For years, foreign insurers have been greedily eyeing China’s growing market for their products and services. However, the scope for movement on the mainland is limited. Under China’s WTO accession rules, foreign insurers can only exist in the market through 50-50 joint ventures in the life sector, or through wholly owned property and casualty subsidiaries. This scenario is unlikely to change any time soon.
"I don’t see much room for liberalization for foreign insurance companies," said Citigroup (C.NYSE, 8710.TYO) insurance analyst Darwin Lam.
"The chances for an easing of access rules for foreign insurers are not very high because China has already delivered on its promises prior to entering the WTO."
In its annual white paper, the American Chamber of Commerce in China noted that "market access issues continue to restrict US and other foreign insurers in most cities, limiting the scope of their geographical expansion, investment options and product offerings."
The trade body said that although international insurers are allowed to enter the market, their ability to compete fully is hamstrung by regulation.
These regulations include lengthy approval processes for registering branch and sub-branch offices, the ongoing 50% cap on equity investment in life joint ventures, the extended duration of currency exchange, which increases valuation risks, and restrictions on entering mandatory third party liability auto insurance.
According to the China Insurance Regulatory Commission’s (CIRC) most recent data, only five of 15 foreign property insurers brought home a profit in 2008. The life sector fared even worse: Only three of 24 insurance joint ventures recorded a profit that year.
Fortunately for the property and casualty insurers, at least, the CIRC has said that it plans to allow them to offer compulsory car insurance instead of just optional products. With about a million new cars hitting the roads each month, the revenue could be substantial.
Even so, foreign firms will remain small players. In a detailed 2009 survey, PricewaterhouseCoopers (PwC) found that foreign firms had a market share of less than 5% of the life market and 1% of the property and casualty market. Their presence will grow, but not by much.
"The expectation coming from [the] survey is that the foreigners’ share of the life market will grow to just 8% in three years’ time, which is much less optimistic than reported a year ago," PwC said.