Opportunities are plentiful in China for risk carriers and brokers, but competition is rife and regulation is mounting.

Visitors to China’s burgeoning insurance market would quickly find that, in many ways, it is not much different from others. Capacity is abundant. Competition levels are high. New perils like cyber risk are increasingly attracting buyers’ attention – and their premium – in a market that includes the largest population of internet users in the world and mobile payment is widely used.

In other ways, the Chinese market is very different. Alongside these developed market characteristics, China concurrently behaves like an emerging economy insurance market, with swift growth in lines such as private motor, as car ownership multiplies, and an evolving legal system that is driving the early development and adoption of liability insurances. A steady rise in the value of corporate assets has also created demand.

Total annual non-life premium exceeds $100bn. Its growth rate, although slowing down, remains in double digits. Property/casualty premium income grew 11.52% in 2018, according to data from the China Banking and Insurance Regulatory Commission (CBIRC). In this respect, the vast country offers demand-driven growth opportunities on multiple fronts, but already the market is crowded and mature, as supply has already arrived, sometimes even anticipating demand.

Total premium income has risen, despite China’s lack of immunity to the global phenomenon of rock-bottom insurance prices. Capacity supply in the Chinese market has been abundant for at least the past 10 years. That supply, and the competition it engenders, has pushed market rates down all the way. Achieving adequate prices for catastrophe risk exposures is a particular challenge.

Meanwhile, local insurers’ total assets, as well as claims, have risen in step with premium income, in what is a well-governed sector. The CBIRC, itself the trendy product of last year’s merger of China’s banking and insurance regulators, has introduced stringent capital adequacy rules. On the ground, five giant, publicly traded insurers control about 60% of the market, including China’s huge life insurance industry.

Development outside China has created a large slice of new non-life insurance demand and, with it, significant opportunities for specialist insurers. The core objectives of the state-backed Belt and Road initiative are to facilitate cross-border economic co-operation and support domestic economic growth in less developed countries by upgrading local infrastructure. Belt and Road, therefore, covers countries and regions with various social and political environments. The lack of political stability in is a major challenge and complicates the risk profile of the initiative.

It is an international project unlike any other ever seen. Based on infrastructure investment and construction, the Belt and Road insurance opportunity arises not just from the projects themselves, but also from the upgraded financial services industry and the evolution of the legal and justice systems the enormous initiative demands. That means insurers offering credit risk, political violence and liability insurances will find significant potential along the belt and road, along with those offering construction and engineering coverage and expertise.

The offshore sector in China also benefited from various national policies. Chinese government recent commitment to offer $360bn for renewable power development is expected to encourage more international involvement in the Chinese renewable energy market.

Chinese insurers are also reaching out. Belt and Road has spurred international expansion, often in step with Chinese banks, which already possess an overseas presence. Local insurers operating abroad had been prohibited from covering foreign risks that do not include Chinese investment, but that prohibition has been lifted. China Re’s acquisition of Chaucer has demonstrated the benefits of internationalisation for insurance companies. The global expansion of the Chinese insurance sector is under way.

Echoing developments elsewhere in the world, innovative, insurtech-driven distribution platforms are set to become more important and are already making waves. A rising number of start-ups have launched with models based on artificial intelligence, big data analysis or blockchain technology. Some of them have come to market offering strong competitive advantages. Incumbent insurers are taking note, as are the local tech giants, which have made strategic investments in insurance companies large and small.

China’s insurance market, then, is both familiar and very different. Opportunities are plentiful, but competition is rife and arising from familiar and unexpected players. Regulation is mounting, but the market is healthier as a result. Risk carriers and brokers working with the right partners will find much to entice them, but care must be taken to ensure positive outcomes.

By Kun Huang, China Re Underwriting Agency