Comment

Insurance is one of the areas that opened the most extensively to the world after China joined the World Trade Organization (WTO) in 2001.

By the end of 2010, foreign insurers had entered various fields: 31 in life insurance, 25 in property and casualty insurance, six in reinsurance, and four in brokerage. The number of foreign insurance institutions is 40 percent higher than domestic insurers.

However, according to data from the China Insurance Regulatory Commission, the market share of foreign insurers is very low: hovering around 5 percent in life insurance, and below 1 percent in property and casualty insurance. It seems foreign insurers are less optimistic than they were 10 years ago.

Are foreign insurers really less competitive than their domestic counterparts? What have foreign insurers achieved over the past 10 years? And how will the insurance market evolve in the next decade?

Before answering these questions, another question must be addressed. Is the market share of foreign insurers really as small as the official data indicate?

According to Suo Lingyan, lecturer with Peking University, the share of foreign insurers could be about one-fifth, or 22.1 percent, of the Chinese insurance market, if you take into consideration the stock of domestic insurance companies held by foreign capital and their presence in joint venture insurance companies.

To be more specific, in 2010 the market share of foreign life insurers was 22.6 percent, and that of property and casualty was 20.5 percent.

Foreign insurers are no doubt competitive; however their power is still limited by many factors such as regulatory restrictions, social and market environments and management concepts.

Over the past 10 years, the China Insurance Regulatory Commission, founded in 1998 to regulate the insurance products and services market, has strictly abided by the commitments China made to win accession to the WTO.

Insurance was the pioneer of the country's financial industries opening to the outside world. But some regulation restrictions are still effective. For example, foreign-owned insurance companies are not allowed to operate statutory insurance businesses, such as motor vehicle accident liability compulsory insurance.

While foreign life insurance companies are allowed to establish joint ventures, foreign investments cannot exceed 50 percent.

The most significant challenges for foreign insurance companies lie in the social and market environments. Localization is a chief factor in determining the performance of foreign companies, but very few have found a good way of handling this.

Also challenging foreign insurers are their own headquarters, a hindrance that has long been neglected. Stereotypes in management and stringent controls imposed by some overseas headquarters have limited the flexibility and sensitivity of their branches in China.

In spite of these challenges, foreign insurers will have more opportunities in the next decade.

China's insurance market will become one of the most important in the world, as the country further opens it to foreign competitors, lifting regulatory restrictions one by one.

There is no doubt that as the insurance market becomes more normal foreign insurers will gain more market share and more profits as they play an increasingly bigger role in China's insurance market.

The author is a professor at the University of International Business and Economics. The opinions do not necessarily reflect those of China Daily.