Analysis of the world's seventh-largest insurance market found that a range of factors are encouraging the growth of life and non-life insurance in the country. These factors include continued building and construction projects, regulatory change making certain types of insurance compulsory, rapid urbanization leading to a heightened demand for insurance from the rural population, and significant health care reform.
Yvette Essen, the report's author and head of market analysis, said, "The life and non-life insurance sectors have grown strongly, reflecting trends that include increased wealth and the awareness of the benefits of insurance. There are clear signs that Chinese insurers are continuing to enjoy premium growth and improved profitability.
"The long-term importance of the Chinese insurance market also forces international insurers and reinsurers to seek opportunities in China despite considerable start-up and investment costs in the country. For many overseas life and non-life insurers operating in mature markets, relying on domestic growth is not an option and the Chinese insurance market's allure is set to continue."
The report, 'China: A Dangerous Wind or An Opportunity? A.M. Best's Perspective', also identifies some of the challenges faced by domestic and foreign insurers and reinsurers establishing a presence in China. These include intense competition and the shortage of expertise and talent in the country.
"Insurers' premium growth is rising strongly; however, as the insurance market is relatively young, there are a wide range of challenges facing insurers," said Ms Essen. "These include the geographical landscape of China, with its numerous provinces, which causes some companies to struggle to implement successful operating models.
"Insurers can also lack certain technical expertise as well as infrastructure, for example, data and IT platforms needed to run a profitable business. Brokers and insurers state that the Chinese insurance market can lack data and underwriting track records, with information varying by province."
The report predicts that heightened insurance regulation and shareholder pressure will result in further fund raisings across life and non-life companies. Companies are not only seeking to improve profitability but are looking for ways to fund further growth.
"For domestic and overseas insurers and reinsurers, China represents a great opportunity, but continuing evolution is key to its success," said Ms Essen. "Pricing and commission levels are beginning to improve, although competitive pressures remain as more companies recognise the opportunity China presents."