In the past year five years after US giant AIA was awarded the first foreigners' licence ?life insurance owner-ship in China has increased by 44 per cent.
According to Mr John Snelgrove, a general manager at National Mutual in Hong Kong, whose parent AXA-UAP commissioned the Gallup life insurance survey which came up with the above figure, this is in no small measure testament to the pioneering efforts of AIA. The first foreign company to win a licence to conduct life insurance business in China, AIA has grown itself and its market rapidly in the two cities in which it operates ?Guangzhou and Shanghai.
"AIA's success in Shanghai, far from being a deterrent, has been an encouragement to local firms," says Snelgrove.
Expansion of the insurance industry has galvanised interest among the local players, most.notably the People's Insurance Company of China (PICC). It has also brought new insurers into the sector: brand. new companies formed by consortia of state-owned enterprises.
But the net result, according to Mr Vic-tor Apps, president and chief executive officer of Manulife International, is agents swarming around with minimal knowledge of the products they are selling. As a result, consumers are dissatisfied and policies are lapsing. This has a damaging effect on the industry's image and individual companies' profits.
"The insurance business in China is a bit on the chaotic side," says Apps. "The concern is that the market has grown too quickly. When insurance companies grow that quickly, it's very difficult to maintain any sort of quality."
In November 1996 Manulife of Canada secured. the second life insurance licence to operate in China. But by Apps' own admission, it is a modest participant in terms of bare numbers. Unlike AIA it operates as a joint venture, as will Allianz of Germany which, in September 1997, received the green light to set up in China. Allianz will have a 51 per cent holding in the company and the remainder will be Capitalising on chaos held by its Shanghai partner, Dazhong Insurance. This venture is expected to be up and running by Christmas.
Lack of education
The market the life insurers are swooping on is certainly on the upward trend. According to Guangming Daily, China's insurance business will generate more than Yn200bn (US$24bn) in premium in-come in the year 2000. Around half of that will come from the life side, according to Mr He Jiesheng, general manager of China's biggest underwriter People's Insurance Company of China (Life).
Industry estimates reveal China's total life insurance premium income was Yn33bn in 1996, up more than 70 per cent from the year before. Official media re-ports say that the premium income of life insurers in Shanghai has increased by 50 per cent every year since 1992, and expect the rate to continue the trend of strong growth in coming years.
The growth in terms of distribution has been equally impressive Apps estimates that in Shanghai there are 20,000 agents from zero five years ago.
"The insurance market in China is still very much in its infancy. Nine per cent had policies last year and that's grown to 13 per cent this year. It is in its infancy, but the growth has been enormous," says Snelgrove of National Mutual.
Behind the bloated revenues, a number of factors are at work ?distribution, improved education and knowledge, and the expertise of foreign insurers being brought to bear on a still maturing market.
The Gallup research suggests consumer familiarity with insurance is on the increase: 31 per cent of respondents said that they were 'somewhat or very familiar', up from 26 per cent last year.
But Apps insists the market-place is still far from educated. "I don't think a whole bunch of uninformed agents running around educates the marketplace; it just confuses it," he says, adding that even in the relatively mature Hong Kong, consumers are not that educated as to the merits of insurance.
More important, insurers say, is the changing dynamics of China which is affording greater opportunities to the industry.
Insurers yet to enter the market say it is China's own demographics which create its biggest catalyst for growth. The main-land not only boasts a burgeoning middle class ?traditionally the buyers of life cover ?but also diminishing family units which will be less able to provide for their elderly parents.
It is this last point which foreign insurers are hoping to capitalise upon. China's one-child policy means only one adult able to care for elderly parents; while the government's push to reduce its dependence on the lumbering state-owned enterprises also means a reduction in the available 'welfare'.
Snelgrove points to the Gallup research which shows that providing for parents is a key desire of the bulk of today's young ?but that they in turn do not want to be dependent upon their children. According to the survey, conducted in 50 cities across China representing the upper 70 per cent of urban income households, some 93 per cent stated a desire to take care of their parents when they grow old. However, 69 per cent say they do not plan to depend on their own children for financial support when they themselves grow old.
Increasingly, insurers say, consumers are looking to take on the burden of financial provision in retirement for them-selves ?although as this shift takes place, an interim generation or more will find themselves paying out at both ends.
"Provision of funds for retirement is going to be a major driver in terms of local attitudes over whether or not people will buy life assurance," says Snelgrove.
Analysts monitoring China's sociodemographics expect a further catalyst to come from the switch to a mixed economy, away from the state-owned enterprises and towards privatisations. This, the next stage in China's march towards capitalism with Chinese characteristics and one reinforced at the 15th Communist Party Congress, will in the immediate term push up unemployment to levels substantially higher than today's official rate of three per cent. It will also strip workers of many of the benefits, including old age provision, that came with working for the state ?and again force them to look to make their own arrangements, possibly within the private sector.
Among the insurers looking to tap into this market are the newly-formed local consortia, which have themselves, through their shareholders, contacts with sprawling enterprises.
But the foreign insurers are also well-placed to pick up this business through overseas experience in arranging company-wide schemes. They also see a biggain in capitalising on the chaos reigning in the market: stressing quality.
Maintaining quality ?and thus profitability ?starts with selection of agents. Rather than simply swelling their sales forces, foreign insurers are keen to recruit agents who will provide good service and support. Often this means recruiting university graduates; it is said that of AIA's first 14 recruits, five were doctors and four were university professors.
Changing demographics again lend a helping hand. At least for now and in the near future, many university graduates in China are finding it difficult to command a good spread of job offers. And, in sharp contrast to the situation in Hong Kong, the potential earnings are far higher than those offered by other careers.
Even so, finding staff at all levels is a continual problem: executives, sales people, information technology and back office staff. It also results in hiked costs. Apps says putting an expatriate on the ground in Shanghai costs 20 times as much as a local person.
Nonetheless, installing expatriate executives is seen as essential in the short term, to build up quality through training, the importance of which has beenlearnt in the more mature and competitive markets. Sending agents overseas to learn is expensive and also tricky given China's still strict policy on nationals leaving the country.
Says Apps of the competition: "We want to create ourselves as the company that's just that bit better. Better at client support, better service providers.
"We focus on getting clients to stay with us, not to lapse after a couple of years. We want our agents to be viewed as good financial consultants, not just out to make a commission."
Putting the stress on quality should also give foreign insurers the edge when what many regard as the inevitable happens ?tighter regulation.
The Chinese government has so far veered away from regulating the industry. An insurance law gives only the barest outlines of rules, although there is a mandatory examination for all new agents, held every six months.
An expected beefing up of regulation, tied to awareness among the local insurers that stricter standards will lead to greater profitability, means that the market will be more competitive in future. In addition, the edge now commanded by the foreigners could well be eroded.
Competition in anyevent is set to intensify with Allianz and AXAUAP National Mutual due to join the fray lite shortly, and more local players coming on stream. More are ready to pounce: it is estimated there are close to 100 foreign companies with representative offices in the mainland, although there are just eight insurers operating, compared with 40 in Hong Kong.
"The reality is that the market has phenomenal upside," says Apps. "The amount of insurance sold in China today is tiny. It's going to multiply by hundreds in the next 20 to 30 years. We're all just scratching the surface at Graham Uden the moment."