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Chinese Carriers Expect Onslaught

Maria Trombly and Wendy Yu December 2006

Chinese insurance companies were bracing for an onslaught by global competitors last month when a commitment to the World Trade Organization dictated opening the borders to foreign competition.

"Almost all insurance business is opening to foreign insurers," says Xiaolin Li, a dean at Beijing-based Central University of Finance and Economics. "The exceptions are group insurance and life insurance, which requires a foreign insurance company to set up a joint venture with a local partner."

In fact, foreign firms began arriving well ahead of the anticipated rush. According to the China Insurance Regulatory Commission (CIRC), the number of foreign-funded insurance companies in China increased from 14 in 2000 to 40 in 2005. More than half of the insurance companies in the Global Fortune 500 set up shop in China before last month.

China's largest national insurers have upped their technology investments, but experts say smaller Chinese insurers still have much to learn about IT.

According to Beijing-based CCW Research, Chinese insurers invested 1.5 billion yuan (U.S. $190 million) in IT in 2005, an increase of 10.8% from the previous year. Spending is expected to expand to 1.7 billion yuan (U.S. $215 million) this year. CCW Research is a joint venture of Framingham, Mass.-based International Data Group and China's Ministry of Information Industry's Institute of Electronic Science & Technology.

KEEPING PACE

But the spending increases aren't keeping pace with the growth of the industry, CCW reports, with premiums increasing by more than 100% in recent years.

"Judging from the whole financial industry, IT investment in the insurance industry is lagging far behind the others," confirms Thomas Wong, chief analyst at Beijing-based Analysys International. "The increase rate is disproportionate to the insurance premium increase."

According to Wong, technology in domestic insurance companies isn't as advanced as in other financial sectors, such as banking. "What national insurers are doing now is still consolidating data and building up core systems, which other institutions have already completed," he said. "And some smaller insurers haven't even started that yet."

Overseas insurers completed that work long ago, Wong notes. "People at the management levels don't understand the benefits that come from having good IT systems," he says. "They don't attach enough importance to it."

As a result, only the largest insurance companies, and those with some degree of foreign ownership, are handling technology well, he says.

One company with some foreign ownership is Manulife-Sinochem Life Insurance Co. Ltd., a joint venture of Canada's Manulife Ltd. and China Foreign Economic and Trade Trust & Investment Co.

"They designed a customer-oriented service at the front-end, which requires CRM system support at the back-end," Wong says. "Their product design is closely connected with the IT system and the IT accommodates the product quite well by playing a supporting role."

Having a foreign partner was important, too, he adds. "When overseas insurers come into China, they bring their mature technology as well," he says.

A large domestic insurer looking at IT seriously is China Pacific Insurance Group Co. Ltd., which is developing an electronic business platform to sell insurance. "This project shows that large national insurance companies are increasingly aware of the importance of technology," Wong says.

Meanwhile, China Life Insurance Group Co., another major national insurer, has almost completed its data consolidation-a task some smaller companies haven't begun. And Pin'an Insurance Group Co. of China has started building a technology platform early and has already established an e-commerce brand, known as PA18.

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