While the United States and China differ in countless ways, they bear a certain similarity in how insurance is regulated.

Although China has a national insurance regulator—the China Insurance Regulatory Commission—insurers must be licensed in each province or independent municipality in which they wish to operate, just as insurers in the United States must be licensed by individual states, the top regulators of which belong to the National Assn. of Insurance Commissioners.

“The CIRC is a national entity, but it is very fragmented,” said Howard Mills, director and chief adviser at Deloitte L.L.P.'s insurance industry group in New York and a former New York insurance superintendent. “It does kind of function like the U.S. NAIC system. You do have to be licensed everywhere. They do throw up a lot of barriers for nondomestic insurers. They want to advantage Chinese insurers.”

The Chinese insurance market is dominated by insurance companies, noted a domestic Chinese broker.

“China on its own is not necessarily that attractive to brokers; it is really a carrier-dominated market,” said Tienmann Chau, chief operating officer of Ximco Corp., a Shanghai-based broker. “Depending on how you look at it, only 5% to 10% of insurance is intermediated. From my view, it's because there's so much investment going on in China—if you're going to work with a big international company, you need to have the capability to provide some form of service on risk management and insurance in China.”

“Placements in China are predominantly done on a direct basis, as the local insurance carriers have their own agents employed,” said Jon Hall, executive vp of Johnston, R.I.-based Factory Mutual Insurance Co., which does business as FM Global. “Global brokers have a limited presence.”

Marsh & McLennan Cos. Inc. has operated in China for 30 years, and in 2007 became the first wholly owned foreign enterprise to be awarded an insurance broking license, said Paul Wilkins, CEO of Marsh Greater China in Beijing.

He said that, according to the CIRC, China's insurance market maintained steady growth in 2011, with total premium income of 1.43 trillion yuan ($227.08 billion), an increase of 10.4% on a year-on-year basis. The property/casualty market achieved premium income of 461.79 billion yuan ($73.33 billion), up 18.5% from the previous year; and life insurance market, premium income of 969.98 billion yuan ($154.03 billion), an increase of 6.8% on a year-on-year basis.

He said that after a broker is authorized by a client or prospect to do so, the insurance broker will communicate with the client prospect for its detailed needs, and then design a quotation slip and approach the market for quotes from several insurers. “After negotiation for the terms, condition and price with those insurers, the broker will make a report to the client or prospect,” he said. The client or prospect will then choose an insurer. The broker will notify the selected insurer to confirm the business and issue the policy.

He said Marsh has a dedicated placement team to negotiate with insurers. “We only use insurers with good reputation and healthy financial situation,” he said.

“I think the brokers that can really manage the transition in the market from carrier direct to intermediated business will see the most growth,” said Ximco's Mr. Chau. “We may need more sophistication in risk management and risk consciousness for that to happen.”

Mr. Chau noted that the Chinese market has its own characteristics that a broker must take into account when placing business.

“Around 2008, the insurance carrier association basically collectively standardized the auto insurance industry,” he said.

“The key change is that all auto business from a regulatory perspective is personal lines business. Because each license plate has to have a separate insurance policy, there is no fleet policy and there is no fleet access-type policies. Essentially, your corporate P/C lines do not extend to cover automotive risk.”

The current industry law is Insurance Law of the People's Republic of China (2009 Revision), which was first released in 1995 and amended further in 2002 and 2009, said Marsh's Mr. Wilkins. He said that recent regulatory changes include further clarification of the rights and obligations of the insurers and the insureds, and strengthens the protection for the insureds.

All foreign insurance companies must meet the following three qualifications in order to establish a foreign insurance company in China, said David Snyder, vp and associate general counsel with the American Insurance Assn. in Washington. To establish a company in China, the insurer must have been in business for 30 years, have had a representative office in China for two consecutive years, and have total assets greater than $5 billion at the end of the year prior to application.

Mr. Snyder said foreign companies that do not meet the three prerequisites may acquire up to 25% of an existing Chinese stock insurance company.

The CIRC has licensed 17 foreign P/C foreign insurers to do business in China, the largest of which is American International Group Inc.'s Chartis Inc. unit.