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pwccn.com

pwchk.com

For

eign insurance companies in China

September 2009

Insurance

Foreign insurance

companies in China

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Table of contents

Foreword 1 Executive summary 2 Market environment 12 Human capital 33 Risk management 41

Competition and positioning 43

Products and market segments 52

Market expansion 60 Regulation 67 Peer review 75 Appendices 86 • Methodology 88 • Participants 89

• Premium income for domestic life insurance companies, June 2009 90

• Premium income for foreign life insurance companies, June 2009 91

• Premium income for domestic property and casualty insurance companies, June 2009 92

• Premium income for foreign property and casualty insurance companies, June 2009 93

• Background comments on participants 94

• American Chamber of Commerce in China White Paper – Insurance section 2009 100

• European Business in China Position Paper – Insurance Working Group 2009 105

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Foreword

Welcome to the third PricewaterhouseCoopers1 survey

on foreign insurance companies in China. This year we had even stronger participation in our survey, with 29 of the foreign insurance companies currently active in China taking part. We would like to thank the chief executive officers and senior executives who participated in this survey for their time and effort in making this publication possible. We would also like to thank Dr Brian Metcalfe for his research and analyses.

The objectives of the survey continue to be:

• Find out how companies themselves see the market issues facing them in China;

• Get a consensus view on industry trends;

• Understand the thinking of chief executive officers in the China insurance industry;

• Provoke discussion and debate on the best options open to foreign insurance companies for capitalising on current trends;

• Provide industry views on how insurance in China may evolve over the next three years.

The survey includes observations on the changes in China’s market place, the risks, the development of the regulatory environment, future opportunities and how the participants in the survey view their competitors.

Foreign insurers still have advantages from their global experience and scale, and can add significant value to the Chinese market through their expertise. However, in China, foreign insurers are still challenged by a lack

Shu-Yen Liu

Actuarial Practice Leader, Asia

Peter Whalley

Insurance Industry Leader, Hong Kong

of critical mass and in aggregate still only account for a market share of less than 5% of life and 1% of property and casualty. The expectation coming out from our 2009 survey is that the foreigner’s share of the life market will grow to just 8% in 3 years time, which is much less optimistic than reported a year ago.

2008 has been a difficult year for foreign insurers in China, not only because of the general slowing of the Chinese economy, but also because (in many cases) the large domestics have proved more resilient to the slowdown versus their foreign competitors. There are a number of reasons for this, including the shift in consumer demands from investment linked to protection based products (an area of strength for the domestics) and also our survey respondents are seeing their domestic competitors as increasingly innovative and continuing to improve their operations, as well as enjoying in-depth local market knowledge.

There are also many challenges on the horizon. One of the most significant being that a number of banks have reportedly been granted special approval from the State Council to invest in insurance companies. Bancassurance has become a major distribution channel for many insurers in the last several years and these new bank owned bancassurers will introduce new dynamics in the market. Many insurance players anticipate significant changes in distribution systems and we all look forward to seeing what happens during this upcoming challenging year.

To obtain further information, please contact our insurance industry partners listed at the back of this survey.

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This survey focuses on the strategic and emerging issues surrounding foreign insurance companies in China. The survey attempts to bring together diverse viewpoints and offer insights into this fast changing investment market.

The survey is based on interviews with CEOs and senior executives of 29 foreign insurance companies. Confidentiality is protected by not identifying individual responses. The interviews were approximately one hour in length and were conducted in Beijing, Shanghai, Hong Kong, Guangzhou and Chongqing in June and July 2009.

Background

Life insurance companies

• AEGON-CNOOC Life Insurance • American International Assurance • Allianz China Life Insurance • Aviva-COFCO Life Insurance • AXA-Minmetals Assurance • CIGNA & CMC Life Insurance • CITIC Prudential Life Insurance • Generali China Life Insurance • Great Eastern Life Assurance • Haier New York Life Insurance • Heng An Standard Life Insurance • HSBC Life Insurance

• John Hancock Tianan Life Insurance

• Manulife-Sinochem Life Insurance • United MetLife Insurance

• Nissay-SVA Life Insurance • Pacific-Antai Life Insurance • Samsung Air China Life Insurance • Sino-US MetLife Insurance • Sun Life Everbright Life Insurance

Property and casualty insurance companies

• AIG General Insurance • Allianz Insurance • AXA General Insurance • Liberty Mutual Insurance • Mitsui Sumitomo Insurance • Royal & Sun Alliance Insurance

(RSA)

• Sompo Japan Insurance • Tokio Marine & Nichido Fire

Insurance

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Overview

Difficult year

Foreign insurers have faced a difficult market in China over the last year. Although their commitment to the Chinese market remains extremely strong and resolute, many are finding it difficult to secure economies of scope and scale.

Many of the foreign companies participating in this survey have been in China for seven to 10 years. Those involved in joint venture relationships have experienced challenges working with domestic partners who have limited experience in the insurance business. The global financial crisis and the severe drop in the equity market in 2008 added to these tensions. In the opinion of those surveyed, these developments resulted in a much more cautious and measured approach by the regulators.

Market share pressure

Evidence of the slow progress made by the foreign insurers is provided by the market share statistics. In June 2009 the market share for foreign life companies was 4.7% and for foreign property and casualty companies, 1%.

The participants in this survey predict that market share for the foreign life companies will be around 8% by 2012 and that the foreign property and casualty insurers may reach 2% by that time.

Impact of the domestic insurers

For the first time, foreign insurers have identified the key driver of change in the marketplace as the domestic insurers. The scope and momentum of the domestic insurers is reported in several places in this report. In the peer review section, foreign insurers frequently placed companies such as China Life, Ping An, China Pacific Insurance Company (CPIC) and People’s Insurance Company of China (PICC) at the top of the list.

It is clear that the large domestic insurers represent a major competitive threat to the foreign entrants. Foreign life insurers pointed out that the joint venture structure required following the opening of the Chinese market is therefore unnecessary, given the dominant market position of the domestic insurers.

Strict regulatory environment

Foreign insurers expressed the view that the global financial crisis will have an impact on future regulations. Indeed, most participants predicted that it would be significant or very significant.

They believe that the new insurance law which comes into effect on 1 October 2009 is a major step in this direction. One foreign life insurer commented that in the first five months of 2009 there had been 750 China Insurance Regulatory Commission (CIRC) notices and 650 of these had required written responses.

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Tighter controls are anticipated across a broad platform. Solvency, risk management, corporate governance, consumer protection, product supervision and pricing are some of the areas expected to attract attention.

The foreign insurers are focused on expanding their geographic presence in China. However, all 29 participants agreed that the license granting process had slowed down.

There was a general consensus that no new licenses had been granted since October 2008. A relaxation is anticipated in late 2009.

Eighteen of the 20 foreign life participants would like to see the 50% ownership restriction abolished. Thirteen of whom believe it will take 10 years or more for this to happen.

Bank entry into insurance

On top of the strong domestic competitors and the strict regulatory environment, the foreign insurers are about to face a new and unpredictable force — the entrance of several large and mid-sized banks into the market.

Foreign insurers are taking this threat very seriously. Nine foreign life insurance companies assigned a score of 8/10 or greater while six of the nine property and casualty insurers assigned a score of 7/10 or 8/10.

Ten foreign life insurers in this survey indicated that currently 50% or more of their new premiums originate in the bancassurance channel. While in the first instance they anticipate that the banks will manufacture and distribute more “commodity-like” insurance products, the future of this critical channel remains unpredictable. This report also documents some of the concerns associated with other channels such as agents, brokers and direct channels such as telemarketing and the internet.

Human resources

Human resources remain a key concern to the foreign insurers. Although staff turnover rates declined in 2009, the expectation is that they will pick up as the economy rebounds.

There is still a skill shortage in some functional areas. Sales personnel and sales managers remain in high demand. Several participants also highlighted the prevalence of staff poaching by both domestic and foreign insurers.

One foreign life insurer even revealed that staff costs in Shanghai are on a par with Hong Kong and Singapore. There continues to be a very high turnover rate for life insurance agents. Termination rates are positioned typically in the 20% to 40% range.

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However, one foreign life insurer engaged in a detailed review of its agent network, revealed that it expects to terminate 70% of its agents in 2009. Another suggested it planned to recruit 10,000 new agents in 2009.

Future growth

Despite these challenges, the foreign insurers anticipate solid growth. They predict increased demand for a range of products.

Among opportunities highlighted by life insurers were universal life, participating products, guaranteed annuity products and health insurance with critical illness products being particularly important. Group medical insurance and personal accident is also expected to develop.

On the property and casualty side, growth is expected for small and medium-sized enterprise (SME) coverage, travel, health, bonds and export credit, renewable energy, cargo and marine and national catastrophic insurance.

Premium growth projections are lower in 2009 when compared to 2008 with about half of the life insurers predict growth of 20% or less in 2009.

These projections increased for 2012 when only five companies anticipate annual premium growth below 20%. The foreign property and casualty insurers predict around 15% for 2009.

By 2012 these growth rates also increase, three companies predict 20%, two predict 30% and another 40%.

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Main findings

Drivers of change

The most influential driver of change in 2009 was identified by the participants as the domestic insurers. This factor moved ahead of regulatory changes were in turn followed by the economic cycle. The scope and dynamism of the major domestic life and property and casualty insurers surfaced in a number of places in this report. The decline in market share of the foreign insurers provides evidence of the increasing proficiency and competitiveness of the large domestic insurers. In 2009 existing foreign insurers as a driver of change dropped from 5th place in 2008 to

14th position.

Pressing issues

Although human resource issues continue to make demands on the foreign insurers, the most pressing issues in 2009 were premium growth and management of the ever increasing demands of the regulator. The foreign insurers are also

becoming more conscious of cost reductions. This issue moved up five places in 2009 to 6th position.

Although the foreign property and casualty insurers expressed strong concern about domestic economic downturn, the life insurers felt it was a subject that became less important, dropping from 7th position

in 2008 to 16th position in 2009.

Bancassurance and changes in distribution

The movement by the Big Four

banks3 and some mid-sized banks

into the insurance field, implies an increasing uncertainty in the future configuration and weighting of the different distribution channels. Bancassurance remains a critical part of the foreign insurers’ distribution strategy. It is expected that the banks will initially offer less specialised, more generic products to their customer base.

However, an area of uncertainty is the extent of the linkages

between insurers and banks. Some shareholding ties already exist but this will develop and expand in the medium-term. Some of the participants contend that the increased participation of the banks will force the insurers to move toward more direct sales including telemarketing.

As foreign property and casualty insurers have strong direct sales and agent and broker networks, they may be able to fend off the direct participation of the banks more effectively.

The following findings are based on interviews with 29 foreign insurance companies2 who are considered to

provide a valid representation of the 45 or more foreign insurance companies, currently active in the Chinese market.

2 A foreign insurance company refers to one based outside mainland China.

3 Big Four banks refer to Bank of China, China Construction Bank, Industrial and Commercial Bank of China and Agricultural Bank of China.

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Human resources

In previous reports, discussion centred on the restricted skill base and the high levels of staff turnover. The global financial crisis has changed the nature of the human resource challenge.

Staff turnover has dropped in 2009. Twenty companies had turnover that fell below 20%, indicating less movement among foreign insurers’ employees who appear to be waiting out the current economic downturn. Some participants predicted an upswing in movement once the market becomes more predictable. Although turnover has declined, foreign insurers are using the opportunity to shed less productive employees.

They still find it very difficult to recruit in some key areas. Sales employees remain in high demand. Other areas where recruitment is challenging included investment management, telemarketing, claims management, agency management and head office marketing.

Although turnover has dropped salaries continue to rise. Nineteen of the participants indicated they will increase salaries in 2009 while two participants said they will decline. While bonuses are expected to be more modest in 2009, ten companies predicted that their 2009 bonuses would increase over 2008.

Five companies said that they planned to reduce human resource costs in 2009 and three of these were property and casualty insurers. Only one participant had an unpaid leave programme in place.

Product growth

Foreign life insurers expected increased demand for a range of products. On the retail side this included, universal life, participating products, unit-linked products, guaranteed annuity products and health insurance with an emphasis on critical illness.

Group medical insurance and personal accident insurance is also expected to grow.

Property and casualty insurers foresee opportunities in the SME segment, travel insurance, health insurance and homeowner insurance. They also predict growth in financial lines such as bonds and export credit, renewable energy, cargo and marine and national catastrophe insurance.

About half the participants believe that the global financial crisis has had an impact on the roll out of financial products. They believe that the CIRC has adopted a more conservative stance following the crisis.

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Joint venture relationships

When asked to reflect on their own joint venture relationship, foreign life insurers comments were rather muted. However, when participants were asked to comment on joint ventures at an industry level, they reviewed that many domestic joint venture partners would like to leave their relationships.

A major concern focused on

profitability. Many joint ventures have existed for seven years or more and participants suggested that domestic shareholders believed they would have become profitable at this stage.

Agent management

The majority of companies are re-evaluating the effectiveness of their agent network. Termination rates for foreign life insurers were typically found to be in the 20% to 40% range but extended to 70%.

Risk management

The primary sources of fraud for the foreign insurers remains brokers and intermediaries (including agents) followed by policyholders.

Market share

On a national level, foreign life insurers had 4.7% market share in June 2009. They predict that this share will increase by 2012. Only one company believes that it will not be above 5%, eight companies think will be 8% or greater.

The market share of the foreign property and casualty insurer in June 2009 was 1%. The participants anticipate that market share will reach 2% by 2012.

More foreign entrants

The current number of foreign insurers is around 50. This is expected to grow with the primary source of new entrants being Korea, Taiwan and Japan.

More consolidations

Over three quarters of respondents predict consolidations in the insurance sector.

Commitment of foreign parents to the Chinese market

The level of commitment remains strong. Nine of the 20 respondents assigned the maximum score of 10/10 and a further five companies assigned 9/10. These scores are only slightly below those expressed in 2008.

The level of commitment by the foreign parents of the property and casualty companies is lower than the life companies. Nevertheless, both groups predict increased scores by 2012.

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Distribution and sales concerns

Concerns over the lack of sales expertise, mis-selling of some products and enforcement of distribution controls in different channels were some of the

comments made by foreign insurers. The magnitude of concern differed depending on the channel being used.

Present success and future importance

The foreign life insurers recorded modest overall success in seven key markets: traditional savings insurance, investment-linked insurance, protection, health, personal accident, group life and group accident and health. Going forward, all of these markets were considered critically important. Twelve markets were examined by the foreign property and casualty insurers. They recorded success in product liability and cargo and transportation but in general, scores were disappointing. Looking forward to 2012, only one of the 12 markets was assigned a low score by the participants — homeowner insurance. Cargo and transportation and auto insurance recorded the highest scores for 2012.

Premium growth

Half of the 20 foreign life insurers predict 20% or below in premium growth in 2009. Two companies predicted above 200%. These growth rates increase in 2012 when only five companies predicted 20%

or below. Growth targets in 2009 were lower than those in 2008. Annual growth predictions for the foreign property and casualty insurers are much lower than the foreign life insurers. All are placed around 15% for 2009. By 2012, three companies expect to grow by 20%, two at 30% and another at 40%. Once again 2009 predictions are below those made in 2008.

Future regulations

The foreign insurers believe that the global financial crisis will affect the scope and nature of regulations laid down by the CIRC.

Areas highlighted by foreign life insurers to have tighter control include risk management, solvency, consumer protection, corporate governance, bancassurance, telemarketing and universal life. The foreign property and casualty insurers also cited risk management and solvency. In addition they suggested claims management, pricing, compliance, product supervision and corporate

management including mergers and acquisitions.

Shanghai as a world financial centre

The finance market needs to be further deregulated before this can take place. Convertibility of the Renminbi will be a key step in the process.

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A summary of peer ranking (top three positions) of all insurance companies is shown in the table below. Peer rankings are based on the opinions of CEOs and senior executives that participated in this survey. Please refer to page 76 for full details.

Peer ranking summary

First Second Third

Life insurance — Traditional savings Ping An Life China Life AIA Life insurance — Investment-linked CITIC Prudential Ping An Life Skandia-BSAM

Life insurance — Protection Ping An Life China Life AIA

Health insurance Ping An Life China Life AIA

Personal accident insurance AIA/AIU Ping An Life China Life

Auto insurance Ping An CPIC PICC

Homeowner insurance Ping An PICC CPIC

Enterprise property insurance PICC Ping An CPIC

Cargo, transportation insurance Tokio Marine & Nichido Fire AIG General Mitsui Sumitomo

Group life China Life Ping An Life Generali

Group accident and health Ping An Life China Life CPIC

Customer relationships Ping An Life China Life AIA/AIU

Geographic expansion Aviva-COFCO CITIC Prudential Manulife-Sinochem

Innovation Ping An Life AIA/AIU Chubb

Distribution effectiveness Ping An Life AIA/AIU Aviva-COFCO

Marketing strategies Ping An Life Aviva-COFCO AIA/AIU

Technically competent staff AIA/AIU Ping An Life Manulife-Sinochem

Brand awareness Ping An Life China Life AIA/AIU

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Number of employees

The 20 life companies currently employ 14,354 employees and this is anticipated to increase by 31.4% to 18,858 by 2012. This estimate includes three companies that were unable to project their employment totals to 2012. To provide an estimate for these companies, the anticipated increase of 31.4% for the 17

reporting companies was applied. Four of these life companies anticipate an increase of 100% or greater by 2012. Six companies expect employment to grow by less than 20% over the next three years. As in the 2008 report, five companies reported that they have 1,000 or more employees.

The 2009 projections are much lower than those forecasted in 2008. In 2007, 19 life companies expected a base of 14,370 people to grow by 69% to 24,281 in 2011. The 20 companies in this survey as noted above expect to employ 18,858 by 2012.

Nine property and casualty

companies employed 2,200 people in 2009. In 2008, the total was 3,480. This change is explained by the reclassification of Bank of China Insurance as a domestic company. In last year’s report, Bank of China Insurance indicated it had 1,700 employees.

The same nine companies project an increase of just 6.7% over the

next three years. This figure includes an estimate for one company. As a result, they expect to employ 2,347 people by 2012. One company anticipates a significant reduction in staff by 2012.

Only one company expects to exceed 100% employment growth by 2012 and this will be from a small base in 2009. In 2008 five companies expected growth above 100%. In the 2008 report, nine property and casualty companies expected to employ 6,580 people by 2 an 89% increase.

These changes suggest that all the foreign insurers have dramatically lowered their employment growth for the next three years.

Non-PRC employees

Nine property and casualty companies employ 149 non-PRC employees and expect this to remain the same until 2012. Five companies predict slight decreases in their non-PRC employment. One company runs against this trend and plans to increase its non-PRC total by 33% over the next three years.

Number of branches and sub-branches and offices4

Twenty foreign life companies reported 119 branches in 2009. In 2008 a slightly different group reported 115 branches.

Background profile

Projected growth in employment by 2012

4 Under CIRC regulations a branch of a foreign insurance company can only conduct business within the territory of the province, autonomous region or municipality where the branch is located.

However a foreign insurance company may also apply to establish a central sub-branch or sub-branch, operating office or marketing service office.

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Twenty companies expect an increase of 65% to 196 branches by 2011. This suggests that the freeze on new license approvals discussed later in this report has in effect postponed the foreign life insurers’ distribution network by one year. Nine property and casualty

companies had 17 branches in 2009 and expected this number to more than double to 40 by 2012. In 2008 they operated 33 branches and expected the number to expand to 75 branches by 2011. The removal of Bank of China Insurance from the foreign group this year had a major impact on this number.

The group of 20 life companies in the survey reported that they had 496 sub-branches and service centres in 2009 and projected this number to grow to 1,080 by 2012 a 118% increase from 2008 where participants predicted a 101% increase to 705 branches by 2011. This optimism suggests that life companies are intent on expanding their distribution networks, perhaps as a result of the banks’ market entry into insurance.

Number of agents

The 20 life companies had 103,377 agents in 2009 and expect a 125% increase to 232,720 agents by 2012. This includes estimates for four companies based on the group average.

In 2008, 19 life insurance companies recorded 108,250 agents, growing by 107% to 224,500 in 2011. Four companies employed more than 10,000 agents in 2009. By 2012, eight companies plan to employ more than 10,000 agents. Eight property and casualty companies recorded 623 agents in 2009 and plan to more than double this number to 1,359 by 2012. This compares to 632 agents in 2008 increasing to 1,730 by 2011. Once again the reclassification of Bank of China Insurance affects this total.

Number of individual policyholders

It was estimated that the 20 foreign life insurers had 6.19 million policies in 2009. This included estimates for three companies that were unable to provide data for 2009.

Fourteen companies provided projections for 2012 and this increase of 74% was applied to all 20 companies’ data from 2009. As a result the number of policyholders is expected to reach 10.78 million by 2012.

Five property and casualty companies provided data on policyholders. The mix of respondents differs from those in 2008.

In 2009 five companies had 101,800 policyholders increasing to 199,000 by 2012.

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Number of corporate policyholders

Fourteen foreign life insurers indicated that they had 16,898 corporate policyholders in 2009. This is expected to grow by 140% to 40,637 by 2012. This is a much higher number than the figures provided in the 2008 report.

Seven foreign property and casualty companies indicated they had 56,150 corporate policyholders increasing to 67,700 by 2012.

Assets under management

Seventeen foreign life insurers provided estimates for their assets under management at the end of 2009 and 2012.

The seventeen companies estimate RMB 135.8 billion growing to RMB 197.3 billion by 2012.

Four foreign property and casualty companies projected that the 2009 total of RMB 2.5 billion will almost double to RMB 4.9 billion by 2012.

Gross premium income

Eighteen foreign life companies indicated that gross premium income will grow by 96.1% from RMB 36.3 billion in 2012 to RMB 71.2 billion in 2012.

Although the mix of companies is different from 2008, the projected increase of 96% in 2012 is much lower than the 2008 to 2011 projection of 173%.

All participating foreign property and casualty companies provided estimates for 2012 totalling RMB 3.2 billion, that is, below the 2008 estimate which included Bank of China Insurance. It is expected to grow by 95.4% to RMB 6.3 billion by 2012.

Again this number is below the 2011 projection and is influenced by the change in the mix of respondents.

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0 1 2 3 4 5 6 7 8 9 2009 2008 2007 2006 2005 2004 Market share Source: CIRC 2.6% 8.9% 5.9% 8% 4.9% 4.7% 0.0 0.5 1.0 1.5 2.0 2009 2008 2007 2006 2005 2004 Market share Source: CIRC 1.2% 1.3% 1.2% 1.2% 1.2% 1.0%

Market share of foreign life companies

Market share of property and casualty companies

The adjacent chart illustrates how market share for the foreign life companies expanded in 2005 to reach almost 9%.

Although the market share increased in 2007 to 8% after dropping to below 6% in 2006 it has suffered a decline since. At the time when the survey was conducted, market share for foreign life companies was 4.7%. Similarly, the situation remains very challenging for the foreign property and casualty companies as market share has hovered around 1.2% for the past five years.

The first six months of 2009 suggest it may decline further and even fall below the 2004 figure.

Market share of foreign life and property and casualty companies in China between 2004 and 2009.

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Although investment-linked products were considered to be virtually dormant in the first half of 2009, 70% of participants viewed this market as intensively competitive.

The 20 respondents were split evenly between 10 companies that had made no change or minor change and 10 companies that had made significant or fundamental change. In previous reports the traditional savings segment of the life insurance market has been viewed as

intensively competitive.

This changed in 2009 when eight companies indicated that competition was either moderate or light.

Over half the respondents, 65%, said they had made either no change or only minor change to their strategy over the last year.

Life insurance — Traditional

savings Intensive Moderate Light None Minor change Significant operational and organisa-tional change Fundamen-tal change in strategy and positioning No change Response Competition 10% 25% 15% 10% 10% 15% 5% 5% 5% Life insurance —

Investment-linked product Intensive

Moderate Light None Minor change Significant operational and organisa-tional change Fundamen-tal change in strategy and positioning No change Response Competition 25% 5% 25% 15% 5% 5% 10% 5% 5%

Note: Based on responses from 20 companies Shading represents greater than 20% Note: Based on responses from 20 companies Shading represents greater than 20%

Intensive Moderate Light None

Minor

change Significant operational and organisa-tional change Fundamen-tal change in strategy and positioning No change Response Competition 5% 10% 5% 5% 40% 10% 5% 5% 15%

Note: Based on responses from 20 companies Number adds to 101 because of rounding Shading represents greater than 20%

Life insurance in the context of a narrowly defined protection function, continues to be a difficult sell for the foreign life companies.

Only 20% consider the market to be intensively competitive, 55% indicated it is moderately competitive and 25% said it presented only light competition.

None of the 20 respondents have made fundamental changes to strategy over the last year. Life insurance — Protection

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Health insurance

18% 6%

24% 12% 6% 6%

29% Personal accident is one of the least

competitive market segments for the foreign insurers. Almost one third of respondents classified the competition as light.

Most companies have made either no change or minor change to their strategies.

Competition has declined in this segment when compared to the results from last year’s survey.

Intensive Moderate Light None Minor change Significant operational and organisa-tional change Fundamen-tal change in strategy and positioning No change Response Competition

Note: Based on responses from 17 companies Shading represents greater than 20%

Around half of the respondents classified the health insurance market as intensively competitive. Of those were two companies that have made fundamental changes to their strategies.

One company envisaged opportunity for high-end medical coverage.

Personal accident insurance

Intensive Moderate Light None Minor change Significant operational and organisa-tional change Fundamen-tal change in strategy and positioning No change Response Competition 6% 17% 22% 6% 11% 17% 6% 6% 6% 6%

Note: Based on responses from 18 companies Shading represents greater than 20%

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Sixty percent of respondents view group life as intensively competitive while the remaining 40% view it as moderate or light.

As in the 2008 report, the majority of respondents have made little change to their approach to this segment. Group life Intensive Moderate Light None Minor change Significant operational and organisa-tional change Fundamen-tal change in strategy and positioning No change Response Competition 20% 20% 20% 26% 7% 7%

Note: Based on responses from 15 companies Shading represents greater than 20%

Around 80% view group accident and health to be intensively competitive although nine

companies have made minor or no change to strategy.

This intensively competitive

assessment was also evident in the 2008 report.

Group accident and health

Intensive Moderate Light None Minor change Significant operational and organisa-tional change Fundamen-tal change in strategy and positioning No change Response Competition 14% 29% 36% 7% 7% 7%

Note: Based on responses from 14 companies Shading represents greater than 20%

Homeowner insurance Only five property and casualty

companies answered this question and four companies viewed the segment as moderately competitive. Several participants mentioned that homeowner insurance remains a relatively unattractive segment because Chinese consumers perceive little benefit in this type of protection. Intensive Moderate Light None Minor change Significant operational and organisa-tional change Fundamen-tal change in strategy and positioning No change Response Competition 20% 20% 40% 20%

Note: Based on responses from 5 companies Shading represents greater than 20%

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Auto insurance

Enterprise property insurance Similar to the 2008 report, enterprise 37% 37% 26%

property was viewed by all eight respondents as a highly competitive market. Intensive Moderate Light None Minor change Significant operational and organisa-tional change Fundamen-tal change in strategy and positioning No change Response Competition

Note: Based on responses from 8 companies Shading represents greater than 20%

Cargo and transportation insurance is also believed to be highly

competitive.

The global economic downturn has had a major impact on exports from China and this has increased competition. Intensive Moderate Light None Minor change Significant operational and organisa-tional change Fundamen-tal change in strategy and positioning No change Response Competition 14% 43% 29% 14%

Note: Based on responses from 7 companies Shading represents greater than 20%

As in the 2008 report, three companies viewed the segment as intensively competitive. Foreign insurers remain restricted in this segment. They continue to be denied the right to offer mandatory third party liability (MTPL) insurance. Several participants commented that the market is highly competitive and doubted whether many of the active domestic companies were generating a profit in this segment.

Intensive Moderate Light None Minor change Significant operational and organisa-tional change Fundamen-tal change in strategy and positioning No change Response Competition 33% 67%

Note: Based on responses from 3 companies Shading represents greater than 20%

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Q Can you identify three major concerns of the Chinese insurance business at present?

Unequal treatment

The foreign insurers do not believe that they are treated on an equal basis as the domestic insurers. Areas of concern include branch licensing and new product initiatives.

Sustainability

Concern was expressed over the industry’s pursuit of growth with little attention paid to sustainability.

Controls on product development

The foreign insurers believe they do not possess the flexibility to structure creative products.

Talent development

The high level of staff poaching between insurers means that it is difficult to retain qualified staff. Personnel costs are equal to those found in Singapore and Hong Kong and reflect aggressive hiring practices for both internal staff and members of the sales force. Several companies mentioned that team leaders were often recruited first and then used to attract former colleagues to their new employer.

Telemarketing

The credibility of telemarketing is at risk as more players enter this channel. Some domestic and foreign insurers, for example, were accused by participants of aggressive, unqualified solicitation.

Shareholder expectations

Some joint venture life insurers believe that their domestic shareholder’s expectations on profitability are unrealistic.

A counter argument to this is that the foreign insurers may have initially presented overly optimistic projections in relation to the time frame to reach profitability. Several foreign participants stressed the importance of maintaining an

ongoing dialogue with their domestic shareholders on the challenges of the insurance marketplace.

Pricing

Many of the participants believe that costs are not fully priced into products. A high percentage of the foreign property and casualty companies raised this concern in relation to their domestic counterparts.

Agent quality

Overall the quality of agents is a concern. At the lower end of the market where agents are less professional, this is viewed as a major problem.

New insurance law

While many of the proposed components of the new law were viewed positively, the foreign insurers are concerned about incontestability. They noted that they will be given 30 days to discover any fraud. After 31 days they are unable to act.

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Q What are the most important changes taking place in China’s financial market?

Profitability focus

Several companies mentioned a shift in emphasis away from sales towards profitability.

Pending bank entry

On both the life and property and casualty sides of the business, foreign banks are anxiously waiting for regulatory approval to gain entry into the market. It is unclear how this change will affect the distribution of the foreign insurers’ products.

Increased regulation

The CIRC have increased their regulatory oversight as a result of the global financial crisis and a number of foreign insurers feel overburdened by the magnitude of current regulation. One European insurer noted that in the past if there were problems the CIRC took no mandatory action. This has changed with the CIRC becoming much more proactive.

New insurance law

Although full details of the new insurance law remain undefined, it is clear that the new law

represents a major overhaul of the insurance environment. There will be new requirements on policy provisions, product structuring, risk management, solvency, policyholder protection and sales practices.

Talent management

The economic slowdown has affected the rate of staff turnover. However, there is still high demand

are continuing to upgrade the calibre of their workforce.

Distribution management

Foreign insurers are reviewing their agency channels and also the impact of more direct channels such as telemarketing.

New product development

Several foreign property and casualty insurers noted positive changes in the health insurance market.

Increasing pressure to be more transparent

A foreign property and casualty insurers suggested that the CIRC was pressing companies to become more transparent, particularly in relation to how commission was being paid.

Increased levels of competition

Foreign life insurers feel that competition has intensified from both large and mid-sized domestic insurance companies.

Increased emphasis on protection

CIRC is placing greater importance on the promotion of insurance for protection rather than for investment purposes.

Micro-insurance

Although the government is encouraging micro-insurance, foreign insurers feel that significant regulatory changes are required before this segment can begin to

(26)

In the past two years the most important driver of change was identified as regulatory changes. This changed in 2009 with the existing domestic insurers moving from third position in 2008 to the top spot in 2009. This is a dramatic change and verifies the recognition acknowledged in other parts of this report that the domestic insurers are formidable competitors for the foreign insurers.

Regulation remains a key

determinant of the pace and direction of change. The foreign insurers believe they are restrained by

regulation. They argue that it restricts their ability to enter different markets and introduce innovative products. The economic cycle was included in the question for the first time in 2009 was positioned in third place. Another new factor in 2009, bank entry into insurance was placed fourth.

Existing foreign insurers which was placed in the top five in both 2007 and 2008, dropped to fourteenth position in 2009. The global financial crisis as a driver of change was in seventh position.

Q What are the major drivers of change in the Chinese insurance business? 0 50 100 150 200 2007 2008 2009 Other Conver gence Funding constraints Existing for eign insur ers Technology Mergers/Consolidation New for eign entrants Globalisation Economies of scale New domestic entrants Global financial crisis Capital r

equir ements Capital Markets Bank entry into insurance

Economic cycle Regulatory changes

ers

(27)

Q What are the most pressing issues you face? Can you rate them 1 to 5?

The foreign insurers indicated that the most pressing issue is now improving premium growth followed by increasing regulatory demands.

Similar to 2008, recruiting and training competent staff and the distribution network were the two most critical issues. They occupied third and fourth position in the survey. Profit performance which placed third in 2008 dropped to fifth position in 2009. -2.0 -1.5 -1.0 -0.5 0.0 0.5 1.0 1.5 2.0 2007 2008 2009 AIDS Epidemics (H1N1)^ Availability of reinsurance^ Globalisation

High dependence on new technology Consolidation of financial industry

Litigator risk IFRS Currency related issues Business continuation

Internet security risks Impact on rates of global catastrophes

Data security Natural disasters^ Guaranteed returns in products

Fraud levels Transparency of fees & commissions

Market volatility

Regulated solvency requirementsGlobal economic downturn

Brand awareness Targeting the previously uninsured market China economic downturn Managing customers expectations Risk management Appropriate staff incentive schemes Quality of insurance books (lapse risk) Retaining existing customers Government intervention^ Building a customer base Cost reduction Profit performance (margin) Recruiting/Training in the distribution channels Recruiting/Training competent staff Increasing regulatory demands Improving premium growth

Increasingly pressing issue

Based on responses from 29 companies in 2009 both Life and P&C ^New issues in 2008

In the adjacent chart the axis is based on a scale of the respondents’ rating of 1 to 5, where 5 is most pressing. The central spine of the chart is “0” which reflects a score of 3 on the 1 to 5 scale. As a result 2.0 represents 5 and -2.0 represents 1 on the scale.

(28)

The most pressing issue for the 20 life companies interviewed was recruiting and training in the distribution channels. In contrast, property and casualty companies shared the top spot with improving premium growth and increasing regulatory demands. Cost reductions as a pressing issue moved up from eleventh position in 2008 to 6th

position in 2009.

China’s economic downturn slipped from 7th position in 2008 to 16th

position for life companies although it generated a much higher score for the property and casualty companies. Similarly the global economic downturn recorded a much higher score for the property and casualty companies. Epidemics including H1N1 recorded a very low score for both types of insurers.

Pressing issues: Differences between life companies and property and casualty companies -2.0 -1.5 -1.0 -0.5 0.0 0.5 1.0 1.5 AIDS Availability of reinsurance Globalisation Epidemics (H1N1)

Impact on rates of global catastrophesNatural disasters

Consolidation of financial industry Litigator risk

Dependence on new technology Internet security risks

Currency related issues Business continuation Data security IFRS

Transparency of fees & commissions Fraud levels

Global economic downturn Targeting the previously uninsured market

Guaranteed returns in products Brand awareness

China economic downturnMarket volatility

Managing customers expectations Regulated solvency requirements

Risk management

Appropriate staff incentive schemesRetaining existing customers

Building a customer base Quality of insurance books (lapse risk)

Government interventionCost reduction

Recruiting/Training competent staff Profit performance (margin)

Increasing regulatory demands Improving premium growth

Recruiting/Training in the distribution channels

Life companies P&C companies

(29)

Q From the perspective of your head office, has the agenda for your insurance company’s China operation changed following the global financial crisis?

Paradoxically, the global financial crisis appears to have reaffirmed the mandate for the foreign insurers in China.

Eighteen companies noted that it had a positive influence on their China mandate. The consensus among this group was that China remained underdeveloped and underserved and in the future offered strong growth. Quoting an Asian insurer, “China has confidence, the economic cycle may be shorter here but there are lots of opportunities in Western China.”

A large European insurer noted, “we are very focused on China and now it is even more important.”

Several companies also suggested there had been a negative impact as a result of the crisis.

One European property and casualty insurer said the CIRC had slowed things down and for example, was now only granting one or two branches each year.

Another European life insurer noted that they were being subjected to tougher risk and cost controls by their parent.

Negative Neutral

Positively

Based on responses from 29 companies 18 companies

(30)

Commenting on movements in the distribution channels, bancassurance continues to play a critical role. As banks become more directly involved, some of the foreign insurers envisage movement to more direct sales including telemarketing. Indeed, telemarketing received unanimous support as a channel that insurers would use.

Agents received the most

pronounced “away from” movement. Although over 60% of respondents predicted movement towards the internet as a channel, additional

comments suggested this channel had only limited application at present and continued to experience slow pick-up.

Affinity schemes were seen as a marketing opportunity for some participants. A European property and casualty insurer had successfully used affinity relationships to expand its client base.

The distribution network of the post office which has received permission to distribute insurance products was also seen as an important channel at the lower end of the market.

Q What changes do you see in distribution channels (i.e. moving towards or away from their use)? 0 20 40 60 80 100 No response No Change Away from Towards Post office Affinity schemes Internet Brokers Independent financial advisors Insurance agents (tied) Telemarketing Direct sales (promotional) Bancassurance

(31)

Bancassurance Direct sales Telemarketing

Insurance agents (tied)

Independent Financial

Advisors Brokers Internet

Affinity schemes Post office Other Life 1 35% 15% 20% 30% Life 2 15% 5% 80% Life 3 50% 4% 1% 35% 10% Life 4 50% 10% 15% 15% 10% Life 5 35% 5% 60% 0% Life 6 50% 1% 1% 25% 15% 8% Life 7 10% 90% Life 8 34% 66% Life 9 50% 40% 10% Life 10 50% 50% Life 11 50% 35% 10% 3% 3% Life 12 1% 98% 1% Life 13 50% 25% 25% Life 14 60% 30% 10% Life 15 30% 70% Life 16 85% 15% Life 17 40% 40% 15% 5% 5% Life 18 50% 20% 30% P&C 1 10% 5% 40% 40% 5% P&C 2 40% 10% 50% P&C 3 5% 15% 20% 60% P&C 4 80% 5% 15% P&C 5 20% 55% 5% 20% P&C 6 75% 5% 20% P&C 7 65% 15% 20% P&C 8 10% 20% 70%

Based on responses from 26 companies

Participants were asked to estimate the generation of new premiums for their company across the 10 channels.

The two channels that are most pronounced for life insurers are bancassurance and agents.

Property and casualty insurers have a strong presence with direct sales, agents and brokers.

Distribution of new premiums by channel

(32)

Q Do the objectives and goals of your Chinese partner contrast with that of your own company?

No Yes

Based on responses from 11 Life companies 9 companies

said no difference

The foreign life insurers were asked to comment on whether the foreign shareholders’ goals and objectives contrasted with those of their domestic partner(s).

Only eleven of the 20 participants responded to this question.

However nine companies said there was no difference.

It is clear in other parts of this report, that there are significant frustrations between a number of domestic and foreign life insurance partners. Some foreign partners stressed that they have carefully managed these expectations from the outset and this has helped minimise diverse expectations.

However it is in situations where the domestic partner has no

experience of the needs and special characteristics of an insurance company, that different goals and objectives surface.

(33)

Q Some have suggested that there is a growing trend in the life sector that domestic joint venture partners would like to leave the relationship. Do you agree or disagree?

When commenting on the strength of joint venture relationships at an industry level, the foreign life insurers are much more negative than when they commented on their own joint-venture relationship. For example, 13 of the 20 life participants believed that at the industry level, domestic joint venture partners would like to exit their existing relationships. The respondents noted that a number of foreign insurers had been in China for seven or more years and had failed to break-even. This has caused stress with domestic partners who believe that the joint ventures should now be profitable. A number of the domestic partners’ main lines of business are unrelated to insurance and their foreign partners argue that they do not fully understand the long term nature of the insurance market.

As noted elsewhere in this report, the regulatory environment constricts the market development potential of the foreign insurers. This hinders the advantages of both economies of scale and economies of scope. As a result a number of foreign insurers feel trapped. They are unable to grow at a pace that would accelerate profitability. At the same time they fear that if they leave the market the regulator would look unfavourably on any request to re-enter at a later date.

One foreign life insurer commented that there were several different schools of thought behind the current uncertainty in some joint venture relationships.

One view contends that the foreign insurers are too US- or European- centric and unappreciative of the characteristics unique to of the Chinese market.

A second view holds that the domestic partners would like to run the company and would welcome the foreign partners’ departure. The third view suggests that some of the domestic partners want to leave the relationship because they can no longer sustain the on-going demands for fresh capital as the business expands.

What is clear is that even within the confines of the current shareholder structures, significant changes are underway in part fuelled by the banks’ direct entry into the market. For historical reasons, three foreign companies have two insurance licenses and these are in the process of being unwound.

At the same time, several other joint venture insurers are in negotiations with banks. The move, if permitted by the regulator, will see a number of banks replace domestic partners in the relationships. The attraction to the foreign partner of this development is that it offers the opportunity to benefit from the new “banking” partner’s distribution network.

Don’t know No

Yes

Based on responses from 16 life companies 13 companies

said yes about others

(34)

Q Can you expand on the emergence of Shanghai as a world financial centre?

At the Lujiazu Forum in Shanghai in May 2009, Wu Dingfu, Chairman of the CIRC said, “we are aiming to make Shanghai into an innovation and research and development centre of insurance products, an insurance management and back-up centre as well as a pilot city for insurance capital reforms.”

Against this backdrop participants were asked to comment on the emergence of Shanghai as a world financial centre.

The following comments were made by foreign property and casualty insurers on these potential developments:

• There is expanding potential for Shanghai but it lacks the legal framework found in Hong Kong. • A critical first step is the

deregulation of banking and the currency market. For this to happen, CIRC needs to give the foreign insurers more leeway on product innovation.

• Tax breaks will be important. It is necessary to provide an incentive to high quality talent that has previously worked offshore. • An Asian insurer said that

Shanghai would continue to develop its infrastructure and would surpass Hong Kong and Macau. Another Japanese insurer noted that Shanghai was becoming an important marine insurance location.

Q What developments would you like to see occur?

The following comments were made by foreign life insurers :

• Need to make the RMB trade-able as it requires more tax incentives to stimulate product demand and also to attract offshore talent.

• A European insurer argued that all major decisions will continue to be made in Beijing

• Shanghai as a world financial centre will depend on progress in the expansion of the capital markets.

• Shanghai will grow if insured pension products and enterprise annuity products are allowed to develop and expand.

China Wrestles With Shaping the Future of Shanghai

For many, Shanghai won’t rival other global centers until there is more scope for capital to easily move in and out of China. That essentially would require that the yuan becomes a convertible currency.

To foster what Shanghai officials call “an enabling environment” for financial-services firms, officials note their plans to work around some central-government policies. Officials have told bankers they will implement policies that would help offset income tax rates as high as 45%, for instance, by rebating payments to high-income bankers willing to relocate to the city, according to several sources. In another move, local business-registration rules are to be adjusted so that private-equity firms can raise money in the city in ways they can’t elsewhere in China, according to Fang Xinghai, director-general of Shanghai’s financial-services office.

“Although it sounds simple, it’s not that easy in China,” he said.

(35)

Shanghai as a global financial shipping centre

Quotes from the Lujiazui Forum Held in Shanghai, May 2009

China draws roadmap for global financial, shipping centers in Shanghai

China elaborated on plans to build Shanghai into an international financial and shipping center, with pledges to gradually allow foreign companies to list in Shanghai and let overseas firms issue yuan-denominated bonds. The country was aiming to make Shanghai an international financial center in accordance with the country’s economic strength and the international status of its currency by 2020, according to plans published on the central government’s website by the State Council.

The nation would develop a multi-functional and multi-layer financial market in Shanghai with the

introduction of more financial products, instruments, derivatives and futures, according to the plans. China would not hesitate to introduce new financial products and services, or flinch from

financial innovations, despite the global financial meltdown, Liu Tienan, deputy head of the National Development and Reform Commission (NDRC), said at a press conference in Shanghai. However, the security and stability of the financial system would be prerequisites for such innovation efforts and reforms, he added. The country would gradually increase yuan-denominated bond issues by international development agencies, according to the plans.

In addition, it would steadily work to allow foreign companies to issue yuan-denominated bonds in Shanghai, and would let some foreign firms list in Shanghai “at a suitable time.”

Liu stressed that the goal was to build an international financial center in Shanghai that matched the status of its economic strength and its currency. Source: www.chinaview.cn, 29 April 2009

Quotes from the Lujiazui Forum in Shanghai May 2009

Zhou Xiaochuan, Governor of People’s Bank of China said “China’s financial hubs should look at global development. Shanghai and Hong Kong should cooperate and coordinate with each other to boost overall financial development. China’s voting power in the IMF should increase again in 2011. China is also expected to play an important role in making up the new rules of the game in the post-financial crisis era.”

Shang Fulin, Chairman of China Securities Regulatory Commission said “China’s capital market should gradually improve market mechanisms, act as an economic boost, and push ahead with structural adjustments. It should also

Liu Mingkang, Chairman of China Banking Regulatory Commission said “Innovation is an inevitable choice for China’s financial sector to combat the financial crisis. All financial institutions need to enhance innovation of risk management. Financial institutions in Shanghai should focus on optimizing products and services, increasing productivity and efficiency and reforming the salary system.” Wu Dingfu, Chairman of China Insurance Regulatory Commission said “We are aiming to make Shanghai into an innovation and R&D center for insurance products, and an insurance management and back-up service center, as well as a pilot city for insurance capital reforms.” Source: www.CCTV.cn, 18 May 2009

(36)
(37)

0 1 2 3 4 5 6 7 8 9 10 11 12 Not specified 5% or less 6% to 10% 11% to 15% Number of companies

Based on responses from 19 companies that indicated they would increase salaries in 2009

Decrease Remain

the same

Increase

Based on responses from 29 companies 19 companies

said they would increase

salaries The majority of respondents

indicated that they planned to increase salaries in 2009.

Nineteen of the 29 participants said salaries would increase while just two said they would decline. In contrast to previous years, the increases will be modest. Eleven companies plan 5% or less, six companies between 6% and 10% and only one company anticipates an 11% to 15% increase.

Q In 2009 will base salaries remain the same, increase or decrease?

(38)

Q In 2009 will bonuses increase,

remain the same or decrease? Increases in bonuses will be more modest. Although ten companies will increase bonuses in 2009, only six specified the percentage.

Three companies will be 5% or less, two will be 6% to 10% while one company will be in the 11% to 20% range.

Decrease

Remain the same

Increase

Based on responses from 29 companies 10 companies

said they would increase

bonuses

Q Will you contain or reduce overall HR costs in your China operation in 2009?

Reduce Contain

Based on responses from 29 companies 24 companies

said they would contain HR costs in 2009

When asked if they planned to simply contain HR costs in 2009 or move more aggressively to make significant HR cost reductions, almost all the life participants chose the former.

(39)

Q How will you achieve this?

No

Yes

Based on responses from 27 companies 5 companies

said they would reduce

headcount

Based on responses from 27 companies None of the paricipants will reduce their provident fund in 2009 No No Yes

Based on responses from 27 companies Only one company

said they would have unpaid leave in 2009

Only five companies indicated they would implement cuts in HR costs, and three of these were property and casualty companies.

Evidence of cost reduction was also provided by the five participants who said they planned to reduce headcount during 2009.

However, only one foreign insurer had an unpaid leave programme in place and none of the participants envisaged a reduction in their provident funds.

Headcount reduction

Unpaid leave

(40)

0 1 2 3 4 5 6 7 8 9 10 11 12 13 N/A Very inef fective Ineffective Neutral Effective Very ef fective Number of companies

Based on responses from 29 companies

Q In your opinion as a foreign insurer, how effective is the current CIRC training offered?

The CIRC runs a variety of training programmes for the insurance industry. Some participants suggested they were primarily directed toward the domestic companies. Others indicated that they were often centred on assisting in the comprehension and accurate completion of reporting forms. Several life companies quoted a new CIRC course directed towards company directors. This

week-long course was to be conducted in Mandarin thus requiring foreign senior executives to be accompanied by a translator.

While most participants rated the effectiveness of CIRC training as “neutral”, responses varied with five companies classifying the training programme as “effective” and eight companies that found them “ineffective”.

(41)

Twenty-two companies indicated that they were evaluating the effectiveness of their agents.

Q Are you currently evaluating your agents’ effectiveness?

No response

No

Yes

Based on responses from 29 companies 22 companies

said they were evaluating agents’ effectiveness 70% to 79% 60% to 69% 50% to 59% 40% to 49% 30% to 39% 20% to 29% 10% to 19% 0% to 9%

Based on responses from 16 companies

Q What percentage of agents will you terminate in 2009? 0 1 2 3 4 5 6 7 8 Other Number of companies

Q How do you define an active agent?

Of the 16 life insurers that responded, 15 defined “active agents” by the number of policies sold.

One company indicated that it did not use a sales measure, instead, agents were required to satisfy a number of key indices.

Property and casualty companies however, define “active agents” using a different set of metrics. For example, one company required a weekly sales report, another indicted monthly sales of RMB 10,000 and

annual sales RMB 100,000 and finally, one measured “active” based on profitability, not premiums. The termination rate of agents in

2009 ranged from 5% to 70%. Four companies had a termination rate of 20% to 29% and another four companies were in the 30% to 39% range.

The plans for agent recruitment in 2009 also varied across the foreign insurers. For example, it was common for insurers to recruit 50% of their agents in one year. One European life insurer planned to hire 10,000 new agents in 2009, while a North American life insurer forecasted 5,000 new agents.

The termination rate for agents among foreign property and casualty insurers is much lower, and the number of new agents hired is more likely to be in the hundreds rather than thousands.

(42)

Q What will your annual staff

turnover rate be in 2009? Although one foreign insurer reported turnover exceeding 40% in 2009, the general trend for 2009 was lower than in 2008.

In 2009, seven companies were 9% or below and 13 companies were between 10% and 19%. A further seven companies fell into the 20% to 29% category.

Many participants commented that the economic slow down meant that employees were less mobile and there was less job-hopping.

For example, one European property and casualty insurer commented that staff turnover had dropped from 30% in 2008 to 10% in 2009. Despite

this drop, the insurer was taking the opportunity to weed out non-performers.

Another European life insurer indicated turnover would be 40% in 2009 as it sought to “increase the calibre of its people”

40 or above 30 to 39 20 to 29 10 to 19 0 to 9

Seven companies were above 20%; 20 companies below 20% and 7 companies below 10%

Based on responses from 27 companies

Percentage

Q What was your annual staff turnover rate in 2008?

The adjacent chart shows that three companies estimated their staff turnover rate in the range 0% to 9%. Three companies were also at the top end of the scale in the 30% to 39% range.

In between these two extremes were 15 companies with 10% to 19% turnover and seven companies with 20% to 29% turnover.

30 to 39 20 to 29 10 to 19 0 to 9

Eighteen companies were below 20% and 10 companies above 20% Based on responses from 28 companies

(43)

0 5 10 15 20 25 30 Accounting Capital management/treasury Tax/transfer pricing Legal/compliance Finance Risk management Actuarial Product design Operations Underwriting Other Sales management Investment management Insurance Agents – Retail Insurance sales people – Corporate

Based on responses from 29 companies Score

Q Which staff functions have the highest hiring priority in 2009? Can you rank the “Top 3”?

Given the paramount importance of sales, sales people on both the corporate and retail side remain the highest hiring priority. In third position is skilled, experienced investment management personnel followed in fourth position by sales management.

The “Other” category in fifth position makes reference to:

• Telemarketing • Predictive modelling

• Claims management (property and casualty)

• Agency management, and • Head office marketing.

(44)
(45)

0 10 20 30 40 50 60 70 80 90 Other Syndicates Inter nal staf f Suppliers/Pr oviders Policyholders Brokers/Intermediaries

Based on responses from 16 Life companies Score

For life insurers, the primary source of fraud remains to be brokers/ intermediaries (which included agents) followed by policyholders and then suppliers and providers. This differs from 2008 where internal staff ranked ahead of suppliers and providers.

Similarly, on the property and casualty side, the first two sources are the same, brokers and

policyholders but internal staff fills third position with suppliers and providers in fourth position.

Q What are the major sources of fraud in your organisation? Please rank the following in order of greatest risk.

0 5 10 15 20 25 30 Other Syndicates Suppliers/Pr oviders Inter nal staf f Policyholders Brokers/Intermediaries

Based on responses from 6 P&C companies Score

Life companies

(46)

References

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