91 million ($13.9 million) in 2009; only 7 companies, or about 39 percent, earned an operating profit. According to a recent survey by PricewaterhouseCoopers, however, most foreign P&C insurers remain committed to the China market despite these challenges.

China’s P&C insurance market will likely expand steadily, driven by robust economic growth and increasing insurance penetration. In the first decade of the twenty-first century, China’s GDP grew at a CAGR of 14.5 percent on a nominal basis, while the P&C insurance premiums expanded at a CAGR of 19.4 percent. In other words, P&C insurance premiums grew nearly 5 percentage points faster than GDP. If China’s GDP increases at a CAGR of 8 percent between 2010-16, it would reach $9.4 trillion by 2016, up from $5.9 trillion in 2010. Assuming China’s P&C insurance premiums rise at a CAGR of 13 percent in the same period, the country’s total P&C premiums would reach $122.8 billion by 2016.

China’s growth potential is particularly notable compared with more mature industrialized markets. For instance, Japan’s P&C insurance market grew at a CAGR of 0.4 percent in the first decade of the twenty-first century. Assuming Japan’s P&C market maintains a CAGR of 1 percent during the 2010-16 period, its total P&C insurance premiums would amount to $115.3 billion by 2016. In other words, China would overtake Japan in total P&C insurance premiums in about five years. With such a promising outlook, more new companies, both domestic and foreign, will likely enter China’s P&C insurance market in the coming years. Competition will increase as a result. Foreign P&C insurers in China may expand gradually but steadily. Their success, however, will depend largely on their ability to expand geographically.

Advantages of the Wholly Foreign-Owned Enterprise Structure for P&C Insurance Companies

The wholly foreign-owned enterprise (WFOE) structure is a more efficient investment vehicle for property and casualty insurance companies. WFOEs require a minimum registered capital of ¥200 million ($30.3 million), the same as an independent branch. An additional ¥20 million ($3 million) in registered capital is required for each new WFOE branch, with a ceiling at ¥500 million ($75.8 million).

Without a WFOE, each independent branch of a foreign enterprise would require ¥200 million in registered capital. A company under the WFOE structure with four branches would require only ¥280 million in registered capital (¥200 million for the WFOE plus ¥20 million for each branch), compared to ¥800 million for four independent branches. Moreover, WFOEs can consolidate operations and cut costs by sharing resources—such as underwriting, claims, information technology systems, and other support functions—among branches. Otherwise, multiple independent branches of the same international parent company would have to maintain separate functions without shared resources.

[author] Eric Zheng ([email protected]) is the general manager of Chartis Insurance Company China Ltd.’s Shanghai Branch. [/author]

The 5 Biggest Chinese Insurance Companies

The Chinese insurance market has grown at a furious pace in recent years. Between 2000 and 2014, the industry grew about 1,200% in size as measured by written premiums. During this same period, most of the largest Chinese insurance companies listed shares on the Hong Kong Stock Exchange and other exchanges as part of an effort to reform the industry by reducing government control, increasing transparency, and exposing the companies to the demands of the market and shareholders. Today, the biggest insurance companies in China rank among the largest companies in the world in terms of market capitalization.

China Life Insurance Co., Ltd.

With a market capitalization of about $107 billion, China Life Insurance Co., Ltd. (NYSE: LFC) is the biggest insurance company in China and one of the top insurance companies in the world. China Life traces its roots to the founding of the People’s Republic of China in 1949. It operates life insurance and property and casualty insurance businesses, and it also offers asset management services and other financial services.

China Life maintains a substantial nationwide service network, with nearly 750,000 dedicated agents and more than 60,000 service outlets. The company’s customer base approaches a combined 200 million people in individual and group life insurance policies, long-term health insurance policies and annuities. China Life is listed on the Shanghai Stock Exchange, the Hong Kong Stock Exchange and the New York Stock Exchange.

Ping An of China

Ping An of China was founded in 1988 and held its initial public offering (IPO) in 2004. While the company began as a property and casualty insurance company, it has since expanded into the life insurance, banking, online financial services and wealth management businesses with the stated goal of becoming a comprehensive financial services provider. It has a market capitalization of about $90 billion.

Ping An employs more than 225,000 full-time employees and partners with more than 625,000 sales agents across China. The company counts more than 89 million customers across its business units. Ping An is listed on the Shanghai Stock Exchange and the Hong Kong Stock Exchange.

China Pacific Insurance

China Pacific Insurance Group is an integrated insurance provider offering property and casualty insurance, life insurance and reinsurance products, as well as asset management and investment services. The company counts more than 300,000 agents across its businesses and serves about 80 million customers across the country. China Pacific Insurance traces its roots to 1991. It was listed on the Shanghai Stock Exchange in 2007 and the Hong Kong Stock Exchange in 2009. It has a market capitalization of more than $33 billion.

People’s Insurance Company of China Group

People’s Insurance Company of China Group was established in 1949. Today, its subsidiaries count more than 300 million customers in property and casualty insurance, life insurance, health insurance, and real estate. Its most substantial subsidiary is PICC Property and Casualty Company, which sells a wide variety of non-life insurance products, including auto, homeowners, commercial property and agricultural policies. People’s Insurance Company of China Group owns approximately 69% of outstanding PICC Property and Casualty shares. People’s Insurance Company of China Group is listed on the Hong Kong Stock Exchange. It has a market capitalization of about $21 billion.

New China Life Insurance

New China Life Insurance Company was founded in 1996 and has quickly grown into a top-five company in the industry. While its primary business remains life insurance, the company also has growing business interests in the investment industry and the health care industry. New China Life Insurance counts more than 26 million customers, 175,000 agents and 1,600 business locations across the country. The company was listed on both the Hong Kong Stock Exchange and the Shanghai Stock Exchange in 2011. It has a market capitalization of more than $17 billion.

China’s Commercial Healthcare Insurance Industry on the Fast-track

Editor: Rainy Yao

Today, over 95 percent of Chinese citizens are enrolled in various public health insurance plans, thanks to the country’s healthcare reform. However, the scope of public insurance coverage is far less than adequate with low reimbursement rates – patented medicine, usage of high-end medical devices and special needs are usually not covered. The Chinese government is also concerned with its ability to sustain the social welfare system due to its rapidly aging population. The country just released a proposal to extend its mandatory retirement age, first change since the 1950s, in a move to ease social and fiscal pressures.

The existing gaps in public insurance coverage, together with China’s effort to boost investment in the private healthcare insurance sector, have opened up attractive opportunities for foreign insurance companies. In 2014, the size of China’s commercial healthcare insurance market totaled RMB 158.7 billion, up 41 percent compared to the previous year. This record was broken in August this year, with the sector’s revenue reaching RMB 160 million from January to August alone. The average growth rate of the commercial healthcare insurance market is approximately 25 percent since 2000. Now, more than 100 insurance companies are providing commercial healthcare products in China.

Here we introduce the most recent tax incentives that would encourage employers to buy health insurance for their employees, and help foreign insurers to choose the right market entry strategy.

RELATED: Pre-Investment and Entry Strategy Advisory
Individual Income Tax Incentives

On November 27, China’s Ministry of Finance, together with the State Administration of Taxation (SAT) and China Insurance Regulatory Commission (CIRC), has decided to expand a trial program of individual income tax (IIT) reduction on commercial healthcare insurance to cover 31 cities of China, including Beijing, Shanghai, Tianjin, Chongqing and certain second-tier cities in other provinces (hereinafter referred to as the “pilot cities”). Specifically:

  • The expenditure incurred by individuals in the pilot cities from purchasing qualified healthcare insurance products is permitted to be deducted before IIT collection capped at RMB 2400 per year (or RMB 200 per month).
  • Companies that are established in the pilot cities who purchase healthcare insurance for their employees will be deemed as individual purchasing and thus shall enjoy the same tax incentives.

The policy is currently still invalid and will take effect on January 1, 2016. Previously, the pilot program was only implemented in four major cities in China. The new document also further clarifies the definition of “qualified healthcare insurance products,” stipulating that the insurant should be at least 16 years old and under the mandatory retirement age. Meanwhile, the medical loss ratio (MLR) should be higher than 80 percent.

Qualified Insurance Company

The CIRC stipulates that insurance companies who provide the above-mentioned healthcare insurance products need to meet the following criteria:

  • The company’s solvency ratio is not less than 150 percent in the latest two years;
  • No administrative penalty within the latest three years;
  • Insurance companies that are not professional healthcare insurance companies should set up a special healthcare insurance department;
  • The company has an independent healthcare insurance information supervision and management system; and
  • Employees that have work experience in healthcare insurance sector should account for at least 50 percent of the company’s total employees, meanwhile, employees with a medical background should account for more than 30 percent of its total employees.
Government’s Support Plan and Market Entry for Foreign Players

In October 2014, the State Council released the “Several Opinions on Promoting the Development of the Healthcare Service Industry” (Guofa [2014] No. 29), which puts forward several development goals for the country’s healthcare industry to achieve by 2020. The Opinions explicitly state that market entry requirements for the healthcare service industry will be relaxed, and an open, transparent, equal and standardized access system for the healthcare service industry will be established.

Currently, foreign investors are allowed to set up wholly foreign-owned insurance companies (shares owned by a foreign party in a life insurance company are capped at 50 percent) in China, based on the latest Guidance Catalogue for Foreign Investment Industries. Apart from the regular business setup procedure, an insurance company also needs to file with and get the approval from the CIRC.


Asia Briefing Ltd. is a subsidiary of Dezan Shira & Associates. Dezan Shira is a specialist foreign direct investment practice, providing corporate establishment, business advisory, tax advisory and compliance, accounting, payroll, due diligence and financial review services to multinationals investing in China, Hong Kong, India, Vietnam, Singapore and the rest of ASEAN. For further information, please email or visit

Stay up to date with the latest business and investment trends in Asia by subscribing to our complimentary update service featuring news, commentary and regulatory insight.

An Introduction to Doing Business in China 2015
Doing Business in China 2015 is designed to introduce the fundamentals of investing in China. Compiled by the professionals at Dezan Shira & Associates, this comprehensive guide is ideal not only for businesses looking to enter the Chinese market, but also for companies that already have a presence here and want to keep up-to-date with the most recent and relevant policy changes.

China Investment Roadmap: The Medical Device Industry
In this issue of China Briefing, we present a roadmap for investing in China’s medical device industry, from initial market research, to establishing a manufacturing or trading company in China, to obtaining the licenses needed to make or distribute your products. With our specialized knowledge and experience in the medical industry, Dezan Shira & Associates can help you to newly establish or grow your operations in China and beyond.

Adapting Your China WFOE to Service China’s Consumers
In this issue of China Briefing Magazine, we look at the challenges posed to manufacturers amidst China’s rising labor costs and stricter environmental regulations. Manufacturing WFOEs in China should adapt by expanding their business scope to include distribution and determine suitable supply chain solutions. In this regard, we will take a look at the opportunities in China’s domestic consumer market and forecast the sectors that are set to boom in the coming years.

Leave a Reply

Your email address will not be published. Required fields are marked *

Car Insurance Quote Auto Trader

Web Insurance Solutions Europe B V