Small and medium-sized insurance companies need to pull themselves up by their boot straps within the next 10 years, for otherwise they would lose "unlimited" market opportunities, according to Mr Xu Dehong, Chairman and General Manager of Liberty China.
Speaking at an international finance expo in Beijing last month, he said that currently, the insurance sector is transitioning from a controlled market to one which is more liberalised. “It will take another five to 10 years for the Chinese market to enter a truly refined competitive market.
“During this period, many large insurers will continue to improve while small and medium-sized insurers will have unlimited opportunities. After this wave, small and medium-sized companies will have lost their chances.”
He said that the reason that small and medium insurers now feel pessimistic about their prospects is that they are too much like the big insurers. But he felt that, in fact, small insurers in China have a chance because there are many problems plaguing big insurers.
He said that from his observations, the larger the insurer, the worse a job it does of its distribution channels and outlets. “This gives small and medium insurers some opportunities.”
Mr Xu noted that cooperation between Chinese insurers – whatever their size – and intermediaries is currently shallow, centring on sales and money. However, in more advanced insurance markets abroad, cooperation between the two sides goes deeper with insurers offering considerable support to intermediaries, such as marketing support and personnel training.
He said that costs in Chinese insurance companies, both large and small, are very high. One reason is the stage of expansion of the insurance company. A lot of manpower is needed to support a network comprising the head office as well as units at the provincial, city and lower levels.
Mr Xu felt that because of the intense competition and the need to be more efficient, the Chinese insurance market will see an inevitable flattening of the organisational structure, using technology that would lead to a reduction in the number of intervening levels between the head office and local operating units.
He said that the core competitiveness of insurers lies in their ability to select risk. However, risk selection in Chinese insurers, including large companies, is still inadequate compared to, say, US insurers. However, as the Chinese market becomes increasingly fee-based, the trend will be towards improved risk selection.
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