China’s Life Insurance Sector Should Tap Rural Areas: McKinsey

Friday, October 14, 2005

To strengthen China’s emerging life insurance sector the country should make more effort to exploit the huge potential in vast rural regions, suggested a report from McKinsey & Company.

According to the report, most insurance companies don’t provide sufficient coverage in under-developed areas. New entrants, especially foreign insurers, have concentrated on the wealthiest, most developed areas, leaving vast under-developed areas of the country without recourse to this powerful financial tool.

“Developing business in rural regions needs more innovation and government support,” said Peter Walker, director of McKinsey’s New York Office.

“The government may enforce insurers to expand their business to rural areas, or the insurance company can develop tailored products with comparatively low premiums,” Walker added.

McKinsey believes that the sound development of the insurance sector can help to address two key challenges facing China: raising sufficient funds for the development of China’s infrastructure to support continued economic growth, and developing a modern pension and social welfare system.

By integrating a variety of resources, the industry can steer personal savings into much-needed long-term financing for major infrastructure projects. And the development of the life insurance industry can also help reduce the financial burden of the government as it can replace or supplement the social welfare system.

Lured by an industry with an annual growth averaging 30 per cent over the past two decades, an increasing number of foreign insurers have jumped into the Chinese market.

But Dominic Barton, the regional leader of McKinsey (Asia) believed that Chinese insurers should first of all sharpen their competitiveness and management before they go global.

“As the Chinese insurance market is still quite young and boasts great potential, Chinese players should first of all tap into the domestic market,” Barton told China Daily.

Only about six per cent of Chinese consumers have a proper understanding of the benefits of insurance.

“Besides, insurance is a very personalized product and mainly sells through agents, thus making it harder for foreign competitors to gain market shares.”

Source: Asia Pulse (link opens in a new window)