Major Changes, Rapid growth

Strong Growth
In recent years premium income growth has exceeded expectations. Total premiums increased from USD26bn to USD61bn between 2001 and 2005 representing a growth rate of 25% p.a. and 24% in local currency terms. Life insurance has led this trend rising from 41% of the total insurance market in 1996 to 74% by 2005.

Developing Market
China’s insurance market is still at a stage of relative immaturity despite rapid economic growth in recent years. Historically, the role of the State and affordability were key constraints on demand for insurance. The country's high savings rate, weak social security system, growing elderly population and lack of alternative savings vehicles are fuelling demand for savings and protection type products. Social and economic reforms are likely to encourage demand for property insurance. Liability, credit, property, pensions, and health insurance should also prosper.

Low Penetration
The penetration rate, at 2.7% of GDP, is low and the per capita spend of USD46 gives scope for substantial growth when compared with USD3,747 in the developed market of Japan. China is a large and populous country and there are huge regional disparities as the relative wealth of the major cities contrasts with the rural areas. This is reflected in demand for insurance where, for example in Beijing, the penetration rate and per capita spend totalled 6.8% and USD300 respectively on 2004.

Market Reforms
The China Insurance Regulatory Commission has issued a large number of new regulations dealing with issues such as minimum capital for insurance companies, investment regulations, reserving standards and the establishment of a policyholders' protection fund. A further relaxation of investment rules should enable life insurers to match the maturities of their assets and liabilities more efficiently and enhance returns. In the non life market, the introduction of compulsory motor third party liability will fuel demand.

Motor Market
Motor premiums grew 37% in 2004 and this line’s share of the market rose 68%. Expansion of car ownership and the increasing productivity of the car industry have been key drivers. With only 30mn cars in China for a population of 1.3bn, there is significant potential for growth. Newly granted access to the domestic market for foreign car manufacturers and the availability of car finance should provide additional impetus.

Market Concentration
State controlled insurance companies continue to dominate the market but their position is slowly being eroded. The market shares of the top three companies in both the life and non-life markets fell from around 95% in 2001 to approximately 70% in 2005. China Re has until now enjoyed a virtual monopoly of the reinsurance market.

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Benfield Industry Analysis and Research

Market overview
The insurance industry has enjoyed strong growth with premiums increasing by 25% p.a. since 2001. Economic development, spurred by reforms, has been the driver of growth for the country at large and the insurance industry in particular. Domestic players still dominate but foreign capital and expertise is increasingly playing a supportive role with the removal of geographical and product restrictions.

Awareness of the concept of insurance remains low amongst much of the population, particularly in the rural areas, however, this is set to change.

China continues to experience rapid economic growth as a result of continued implementation of economic reform programmes which started in the late 1970s. Between 2001 and 2005, GDP grew at 10% p.a. making China one of the fastest growing economies. 

In 2006 – 2007 growth is expected to remain vigorous, but to ease slightly from 2005’s out-turn. China is now the fourth largest economy in the world and is predicted to grow 9.7% in 2006.2 Against this background the insurance sector has prospered, helped by growth in disposable income, investment in fixed assets, increased motor vehicle and home ownership. ...

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