Realising the potential of the Chinese insurance market is not about offering more products, argues Lockton Asia’s head of Greater China Alex Yip. It is about demonstrating the actual risks businesses face in the wider China context
There are numerous articles, reports and thought-leadership pieces on the great potential of the Asian insurance market. Typically, China and Indonesia appear at the top of people’s wish lists with their temptations of economic growth, growth potential and demographics. These are undeniable attractions to the insurance industry that is itself built around numbers, statistics, risk and rewards.
So, while there is undoubtedly opportunity, this is old news. In a market the size of China and Hong Kong there has always been opportunity. As a sector, insurance companies need to start talking about how to realise this potential because the things holding us back are industry issues, not those of individual companies and products. Companies that can differentiate themselves by adding real value to their clients’ businesses will have much to gain.
In China, a number of key factors are driving the development of the local insurance market. The most significant include the maturing of the local economy from rapid growth to sustained development, the rapid increase of competition in the Chinese insurance market, and the impact of digital technology on consumer purchasing. Regulation will play an increasingly important role, though this is likely to be as a reaction to the way the industry develops.
In this context, insurance consumers (both businesses and individuals) are confronted with the increased commoditisation of products, declining service as a result of smaller margins, and a confused offering of insurance solutions that do not actually cover the greatest threats to their business. Cyber insurance and reputation protection spring to mind as two areas of typical under-cover.
The insurance sector in China has seen a boom in new market entrants as both foreign and domestic capital looks for a home. The market’s growth potential and solid returns through regular premiums have proven to be attractive investment. However, this increase in competition has both an upside and a downside for commercial and retail clients.
New entrants see potential in business volume, which leads to increased competition, commoditised products and reduced costs. For good companies – both brokers and insurers – this opens up opportunities for differentiation through quality offerings, but only if we are able to distinguish ourselves from the ‘sub-prime’ products and operators. However, sensible advice tends not to grab headlines. And this is a problem.
The insurance sector is not exactly well known for its ability to communicate to the wider commercial market. But if we are to realise the potential of the ‘value-added’ market, we need to get better at articulating the value we add to the domestic market. This is true for both foreign companies looking to enter China, and Chinese companies looking.
Realising the potential of the Chinese market, therefore, may not be about more products. It might be more about demonstrating the actual risks certain businesses face in the wider China context. Risks such as political, cyber, D&O liabilities, supply chain risk, crisis response and reputation management are now equally as important as property, health and medical, and motor coverage.
To realise the (well researched) potential of the China and Hong Kong insurance market, the best operators need to talk about the real risks businesses face. For a food producer or distributor, supply chain risk coverage is vital; for a business advisor, reputational management; for importers and retailers, trade disputes can be crippling.
Often businesses will spend more time worrying about their motor vehicle insurance or expat health coverage than about the risks which could cost tens of millions in damages and share value. It is here that the real value of insurance to Chinese companies can be realised, and the top players in the market need to start explaining this clearly and publically.