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During the past 30 or so years, China has grown from being a relatively minor economic player globally to being the second-largest economy in the world.
And that makes it a particularly attractive market for insurers and brokers. As growth mounts in industries as varied as energy, television and spare auto parts, opportunities for the insurance industry abound, say observers.
China has the largest population in the world, estimated at 1.34 billion according to the CIA as of last June. Also according to the CIA, China had a gross domestic product of $11.3 trillion and a growth rate of 9.5% in 2011. The U.S. Department of Commerce reported that China was the third-largest market for U.S. exports, worth $10.88 billion, and the second-largest exporter of goods to the United States, with a value of $399.96 billion.
“China has relatively low labor costs and rapid growth rates,” said Paul Wilkins, chairman and CEO of Marsh Greater China in Beijing. “The insurance industry and insurance broking industry are still new here.”
“A study by McKinsey (& Co.) on the top 600 cities shows that by 2025, 136 new cities are expected to enter the top 600, all of them from the developing world and overwhelmingly—100 new cities—from China,” said Jon Hall, executive vp of Johnston, R.I.-based Factory Mutual Insurance Co., which does business as FM Global.
“Globally, people moving out of the countryside into urban areas presents insurers with some real opportunities, in both commercial and personal lines,” said Howard Mills, director and chief adviser with Deloitte L.L.P.'s insurance industry group in New York.
“I think that the real economic force in China is that China is one of the fastest growing sources of economic consumption around the world—that's really the driving force,” said Tienmann Chau, chief operating officer of Ximco Corp., a Shanghai-based brokerage. “China could potentially be the first true source of global demand coming out of Asia ever.”
“As the economy rapidly develops, so too do the opportunities for brokers, as local companies become more sophisticated in their risk management needs and international companies enter the market,” said Roger Wilkinson, Hong Kong-based chairman and CEO of Willis Asia Pacific, Middle East and Africa. He said that, in addition, many state-owned companies that had not bought insurance in the past have begun looking at their risk management processes, “which means there is great potential for the purchase of more insurance.”
“For insurers, property business in China has a lot of potential, as it is linked to the growth of the economy and the increasing sophistication of Chinese business when it comes to risk management,” he said, adding that the “opportunities around marine, construction, energy and aerospace also abound.”
“Investment, consumption and net export in China still see steady and rapid growth,” said Mr. Wilkins. “Meanwhile, driven by vigorous investment and consumption, domestic demand continues to expand. Sectors including new energy, infrastructure, auto, auto spare parts, e-commerce, logistics and TV and films are growing at a fast pace.”
Stephen Fuller, vp of international external affairs for Warren, N.J.-based Chubb Corp., said China's “strategic emerging industries” create opportunities for insurance. These industries include biotechnology/ life sciences, high-end equipment manufacturing, energy conservation and environmental protection, clean-energy vehicles, and next-generation information technologies.
“For these cutting-edge industrial sectors, cutting-edge insurance is needed,” he said.
Looking ahead, Marsh's Mr. Wilkins said the Chinese government “will attach great importance” to such areas as energy conservation, environmental protection, agriculture and technology innovation.
“This will provide great opportunities to the insurance industry,” he said. “Various products will be developed to meet these needs.”
Ximco's Mr. Chau also noted that China reformed its civil laws in 2010. “Legal reform may be the driver for emerging risk exposures that could create opportunities,” he said.
Karen Hu, China CEO for Zurich Financial Services Ltd. in Shanghai, called the Chinese insurance market “one of the most dynamic markets in the world,” presenting immense growth opportunity for foreign and domestic insurance companies as the insurance industry grows at more than 25% annually.
She added, though, that “because insurance is such a strategic industry, the Chinese government on the one hand has opened the insurance industry to foreign investment and assistance. On the other hand, it has carefully regulated the speed and scope of foreign involvement in order to protect China's still-nascent domestic insurance industry and to match insurance industry growth with society's demand for insurance services.”
This story is from the June 11, 2012, issue of the weekly print edition of Business Insurance, a special theme issue featuring an in-depth look at emerging market growth risks in Brazil and China.
Copies of this issue, which includes a data poster highlighting facts about both countries' insurance markets, are available for $100 by contacting our Single Copy Sales department at 888-446-1422.
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