Moves to boost micro insurance

China's insurance regulator is striving to develop a micro insurance market in rural areas, in a move to help farmers and low-income families better manage risks.

Li Kemu, vice-chairman of the China Insurance Regulatory Commission (CIRC), said at a recent international micro insurance workshop that the regulator is considering preferential tax policies to boost sustainable and healthy development of micro insurance.

The commission would establish an evaluation mechanism for micro insurance, which will specify the definitions of micro insurance, operation principle, objects, sales model and supervision policy, according Chen Wenhui, a CIRC official.

It is widely held that micro insurance products should be tailored for low-income people and carry a relatively lower premium. The insurance regulator has said micro insurance products in China would mainly target farmers and low-income urban residents.

China has 800 million people in rural areas, making it a huge market for the micro insurance business. The country's two insurance heavyweights, China Life and PICC Property and Casualty Co Ltd, are already working on developing micro insurance in rural areas.

In recent years, especially in 2007, many insurance products have been invented to specifically target different sectors in China's rural areas, such as planting, livestock breeding, farmers' houses, farm machinery, farmers' household property as well as micro medical insurance.

According to the CIRC, a new, simple life insurance product developed by China Life offered an eight-time refund on an annual premium of 100 yuan for farmers to guard against fatal accidents. It covered 1.2 million farmers in 2007 and the total insurance income amounted to 1.12 billion yuan.

The insurance income related to farmers' property amounted to 4.29 billion yuan in the first three quarters of 2007, four times that of 2006, and covered 270 million farmers.

Besides local insurance companies, multinational companies are also showing growing interest in this sector. Zurich Financial Services Group, for instance, is one of the few international insurers that have embarked on research for entry into China's micro insurance market.

"Zurich deputed Nankai University to perform micro insurance market research in China in January. The report is expected in the middle of this year," said Brandon Mathews, head of micro insurance at Zurich.

In 1999, Zurich sold its first micro insurance product in Bolivia, South America, and then spread further in the region and Africa. "With more than eight years of worldwide experience on micro insurance, we have a great interest in implementing it in China," said Mathews.

Compared with the other developing countries, micro insurance in China is still in a fledgling phase. In recent years, micro insurance has developed rapidly in India, Bangladesh and the Philippines, where it has began to play an important role. In Indonesia too, micro insurance has caught on, with a premium of just $8 per person.

For improving China's insurance coverage and running micro insurance successfully, Mathews stresses four key factors: government support, market need, wide distribution channels and creative products.

"As a low-profit insurance product, government support can really boost micro insurance's development. The Chinese government pays a lot of attention to the development in rural areas and the policy environment is likely to remain favorable in the near future," said Mathews.

"The nature of micro insurance can vary from country to country," said Li Zhuojie, deputy general manager with American International Assurance Co Ltd's Beijing branch.

In India for example, the formal policy on micro insurance took effect in 2002. Insurers are required to maintain a certain proportion of their annual guarantee slips in micro insurance, otherwise, they are fined and their licenses withdrawn, according to Li.

"We are researching on China's micro insurance market and trying to develop suitable insurance products. We are drawing from India's experience but obviously it can't be simply copied in China." China's micro insurance market has a huge potential. Mathews estimates that there are at least 200 million to 400 million potential clients in the country who can overcome poverty and protect themselves against all kinds of risks under the insurance umbrella.

Distribution channels are generally believed to be the keystone of developing micro insurance. Insurance companies, especially multinationals, are usually located in cities as they target top-tier clients. Some leading Chinese insurers have now extended branches to rural areas and plan to intensify the process.

"China Life plans to increase the number of networks in rural areas to 19,000 and develop 500,000 sales staff there by 2010, aiming to cover most of the rural areas in China," said Wang Tongchao, general manager of China Life's counties life insurance department.

Mathews, however, thinks it is impractical for multinational companies to develop distribution channels by themselves, so Zurich is seeking reputed local partners. "We are considering joining forces with China Post Saving and rural credit cooperatives," he said.

Innovative products, Mathews said, are the biggest advantage of multinationals. "Micro insurance is neither life insurance nor property insurance. It should be a package of insurance with lower fees."

Packaged insurance products seem more convenient for buyers, but there are problems selling them in China. Given the prevailing policy, property insurance and life insurance are best operated separately.

"India's experience could be used for reference," said Mathews. "Regulators in India have accepted the packaged insurance model as long as the products are for micro insurance. World Bank experts have appealed to China for a free hand in mixing operations at a recent international workshop in Beijing."

(China Daily 03/27/2008 page15)