It was for her 13-year-old daughter that Shanghai resident Zhang Ying bought her first-ever insurance policy. The policy, which has now been running for five years, has a built-in life cover element with a monthly premium of RMB50. "Most important, my daughter starts to get money back from the age of 16 for her education up until when she graduates from university. She will also get money for her wedding," says Zhang, who believes that the policy represents good value for money.
Zhang, who works as head of the English department at a top Shanghai high school, has also bought a policy for her self-employed husband, whose annual earnings are close to RMB1m. She pays an annual premium of more than RMB10,000 until he reaches the age of 60. Then he receives a pension and medical cover if he falls ill. During the premium-paying years, he is covered for accidental death and emergency medical treatment. "We can probably pay the medical bills if he falls ill now. But it is when he decides he is too old to work that concerns me. The policy gives us peace of mind," she says.
Despite this high level of household wealth, Zhang's family is greatly underinsured by Western standards. She has no provision for herself or for her 18-year-old son who has just started university. Likewise, there is no insurance on the two-storey property she and her husband bought outright five years ago for about RMB600,000. She admits that she had not looked actively into either contents or buildings insurance policies. "Do we really need them? I don't think burglars are interested in the television sets or hi-fis in our home," she says. The only compulsory insurance they have taken out is on their car.
While the Zhang family is by no means typical in Shanghai, its attitude towards insurance is mirrored by millions of others across the country. The Research and Development Centre of China's State Council has recently completed a survey of 22,182 residents in 50 cities. According to its findings, only 6 percent of respondents thought that they knew a lot about insurance. Thirty-six percent admitted that they knew very little, while the majority said they didn't care much about insurance services and products.
China's reputation as a nation of savers is borne out by the statistics – the balance of bank savings held by individuals at the end of August 2002 stood at RMB8,300bn, according to the People's Bank of China. A substantial proportion of this has gone into the property market. Mortgage lending totaled RMB445bn at the end of June, an increase of 23 times from the end of 1997.
These statistics partly explain why so many foreign insurers have scrambled to set up offices in major cities. Among them was the US insurer Chubb, which specialises in non-life insurance in China. "Savings are increasing dramatically and those savings are allowing people to buy homes, which are assets that need protection," the company's chief executive for Greater China, Ian Faragher, was quoted as saying.
But like Zhang Ying, not all home-owners act as they might be expected to when it comes to protecting their assets. The vast majority of Shanghai residents have not purchased insurance to cover their assets against disasters such as burglary, fire or flooding. In the first 10 months of 2002, property insurance premiums in the city stood at RMB3.8bn, up 9 percent year-on-year.
Moreover, many of those who do have home insurance are not covered adequately. "[Our policy] is really a savings plan with a built-in element to cover us against theft and other disasters," says Wang Xiaohua, who works as a librarian at a major university in eastern Shanghai. "We started it in 1993 when insurance was a completely new concept. We pay in a lump sum of over RMB20,000 for a term of two years. At the end of the term, we can get our money back plus interest, which is not taxed. We are entitled to compensation if something like a burglary occurs during the two-year term. We renew the contract every two years by rolling over the money. This money would otherwise be sitting in the bank and getting taxed on the interest earned."
She and her banker husband took out a RMB100,000 five-year mortgage nearly four years ago to buy a three-bedroom ground-floor flat in northeastern Shanghai. But they have never considered the need to purchase extra insurance against redundancy or accidental death. "It's only a five-year mortgage, and we have now nearly paid off everything," Wang says.
Ten years ago, they bought a savings plan with built-in life cover. She will pay an annual premium of RMB628 until the age of 60. The life cover is worth only RMB10,000, but every five years she receives a statement showing the accumulated value of the policy if she wants to cash it in. For the past few years, she says, they have concentrated on paying off the mortgage, leaving little spare cash to invest in other financial products.
According to Zhang Lei, a salesman, joint venture between a local company and Canada's, even the "enlightened" sector of the local population does not consider insurance protection as a matter of course.
"They are not necessarily rich, but they do have a bit of money," he explains. "They want to see the money grow, so they put it in policies that promise handsome returns. They are simply not interested in those simple, low-cost, protective products such as term policies." He has not sold a single non-investment type of policy to an individual over the past year – they only appeal to corporate clients, he says.
Some products on the market do protect contents and buildings without a cash-in value, says Zhang, but again only corporate clients are interested in them. "Those who are really rich, who own more than one property and have millions in the bank, are not necessarily clued up when it comes to insurance," he adds. "Some tell me that they don't need protection. If the house is burnt down, they say, they can buy another one."
A national survey published in July this year by a research institute under the State Council showed that nearly 50 percent of respondents were not willing to purchase insurance within three years. Twenty-six percent did not trust insurance companies.
The aggressive tactics of insurance agents partly explain the high level of mistrust. Zhang Ying, the English teacher, complains that salesmen repeatedly knock on her door. "This is the last thing I want when I have just returned from work and am trying to get dinner ready for my children," she says.
She bought her policies through a friend and a neighbour who both worked for local insurance companies. She knows that insurance salesmen depend financially on commissions and have to hit targets to keep their jobs. "I would rather help my friends than give my business to a stranger," she explains.
Until recently, insurance was a low-entry industry for job seekers; no previous work experience was required. It therefore attracted thousands of laid-off workers from a variety of sectors. All that was needed was to have some well-off friends and relatives to whom they could sell policies. Once sales dried up, many tended to leave the business. The turnover in the industry is high, but there are plenty of others willing to take their place. Official figures show that there are more than 1.2m life insurance salesmen in China and some 70,000 agencies.
In July this year, China's first-ever nationwide qualification examination for newcomers to the industry came into force. It should help to improve standards. Reports say that only one-third of those sitting the exam in Shanghai have so far passed.
Zhang Lei, the salesman, acknowledges that there is an image problem for insurance sales people in general. "Because of the distrust, many people don't get a chance to hear about insurance. And there is no other means of getting impartial advice," he says.
Peter Robertson, finance director of Standard Life?s international operations, was directly involved in the setting up of the UK insurer's joint venture, Heng-An Standard Life in Tianjin. He believes that, as the market develops and the number of competitors increases, insurance brokers will emerge who are able to compare and contrast products from different companies and advise customers which company will provide them with the best product. "But such a development will take time," he admits.
He also believes that the onus is on the industry to inform customers about the role of insurance. "While the government can certainly contribute to this, it is really the responsibility of the insurance companies to educate their customers and to explain why and how customers can benefit from buying their products," he says.
Local analysts say that a more reliable source of independent advice and education would be the China Consumer Association. But the association's newly elected president admits that it is not yet up to the task. Yu Yongsheng told its annual working conference last November that it needed to study the rules of the World Trade Organisation in order to better protect consumer rights in the new market circumstances.
He predicted that disputes would increase over services provided by insurers and banks, among other sectors. The association has focused its efforts in the past on solving economic disputes in which consumers have already lost money. Yu vowed to place more emphasis on prevention and education in future.
In the meantime, figures released by the China Insurance Regulatory Commission (CIRC) show that the overall market is growing strongly. In the first seven months of 2002, the insurance industry generated premiums of RMB181bn, up 56 percent year-on-year. Life insurance premiums soared 81 percent to RMB134bn, while property insurance premiums rose by 12 percent to RMB47bn.
This means that per capita spending on insurance is equivalent to about US$15 a year in China, compared with US$1,000 or more in the US. For the optimistic, it is this gulf that makes China such an attractive potential market.
Early in November, the CIRC approved three major foreign insurers, including Standard Life, to conduct business in China, bringing to 34 the total of overseas insurers operating in the country. More than 200 representative offices have been set up by foreign insurers in recent years. These cannot sell policies, but can plant stakes in the market as they vie for coveted licenses.
Robertson of Standard Life insists that his company is attracted more by the potential future growth in the market than its current size. However, Zhang Lei warns that market maturity could take a long time to come about: "Only when you are inside [Shanghai] do you actually realise that it is a hard and long battle to win business from the locals."