The common good

Among the many different types of foreign investor in China, few are more anxious than the insurers to see Beijing succeed in its ambition to join the World Trade Organisation. The Chinese authorities have been especially loath to open this market, fearing that domestic insurers would be blown away by the competition. Yet foreign insurers have arrived here in droves over the past decade, setting up about 200 representative offices, all convinced of the huge market potential once a framework for opening is spelled out in a WTO agreement.

Until now, China has allowed 13 foreign insurance companies to write policies in the Mainland, though they are restricted to the cities of Shanghai and Guangzhou in Guangdong province. Life insurers are required to join forces with a local partner. Admission to the WTO would certainly accelerate the pace of liberalisation according to Beijing's unofficial offer made in April to gain WTO membership, more than 20 cities would be opened by 2003, comprising a market of 96m people. Foreign life insurers would have access to health insurance by 2004 and group life business a year later. Meanwhile, non-life insurers would enjoy unrestricted geographical access, although they would be excluded from third-party motor insurance.

Frustrating experience
For many firms, waiting to gain a licence to operate in China has been a frustrating and costly experience. Just setting up a representative office can take a long time, says Mr. Peter Alexander, the Shanghai-based China chief representative of US insurer Nation-wide. Even more dispiriting is the arbitrary way in which licences have been awarded in the past – often decisions have been politically driven and announced to coincide with an overseas state visit.

Frustrated by these factors, American insurers have decided to form a united front. "China can divide and conquer quite easily by pitching one US company against another," observes Alexander. "We are trying to take that card away from them."

Their aim is to create a fairer system for all participants, to open up the market and to improve access. These broad goals cannot be tackled by any individual company. "We all have some common interest to make sure the regulations are sound and have the ability to initiate and grow business," says Mr. Howard Margules, president of Lincoln National's China operations.

Building contacts
Two initiatives have been established, one in Beijing and the other in Shanghai, both designed to reduce costs and to work with trade negotiators and regulators. Although not yet open to foreign insurers, Beijing is the place where licensing and regulatory decisions are made. For this reason most foreign company managers are based in the capital.

The Insurance Industry Forum, under the American Chamber of Commerce in Beijing, was formed in January 1998. This voluntary organisation started with a nucleus of six companies and has now grown to 14, all of them American. It meets formally every month and regular dinners are also arranged for participants to chat about issues and to address agenda items not covered in the monthly meeting. Information is shared and policy issues discussed. "It's important for insurers to communicate with each other," says Mr. Patrick Cranley, chief representative of Cigna in Shanghai and head of Amcham's financial services sub-committee in the city.

The Beijing forum has three main areas of concern – geographic market access, licensing and access to all lines of insurance. Last year the priority was to make sure their views were heard and understood by various US government departments, trade bodies and lobbying groups. Representatives made several trips to Washington, meeting the US Trade Representative, Congress people and bodies such as the Department of Commerce and the American Council of Life Insurers. In doing so, the forum has made sure that its concerns and aspirations are tabled during WTO negotiations.

This year the forum's emphasis has shifted to building contacts with the Chinese authorities – particularly the China Insurance Regulatory Commission (CIRC) and the People's Bank of China (PBOC). Mr. Jon Dante, chair of the forum and managing director for China of Allstate Insurance, says that in future there will be more direct talks with these bodies to ensure that the market is well regulated and that the proper checks are put in place. All foreign insurers want China to join the WTO and once this happens, says Dante, the issue will be implementation. "The more level the playing field, the better regulated the market and the better off all of us will be," he says.

The forum also makes itself open to help the Chinese authorities, for example by making available specialist market expertise or providing information when China assesses insurance practice overseas.

Among the collective research projects it is undertaking, the forum is evaluating the market potential of cities due to be opened in future and building up profiles of consumers in these cities. The cost will be shared between the 14 members.

Delicate relationship
Taking a collective approach in China necessitates sensitivity, particularly when all forum members come from a country that has such a delicate relationship with China. This is well understood by the forum. "I don't believe you can win friends and drive the change that is so needed on a confrontational basis," says Dante.

Even so, Alexander believes that the forum is perceived by the Chinese as antagonistic. He says that browbeating the authorities will not succeed in pushing them further than they want to go.

In Shanghai, where regulators tend to be more open than their counterparts in Beijing, the American firms have taken a more informal approach. A group of major American insurers got together in the autumn of 1998 to found the Shanghai Insurance Round Table, known as Shirt. Its members meet informally on a monthly basis in an office of the US consulate. Deliberately, the round table keeps a low public profile and is at pains to stress that its aim is not to demand licences from the central bank. "We're trying to be good people about it," says Alexander, one of its members.

The round table boasts an impressive membership list of about 15 companies, including AIU, AIA. Nationwide, Chubb, Cigna and Lincoln National. Many of the individual members have become friends and there is a healthy spirit of cooperation – despite the competitive nature of the business and natural concerns about confidentiality. For example, to save time and expense companies might agree to share information requested by the PBOC or CSRC, so long as that information is not highly valuable or sensitive.

"While we are competitors, 80 percent of the problems and obstacles we face are common and shared," says Alexander. Whatever their status in China, all companies want more licences and access to more cities. Even AIA, which has a licence and significant market share in Shanghai, has joined the round table since it still faces many out-standing issues.

Shirt is also doing its best to convince local officials of the benefits of free competition, explaining how foreign insurers have already helped Chinese consumers by widening choice and insurance companies by sharpening up their business practices. Alexander points out that the likes of Pingan Insurance have been able to improve efficiency, poach staff from foreign insurers and copy their pricing strategies and products. Pingan's insurance premiums climbed 48 percent in the first six months of 1999 compared with the same period last year. Across the sector as a, whole, national insurance revenue rose from Yn640m in 1980 to Yn124.7bn in 1998 – an average annual increase of nearly 40 percent. Therefore, Alexander says the regulators might one day be persuaded to extend these benefits to other cities and open up new markets to foreign insurers such as property.

Wider embrace
To date Shirt has not recorded any significant achievements, but this is partly due to the upheaval in Sino-American relations caused by the NATO bombing of the Chinese embassy in Belgrade in May.

The PBOC has shown interest in the scheme, and given it tacit approval. "We're hoping to set up a dialogue with CIRC, although it has been tied up since its inception last year," says Alexander. The regulator does not yet have an office in Shanghai.

The existence of these two US organisations creates the potential for confusion when it comes to discussing policy issues with the Chinese. Margules concedes that they could have worked together more closely. "We are trying to work to coordinate the groups better than in the past," he says. "We did operate independently." However, he says most Shanghai representatives of US firms get directions from their office in Beijing, so there should be no excuse for the two organisations to be at odds. While preferring the Amcham approach to that of the round table, Cranley says both initiatives have the same broad goals. "We're still casting around for the right approach," he concedes.

That approach might include embracing insurers from other countries in future. Of course, all foreign insurers in China use their own national channels to forward their ambitions. British insurers, for example, meet under the umbrella of the Association of British Insurers, which in turn liaises with an EU insurance body.

For as long as the composition of the two
China-based organisations is all-American, they are vulnerable to the Chinese ploy of playing off countries against one other. It also means that dialogue with these groups is liable to be cut off whenever Sino-US relations deteriorate in future.

Creating a truly international insurance industry group might resolve these shortcomings and force the Chinese authorities to change the way in which they communicate with foreign insurers and regulate the industry.

Margules agrees that linking up with the Europeans would help, if it is done in a positive way. "We can work together as long as it is not perceived as antagonistic," he says. Members of the Insurance Industry Forum have conducted informal discussions with European insurers. A lunch for foreign insurers takes place twice a year and there have been talks to turn this from an informal into a formal organisation with a structure and goals.

For its part, Shirt has also approached some European companies, including Swiss Re and Royal & Sun Alliance. The hope is to embrace European companies, but that is a couple of years down the line, says Alexander.

These moves are welcomed by Ms. Laura Luckyn-Malone, a senior research associate at the Judge Institute of Management studies in Cambridge, UK. Having conducted an in-depth study of pension reform in China earlier this year, she says foreign insurers need to do more to organise them-selves effectively.

Much will depend on China's WTO admission talks, which in late October were still hanging in the balance. However, for insurers the battle will not be won even after China's accession, whenever that happens, and it will be a long time afterwards before the insurance market in China becomes truly open and unrestricted.