It may have taken the mainland's life insurance industry over 25 years to establish itself as the eighth largest in the world but now it's time for it to gather momentum. For insurers expect the mainland to develop into Asia's second biggest insurance market in five years, and the world's fourth biggest in ten.

"Ultimately we think it will be our biggest market after the US," says David Skinner, chief executive officer (CEO) for the Asia region of Fortune 100 company New York Life International. One among several foreign insurers to set up shop on the mainland in recent years, New York Life International formed a 50-50 joint venture with Haier in 2002, and started operations in 2003. Haier New York Life (HNYL) began operations in Shanghai first, and more recently added Chengdu, capital of Southwest China's Sichuan Province, to its list. "What we see on the mainland is a rapid expansion of the middle-class and the upper-class, and that drives geometric growth in the insurance market."

The mainland's life insurance industry actually began way back in 1949 with the setting up of the People's Insurance Company of China (PICC). But it was not until the economic reforms under Deng Xiaoping in the late 1970s and early 1980s that the industry began to take off and giants Ping An and China Pacific were formed. The two still dominate the industry. "We are not going to compete in size with the domestic companies. We are not going to compete on market share," Skinner says. "Our approach is to compete on the basis of professionalism, and we have a great advantage in that, but we're not going to catch China Life for a long, long time."

No indeed. Haier New York Life has over 1,000 agents in Shanghai with its Chengdu operations still in the developing stages. In contrast, China Life, the mainland's biggest life insurer, has a whopping 650,000 agents. And the mainland's big-three insurers (Ping An Life and Pacific Life being the other two) boast a combined market share of almost 75 per cent. China Life and Ping An have branches in 35 cities while China Pacific has a market presence in 32. The 21 or so foreign and joint-venture companies currently operating on the mainland are present at the most in two or three cities, though they are developing fast. Compare this with India's opening up of its insurance market at one go.

Nevertheless, 2005 marked a watershed for foreign life insurers doing business on the mainland, with the last geographical restriction on foreign companies or joint-venture insurers lifted. Even so, under the auspices of the China Insurance Regulatory Commission (CIRC), the process is still a lengthy one - though this too has its advantages for companies looking to play on more sophisticated products and superior training. "When we expand to a city we're not going to be small time, we are not going into a city to have 12 agents running around. Our goal is to be the most professional, the best agency working out of the mainland... But we can't do it if we try to expand to all cities at the same time."

Skinner believes that over time the mainland will move towards policies that offer protection without sticking to investment-type products. "If you look at what is being sold currently, there are a lot of shorter endowment products that are close to investment products. We think over time that will change. Just because there isn't a propensity to buy that product does not mean the need is not there."

The mainland's powerful domestic players boasting national distribution channels and hundreds of thousands of agents mean that going for the biggest city is not always the best strategy, especially when other domestic players have also emerged (there are eight domestic life insurers). "Competition is certainly hotting up," Skinner says.

Chengdu, with a population of 10 million, may be one of the mainland's largest cities, and Qingdao, where HNYL has applied to begin operations next, an important city, but they are not among the "big three". That's why "we also want to go to Beijing and Guangzhou where a number of our competitors are, but we are trying to balance the entry there... figuring out what our competitive advantages might be... It's not just the size of a city, but also the competition in those cities so we are balancing those factors. Certainly, we are interested in a full national expansion relatively quickly."

Haier New York Life's success will depend greatly on its growing teams of full-time agents, an area where much of the battle for the market share will take place. "We are trying to educate the consumers and trying to evaluate what their real need is, investment versus life protection."

But what about the cultural impediments? Skinner says the Chinese people might have been culturally reluctant to spend money on insurance but that attitude is already changing, thanks to the increase in fixed assets and growing wealth. Also, the mainland consumer's level of understanding of insurance is relatively quite advanced today. "The mainland market will develop, and really quickly - more quickly than other markets because consumers (today) are really educated about insurance. We're impressed with how crisp people are with their questioning at the agent level... Despite only a short time on the mainland, there's already a demand for unit-linked type products that are of a fairly advanced kind. So I think that what we are going to see on the mainland is that the pace of advancement is going to accelerate greatly compared to what we have seen in other countries, which means that we are going to have to move quickly at the product and training levels," Skinner adds.

(HK Edition 04/08/2005 page4)