Allianz eyes China's auto insurance market
By Huo Yongzhe (China Business Weekly)
Updated: 2004-07-13 14:10

The plan could make it one of the first foreign insurers to launch the product and will be a further significant move by the firm to improve its performance in the non-life insurance sector following last year's launch of a wholly owned property branch in Guangzhou, the capital of South China's Guangdong Province.

The company established a joint venture life insurance company, Allianz-Dazhong Life Insurance Co,in the nation's financial hub of Shanghai in 1998.

Passengers in a metro station in Shanghai pass by a huge advertisement board of Allianz. The German firm plans to enter China's property insurance market by launching auto insurance products. [photocome]

"It (the new business) could be kicked off earliest by year's end or mid next year,'' said Uwe Michel, executive vice-president of Allianz Group Business Services, in a recent interview in Munich, the insurance giant's headquarters.

Allianz's non-life insurance branch in Guangzhou was established in January 2003. Its business currently covers insurance and related reinsurance services in transportation, engineering, liabilities and property losses.

The upgrading of its Guangzhou branch into a wholly-owned subsidiary, a step that will allow the firm to expand more quickly into markets in other cities, will take place alongside preparations for the new product.

A foreign-funded insurance company operating in China needs to bring in at least 20 million yuan (US$2.4 million) in registered capital, 10 times less than that of 200 million yuan (US$24 million) required by the China Insurance Regulatory Commission (CIRC) for a foreign insurer to set up a new branch in the country, according to the Detailed Rules for the Implementation of Regulations on Administration of Foreign-funded Insurance Companies, which took effect last month.

A CIRC provision released in May said it will allow foreign insurers to reshape their branches into wholly owned subsidiaries, if the branches have been operating lawfully in China for at least one year.

The conversion could be finished in the second half of this year, said Michel. He has worked in the Asia-Pacific region for many years.

The Shenzhen branch of Ming An Insurance Company (HK) Ltd was the first overseas insurer to be given the green light in May to turn into a wholly owned subsidiary. Several other competitors have filed documents for approval.

The auto insurance business has been a dominant non-life insurance product in China since 1987. It takes the lion's stake in almost all the premium portfolios of the country's non-life insurers.

For most domestic small insurers, such as Huatai Insurance Co, premiums generated from auto insurance products could account for 70 per cent of its total premium income.

The auto insurance market witnessed a robust growth, encouraged by the explosive expansion of China's auto market, which saw tremendous growth over the past three years thanks to the introduction of new models and frequent price cuts after China's accession to the World Trade Organization (WTO).

The CIRC, the industry's watchdog, freed the market from article monopoly last January, when insurers, rather than the CIRC itself, could set their own policy articles and premium standards.The move sparked intense competition in the already heated market.

And in Guangzhou, price wars have already been very popular among different players since late 1990s, resulting in frequent rate cuts. Many industry analysts call such practices "suicide price wars.''

However, the auto insurance premium began to bounce back from the middle of last year due to overwhelming claims from inexperienced new car drivers that plunged almost all the businesses into the red.

Auto insurance premiums accounted for 71 per cent of Beijing's total of 1.81 billion yuan (US$218 million) of property insurance premiums in the first quarter of this year, a 50.7 per cent year-on-year increase, according to local regulators' statistics.

And the market will witness further robust growth encouraged by China's rapidly rising auto sales, which grew by 34.21 per cent last year, making China one of the world's fastest growing auto markets.

Allianz's auto insurance product is scheduled to be launched first in Guangzhou and then introduced into other areas subject to the CIRC's approval, said Michel, referring to Shanghai and Beijing.

Before a final launch, insurance firms need to file their documents with the CIRC for review and approval.

The People's Insurance Company of China, China Pacific (Property) Insurance Co and Ping An insurance Co currently have more than 98 per cent of the nation's auto insurance policies.

But almost half of the nation's 20 million vehicles only have minimal insurance coverage, meaning that great market potential remains to be tapped.

China opened up all of its non-life insurance market, including the auto insurance business, to foreign players at the end of last year, in line with its WTO commitment.

Allianz Chairman and Chief Executive Michael Diekmann said on his first official visit to Shanghai in March that the company is committed to building a nationwide presence with sustainable profit growth in China in all of its core businesses, including asset management and banking, as well as insurance.

The company said it is also planning to expand its joint venture life insurance business to Guangzhou and Beijing.



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