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|Friday, October 26, 2001, updated at 15:41(GMT+8)|
Making Chinese Insurance Market a Bigger 'Cake': Experts on China's WTO EntryChina's entry into the World Trade Organization (WTO) will help speed up the process of internationalization of China's insurance industry. By then, not only will foreign enterprises come in, Chinese enterprises will also need to go abroad to participate in competition on the international market and show off their own strength. In the face of the opening of the Chinese insurance market, what domestic insurance companies need to consider is not to scramble with foreign insurance companies for the "cake", but is how to join efforts with foreign companies to make the Chinese insurance market a bigger "cake". Although it is still too early for the integration of banking businesses in China, risk in the transfer of investment tools facing the insurance industry is becoming ever bigger.
Judged from the present situation, the impact exerted by "foreign" insurance in its initial stage on the Chinese insurance industry may be not so serious, but its potential threat does exist. At present, relying on government support and protection, domestic insurance companies are still in a monopoly position. They possess outlets scattered all over the country as well as a long-term, stable client basis. Whereas foreign insurance companies are subject to strict restriction in the region and content of business, domestically funded companies enjoy notable advantages in these aspects. Along with China's accession to the WTO, and in line with the principle of national treatment, these restrictions will be lifted step by step, the original regional superiority will gradually disappear. The China-US Bilateral Agreement on World Trade stipulates: Foreign property and life insurance companies can immediately launch insurance business of high-risk projects in all parts of China, and all regional restrictions will be removed from the future business license in five yearsˇChina will gradually expand the business scope of foreign insurance firms in five years, so that it will cover the insurance business accounting for 85 percent of the total insurance premium in the fields of collective, health and pension. Along with change in the market supply structure, the regional advantage of Chinese insurance companies will gradually disappear and their market occupancy rate will naturally go down.
Additionally, competitive pressure on domestic insurance industry will also be mounting. The development of China's insurance industry is still in its inception stage, so it is quite behind foreign insurance companies in the realms of risk control technology, business management level, product design and innovation and the quality of personnel. The involvement of foreign-funded companies will inevitably increase competitive pressure on the domestic insurance industry. In the already developed insurance market, foreign-funded insurance companies will hasten to occupy the market with their "cheap and good" insurance products, advanced and quick specialized means, meticulous and thoughtful after-sale services, and to strive for more premium income. In the undeveloped insurance market, they aim to attract more clients and raise the occupancy rate of foreign enterprises in the Chinese insurance market. Besides, currently various countries are developing in the direction of the integration of banking, insurance, securities investment and asset management, such being the case, after China's entry into the WTO, what constitute competitive threat to domestic insurance companies will not only be foreign insurance companies, but also foreign banks and other banking firms.
Owing to the lack of restrictions and regulations in the high-speed development of insurance industry, disputes between clients and companies have presented an upward trend, the short-term operational actions of some part-time intermediary institutions and individuals, in particular, have caused unending emergence of the phenomena, such as defrauding insurance premium, arbitrarily expanding the scope of cover and scraping policy of insurance, in settling claims, the lack of independent public assessment institutions has thrown the insurance market into chaos. The cultivation of standard specialized insurance intermediate market will benefit the establishment of an "honest and reliable" image of the Chinese insurance industry, thereby enhancing the ability to counter foreign-funded insurance industry after China's WTO entry.
The Chinese insurance industry should get closer to the trend of mixed international business operation; oligopoly facilitates the development of the Chinese insurance market at the present stage, State-owned insurance groups should become the forerunners of Chinese insurance capital going globe-wide; financial integration is not a simple agent sale of insurance policy of the bank, but rather it should act to enable the financial institutions to take advantage of each other's strengths, make the maximum use of financial resource and improve efficiency, the formation of alliance between Chinese banking and insurance businesses at the present stage will contrarily put the insurance industry in a very awkward position in the banking realm. On the premise of uniform market operational rules, China should strive to create an environment for the free competition between insurance markets, appropriately enlarge the freedom degree of provisions and rate of charge and allowing the creation of characteristic insurance products.
Along with the deepening of the open degree after entry into the WTO, the operation of insurance industry will be exposed to more international and domestic uncertain factors and take more risk. Under such a circumstance, the present urgent task is to make use of relevant WTO provisions, set up necessary defense lines by the method of common international practices, formulate rational and orderly plans for opening to the outside world and properly control the degree of openness. Given this, when the insurance market is open, we should set up necessary defense lines, in regard to the opening of different branches of insurance, we should adopt the principle of gradual relaxation. In regard to the areas of opening, the principle of gradual opening should be adopted for the establishment of foreign-funded insurance institutions. While gradually opening the special economic zones and coastal cities, we should attract a small number of foreign companies at an earlier time to the central and western regions on a trial basis. In regard to implementation of a rate of charge, ordinary branches of insurance must observe the uniform stipulations of China's insurance supervision departments or insurance business associations, it is not allowed to contend for business by transcending the floating degree of the rate of charge. Meanwhile, we should conduct in-depth study of the question concerning the use of funds of domestic insurance enterprises, appropriately broaden channels for the use of insurance funds, increase insurance investment returns, so as to enhance the competitiveness of international insurance industry.
A mature insurance market should be fostered through insurance innovation. Insurance innovation includes the innovation of mechanism, management, technology, insurance branch and marketing. Innovation can help reduce the gaps between China's insurance industry and the international insurance market and promote the rapid development of the insurance industry. A good management system and a flexible employment mechanism not only can make the entire enterprise operate in an orderly manner, but also can help extensively recruit personnel for the enterprise; innovation in the design of the branches of insurance and the innovation of marketing methods can help improve business quality while expanding the scale of business; service innovation can help establish a good image of the company and can guarantee the sustainable development of the company. It can thus be seen that the use of advanced science and technology to carry out insurance innovation is a magic weapon for the company to greet victory in future fierce market competition. In addition, the nurture of a mature insurance market also includes the establishment of a comprehensive insurance market system. In view of the current insufficiency in the supply mainstay of China's insurance intermediate market, we should devote our main effort to the development and standardization of the intermediary market, thereby effectively reducing the business cost of the insurance company and bringing about the maturation of the entire insurance market.
The author of this article is Hao Yansu, head of the Insurance Department of the Central Finance and Economy University.
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