Australia-China Chamber of Commerce and Industry
of New South Wales







China’s Insurance Market After WTO: A Reality Check

By Mary Studdert
Blake Dawson Waldron Shanghai Office

Phone:  (86 21) 6279 8069

Posted to Web Site:  20 August 2001


Foreign insurers are eagerly awaiting China's entry into the WTO, whereupon China's insurance market is expected to undergo major liberalisation measures, including the lifting of all geographical and most operational restrictions currently imposed on foreign insurers (see table).

Regulatory restrictions on foreign insurers



Post WTO accession


Fixed number of insurance licences issued each year.

No limit on the number of licences issued each year.

Geographic limitation

Shanghai and Guangzhou.

2 years after accession:  other major cities will open to foreign insurers; and

3 years after accession:  there will be no geographic restrictions.

Scope of business (life)

Individual insurance for Chinese and foreign individuals only.

2 years (US) and
4 years (EU) after accession:  health insurance; and

3 years (US) and
5 years (EU) after accession:  pensions and group policies.

Ownership (life)

Equity joint venture only; and

Foreign party has been able to negotiate 49%, 50% and 51% equity.

Up to 50% equity.

Scope of business (non-life)

Various types of insurance for enterprises outside China and foreign companies within China.

Upon accession:  large-scale commercial risks; and

2 years (US) and
4 years (EU) after accession:  full range of non-life insurance services for domestic and foreign individuals and companies, except statutory insurance.

Ownership (non-life)

Establishment of branches.

Upon accession:  51% equity in joint venture; and

2 years after accession:  100% owned subsidiaries.

Those foreign insurers who have spent the last few years resourcing and staffing representative offices, pressing the palms of central government politicians and funding philanthropic causes in the name of good corporate citizenship are breathing a sigh of relief. 

Even if they are not one of the 7 insurers earmarked to receive one of the insurance licences promised to the EU in its bilateral agreement with China, they are closer now than they've ever been to obtaining a licence to sell insurance in a market expected to grow at an average rate of over 10 per cent per annum over the next 5 years and be worth more than RMB 270 billion by 2005.

However, many of the finer details relating to the future regulation of foreign insurers in China are yet to be determined by the country's insurance regulatory body, the China Insurance Regulatory Commission (CIRC).  For both foreign insurers already licensed to operate and those awaiting approval of their application or contemplating applying for a licence to operate, a reality check is called for.

China's insurance market is still in its infancy and there are potential risks that should be defined, recognised and factored into any foreign insurers' China strategy.  The following are some regulatory and market considerations which foreign insurers may wish to factor into a risk assessment of their investment in China.

Regulatory Considerations:

Establishment requirements

While the long-awaited Insurers with Foreign Investment Regulations are rumoured to have been presented to the State Council for review, they are yet to be proclaimed.

These regulations will apply to all wholly foreign-owned insurance companies, joint ventures and foreign company branches and are expected to deal with fundamental issues in the establishment of a presence in China, such as minimum capital requirements and permitted scope of business.

Until these regulations are proclaimed, many matters continue to remain "grey" areas for those already operating in China.  As an example, because foreign insurers are restricted from underwriting automobile third party liability insurance in China, several foreign insurers in Shanghai reportedly engage in the practice of introducing a domestic underwriter to the customer and both the foreign insurer and domestic insurer sharing the premium.  While this practice is not strictly permitted, there are no regulations yet in place that say otherwise.


Given the concept of "equal treatment" specified in the WTO rules and regulations, it is unlikely that various tax incentives currently enjoyed by foreign insurers will be continued after WTO accession, since their domestic counterparts do not enjoy such incentives.

Furthermore, it is unclear what indirect tax burden will be levied on the various product lines that foreign insurers are likely to sell following WTO accession.  For instance, at present a business tax of 8% is levied on the gross revenue from insurers in China.  Foreign insurers licensed to conduct life insurance are in a particularly advantageous position over those licensed to conduct non-life insurance business as business tax is exempt on a range of products for life, old age and health insurance.

It is unclear whether a business tax exemption will apply to new product lines that will be offered by foreign insurers after WTO accession, such as group life policies, health policies or pension products.

Product lines

It is still unclear whether certain product lines will fall under the scope of business permitted to be conducted by holders of life insurance licences or those conducted by holders of non-life insurance licences.  For example, it is unclear whether pensions, which are traditionally sold as a rider to life insurance, will be permitted to be sold by those holding life insurance licences or those holding non-life insurance licences.

Therefore, foreign insurers who obtained a life insurance licence or non-life insurance licence before WTO accession on the pretext of being able to sell certain product lines with that licence after WTO accession may be disappointed if CIRC decides that the scope of that licence does not apply to that particular product line.

Investment alternatives

Insurers are still required to invest about 85 per cent of their assets in bank deposits and government bonds.  CIRC has recently broadened the investment channels to include corporate bonds and mutual funds, however, the choice of investments remains limited.

While the Shanghai and Shenzhen stock markets have a capitalisation of about USD 500 billion, the total value of closed-end mutual funds, the only stock market channel insurers are allowed to invest in, is a mere USD 10 billion.

Market Considerations:

Increased competition

WTO accession will result in increased competition in the insurance market from both foreign and domestic players.

China's insurance market is currently dominated by 3 insurance companies which account for more than 95 per cent of the market – PICC/China Life, Ping An and China Pacific.  While more than 20 foreign insurers have obtained business licences in China since 1992, the market share of foreign insurers is still tiny at less than 1 per cent for non-life and slightly more than 1 per cent in life insurance.

With the limit on the number of licences granted each year being lifted, more entrants are expected.

Furthermore, domestic insurers are also gearing up for the WTO changes through strengthening their capital base, accelerating the pace of product innovation and broadening their distribution channels.

Uncollected premiums

The high percentage of uncollected premiums is a problem faced by both foreign and domestic insurers in the current market.  According to some sources in Shanghai, on average 15 per cent of domestic insurers' and 25 per cent of foreign insurers' premiums remain uncollected.

Inconsistent application of policy

Domestic insurers, who have a presence nationwide, face an inconsistent application of industry policy in different regions and cities.  This is something that foreign insurers should be aware of when geographic limitations for foreign insurers is lifted after WTO accession.

Part of the reason is due to the history of CIRC.  CIRC was only established in 1998.  Prior to that a division in the People's Bank of China (PBOC) was responsible for industry regulation.  While CIRC now has a sub-branch in Shanghai, it is yet to establish an independent presence in other cities around China.  In the meantime, the duties of CIRC in those cities where it has not yet established a presence remain in the hands of the PBOC.  This is one of the factors which has led to inconsistent interpretation and application of policy across the nation.

Insurance awareness

The apparent size of market growth in insurance may be misleading as there exists a general lack of insurance awareness in China.  In the years to come both foreign and domestic insurers will probably be devoting a large portion of their marketing budget to simply making companies and individuals aware of the need for insurance, let alone selling their product lines.

Human resources

Both domestic and foreign insurers face difficulties in finding staff with sufficient skills and experience in China.  So far CIRC has not approved a foreign surveyor or loss adjuster to conduct their service in China.  Further licensing of foreign insurers after WTO accession will inevitably place pressure on sourcing the right talent within China.


With a low rate of insurance penetration, there is no doubt about it that China is a country with a high potential for market growth.  The lifting of current market restrictions promised in the various bilateral agreements is tempting for any foreign insurer even contemplating China as a new market possibility.  Foreign insurers should, however, be aware of the various regulatory and market hurdles that are likely to remain in place, or appear, after WTO accession.


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