Interview: Eunice Tan, S&P Global Ratings
Outfoxing competitors for growth
The China market holds great growth opportunities for insurers and reinsurers but
it is also competitive and full of challenges, says Eunice Tan of S&P Global Ratings.
How would you characterise the
insurance landscape in China?
Competition within the Chinese insurance
market has intensified amid slower growth
momentum. The slower economic growth
and product reforms (mainly de-tariffication
of auto insurance) have dented the growth
of Chinese non-life insurers. As they grapple
with higher commission expenses, we believe
underwriting performance will weaken.
The gap between Chinese large non-life
players and mid-sized insurers had also widened
further, with China’s large insurance companies
continuing to cement their foothold in one of
the world’s largest insurance markets. The top
30 Chinese insurers represent 79 percent of total
premiums written as of August 2018.
Auto insurance continues to account for
the largest share of the Chinese insurance
markets. Strong presence in auto insurance
supports the domination of the large
domestic players within China.
What strategies can insurers use to
set themselves apart?
To sustain profitability, S&P Global Ratings
believes, all this will ratchet up the need
for insurers to craft smart strategies to outfox
competitors. In our view, usage of technology and
niche product offerings will set insurers apart.
Intensifying competition and volatile
investment market amid tighter regulation
and more pervasive technology disruptions
strained insurance companies. For China’s
midsize insurers, identifying target customers
and providing specialised products will be
key to competing against the sheer size of
insurance group giants.
Product diversification, multidistribution
strategies, and effective expense and risk controls
will set insurers apart in one of the world’s largest
insurance marketplaces. In addition, technology
will play an important role. Over time, big
data might help insurers get straight to their
customers, offsetting rising cost pressures. This
could particularly help smaller players that often
pay high distribution fees.
What are the growth prospects for
insurance in China?
While we expect some decline in premium
SIRC Today Day 2 Wednesday October 31 2018
What regulatory changes have
influenced the market?
The Chinese regulators have been extremely
busy. Recent poor performance in the equity
markets prompted the regulatory bodies to
loosen equity investment rules, facilitating
insurers to allocate more towards equities.
The Chinese insurance regulatory
landscape turned a new chapter in 2018.
The merger of the banking and insurance
regulatory authorities signifies President Xi’s
resolve to prioritise financial system stability
and reduce regulatory loopholes.
While it may seem to relegate the insurance
sector to a secondary role given its smaller
scale relative to banks, the insurance industry
continues to play a very important role
supporting the social needs of the country.
With the announcement of C-ROSS Phase
2, we believe the earlier loopholes will be
closed and greater risk management focus
will underpin the future direction of China’s
banking regulator, the CBIRC..
It is 10 years since the Sichuan
earthquake. How has the availability
and take up of cat insurance evolved?
Along with policymakers’ focus on developing
protection in agriculture markets, we
expect catastrophe coverage for agriculture
insurance to rise. With Sichuan 2008
reconstruction being the world’s costliest
for a quake, China has since committed to
developing a catastrophe insurance system.
In order to support agriculture insurance, the
government introduced premium subsidiaries
to keep rates affordable for its citizens. Since
then, sector premiums have grown 55 times, to
RMB47.9 billion at end 2017, compared with
less than RMB1.0 billion in 2006.
Given the industry’s growing catastrophe
exposures, we expect that domestic reinsurers
will increase investments in catastrophe
modelling to counter uncertainties. We also
expect domestic reinsurers to use technology,
such as drones or remote sensing, for better
risk assessment. l
Eunice Tan is a senior director, Insurance Ratings
at S&P Global Ratings. She can be contacted at:
landscape turned a new
chapter in 2018.
revenue given slower economic growth and
product reform initiatives, we continue to view
China insurance market’s growth prospects as
bright. This reflects China’s growing affluence
and greater risk awareness among its population.
Furthermore, China’s ongoing urbanisation
presents new growth opportunities for the
insurance companies. Particularly, we expect the
Chinese life insurers to see stronger growth over
the non-life insurers in the next two years.
China’s P&C insurance market’s topline
revenue faces hiking pressures amid declining
new car sales and escalating uncertainty over
the US-China trade war. The continuous
development of Chinese motor insurance
pricing reforms (auto premium detariffication)
has increased volatility in the
underwriting performance of P&C insurers.
To overcome pricing pressures, the P&C
sector has turned to the non-auto insurance
sector. In particular, we expect the agriculture
and liability insurance segments to grow
faster than other non-motor lines of business.
For Chinese life insurers, ongoing product
reform efforts focusing on protection products
will dilute their previous reliance on short-term
savings policies. In our view, multidistribution
channel strategies and a strong understanding
of customers will be critical for life insurers to
weather the growth trough.