Opportunities Rising in the East: Once Protected by National Governments, Insurance Markets in Pacific Rim Countries Are Opening to Foreign Investment
Meder, Robert C., Risk Management
Like Marco Polo searching for a trade passage to the East, insurance companies and brokers are preparing for what are expected to be great opportunities in the Pacific Rim and Far East. The insurance markets in some of these countries have been carefully protected by national governments and were almost entirely closed to outside participation. Such regulation is changing as countries such as China, Korea and Vietnam are more often being considered for joint venture activity by U.S. multinational companies. U.S. brokers and insurance companies are scrambling to keep pace with growth and to stay ahead of their competition. Other Eastern countries, notably Japan, continue to keep their doors shut to U.S. involvement in the local market. Overall the insurance industry in this region, in keeping pace with political developments, is expected to continue to change significantly in the next several years, and U.S. brokers and insurers must also keep pace if they wish to stay afloat.
Some other countries in the Far East region already have open insurance markets, and recent increases in investment activity have led to additional growth. Countries with open insurance markets such as Hong Kong, Singapore and Malaysia all allow foreign insurer and broker involvement, and all are experiencing premium growth. Premium volume increases 19 percent annually in Malaysia, 14 percent in Thailand and 10 percent in Hong Kong. It is not anticipated that Hong Kong's 1997 return to Chinese control will change its insurance conditions, as the declaration between the United Kingdom and China provides that Hong Kong's commercial system be maintained for 50 years. Most Western financial institutions, including insurers and brokers, will stay, in the country.
Any discussion of insurance in the Far East should begin with China, where the insurance market is dominated by the People's Insurance Company of China (PICC). Established in 1949 by the Chinese government, the PICC has historically been the only insurer available for personal and commercial coverage, and despite the emergence of new competitors, the company continues to grow. In a 1993 speech in New York, Li Yumin, chairman and president of the PICC, announced that 1992 premium income increased 56 percent over the previous year, and further growth was expected. With over 3,400 branch offices and 120,000 employees, the government-owned company is clearly still the leader. However, as a result of China's recent economic reform and just-assigned most favored nation status, as well as the promising view held by many U.S. multinational consumer goods companies, new competitors have emerged. It is not expected that trade disagreements between the United States and China will affect the liberalization of the Chinese insurance market.
Since 1988, outside insurance companies have been approved by the Chinese government to establish operations in China, forming a limited competitive market in which the PICC still dominates. New competitors indigenous to China include Ping An and China Pacific. In addition, AIG has entered the country, establishing a Shanghai office in 1993. Other Western insurers such as Chubb Group and Royal Global U.K. have established representative offices. Non-admitted coverage is still strictly prohibited in China, and the recent prevalence of reputable insurers in the country has made the option of purchasing local coverage more common.
Large Western brokers are also increasing their presence in the country, with several major alphabet house brokerages establishing representative offices or expanding established liaison offices in cities such as Beijing. Brokers per se are still not permitted in China, and their growth will be a slow process. Because brokers are not allowed, Western brokerages still must refer to their offices as "risk management consultants" or "representative offices" to adhere to local rules. It will be difficult for Western brokers to penetrate the existing Chinese agency networks for local business. …