Filling China's insurance gaps

The Shanghai office of Lloyd's. Specialty insurers from Europe are finding huge potential in China. Yong Kai / for China Daily

Western companies see huge opportunities in rapidly expanding specialist areas of business

China is home to some of the largest insurers in the world, but with the industry still at a nascent stage, huge opportunities remain.

While premium income from insurance was 1.43 trillion yuan ($230 million; 180 billion euros) last year and total assets of the industry were 5 trillion yuan, there remain major gaps in coverage.

Specialized areas including agriculture and disaster insurance have yet to take off. And extreme niches found in developed markets are unheard of.

Now specialist insurers from the West are on the way to fill the gaps, looking to profit from China's growth by providing their experience and expertise.

Lloyd's, the world's largest specialist insurer is among them. It aims to increase its China business faster than the country's GDP growth in the coming years, says the company's chairman, John Nelson. It also plans to develop Shanghai into one of its international centers for insurance and reinsurance.

Opportunities for foreign insurers have emerged as a result of China's fast-growing economy. This is particularly true of less developed areas of the country and industries more prone to natural disaster, such as agriculture. The China Insurance Regulatory Commission, the nation's insurance regulator, said in July that it will speed up efforts to improve insurance coverage for agriculture and disaters.

Insurance is one of Britain's largest industries, employing 350,000 people, 50,000 in London alone, and contributing 2.5 percent of the country's GDP. In China, by comparison, insurance is largely underdeveloped, but is growing rapidly. According to the 12th Five-Year Plan (2011-15), China's insurance industry premium income is set to reach 3 trillion yuan and the industry's total assets 10 trillion yuan by 2015.

Lloyd's has its roots in Edward Lloyd's coffee house in London where ship owners met to make insurance deals 300 years ago. Since then it has insured property and personal wealth against war, disaster and accidents. Among its most notable insurance deals was the ill-fated Titanic.

The company's China footprint is fairly recent. Lloyd's opened its first China office in Shanghai in 2007 and received a license to provide direct insurance in the country last year.

Lloyd's business model is new to China. In a world where most business is conducted electronically, it provides a market where insurers and brokers meet face-to-face, in an atmosphere of both cooperation and competition. Around the company's London headquarters, men and women in dark business suits carrying thick files abound, flitting between deals to insure anything from oil rigs to celebrity body parts.

Its biggest strength in China, says Richard Ward, chief executive, is that it can insure complex risks that other players do not know how to.

"If you want to insure a satellite launch, we know how to do that; if you want to insure property against earthquake risk, we know how to do that.

"We are not going to compete with the People's Insurance Company of China in the local market for motor insurance, or China Pacific Insurance Group for property," says Ward.

"We are competing for the more complex risks when you need special skills."

The growth potential of the Chinese insurance market is both attractive and challenging, he says.

"The market in China is highly competitive, to the extent that we worry about the profitability of business," he says.

Nelson says moving too fast in a developing market can be dangerous.

"It is better to write no business than to write unprofitable business. That is the message we are giving our team in China," he says.