China's Insurance Market: Lessons from Taiwan

As China and Taiwan reach "basic agreement" on a new trade deal, the island's insurance sector is already influencing the vast Chinese market

By Sam Radwan

The countdown to the moment when China's economy surpasses that of the U.S. seems a long way off. China's insurance market is poised to overtake the U.S.'s a lot sooner, possibly as early as 2020. The mainland life market almost doubled in size from 2006 to 2008, to over $80 billion, or roughly one-fifth the size of the U.S. life market. There's no reason to think growth will slow significantly. A look at the insurance industry's experience in Taiwan provides a good way to understand the Chinese insurance customers' buying behavior as the industry matures on the mainland.

Those who have worked in the Chinese insurance industry know all too well that a lot of talent and know-how has been borrowed from Taiwan. Daniel Tsai, chairman of Taiwan's Fubon Financial (2881:TT)—the island's second-largest financial holding company with over $80 billion in assets—says China's industry is modeled after Taiwan's. "If you ask the CIRC [Chinese Insurance Regulatory Commission] they would admit that the whole insurance law in China was borrowed from Taiwan," says Tsai in an interview at Fubon Financial's headquarters in Taipei.

Taiwan's influence is not limited merely to regulation. Consider China's Ping An Insurance (2318:HK), a Shenzhen-based company that is the industry's benchmark for service and customer-value creation. Ping An got its start in 1988, when it was founded to sell car insurance by current Chief Executive Officer Peter Ma and a handful of employees. When Ma expanded into life insurance 17 years ago, the company grew to be the second-largest player on the mainland, behind only China Life (2628:HK). Analysts and industry experts have primarilty attributed Ping An's success to its ability to learn and apply best practices from the Taiwan market, as well as from other foreign players. Initially all of Ping An's marketing and sales talent came from Taiwan, for instance; they helped develop the company's underwriting and claims systems.

The impetus for borrowing Taiwanese insurance talent and regulation goes beyond common language to the fact that customer buying behavior is similar in both markets. "We are culturally Chinese]; we are just 10 to 15 years away" in market maturity, says Tsai of Fubon, "You can think of it like being able to ride back on a time machine and fix the problems that you know you will have."

Fubon, as well as other Taiwanese insurers, is eager to leverage its know-how when it expands in the Chinese market under the more favorable regulatory terms anticipated via the Economic Cooperation Framework Agreement (ECFA), a deal that Beijing and Taipei officials are expected to sign soon. The two sides have reached "basic agreement" on a tariff-reduction agreement, Tang Wei, China's head of Taiwan, Hong Kong, and Macau affairs said on June 13, after the latest round of talks in Beijing with Huang Chih-peng, head of Taiwan's Bureau of Foreign Trade.

A Chinese culture of household saving

With the Taiwanese customer serving as an indicator of what the Chinese market will look like in the future, China may be well on its way to becoming the world's largest insurance market over the next 10 to 15 years.

The key driver of growth will be life insurance. Both Taiwan and the mainland have some of the highest household savings rates in the world—roughly a quarter of the average household's disposable income. While several factors account for China's high rate—such as limited availability of credit and less reliance on government social programs for health care and social security—there is no denying that the culture of saving is strong.

Still, a wide gap persists in terms of life insurance penetration, given the markets' differing stages of maturity.

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