China new frontier for mutuals; insurers to focus on whole population, not just high net worth market

The International Cooperative and Mutual Insurance Federation (ICMIF) is looking to make use of a recent Chinese law allowing mutual insurers to set up shop in the country, a move ICMIF maintains can enhance protections against losses from, among other things, the increasing number of natural disasters.

China is the fastest growing of the major insurance markets, having grown by 188% in the last seven years, notes a statement Tuesday from ICMIF, which has its global headquarters in the United Kingdom. Representing 230 values-based insurers in 72 countries with more than US$250 billion premium income, the federation also has regional offices in Washington, D.C., Tokyo and Brussels.

While the mutual sector has been excluded from China’s growth to date, the Chinese government passed a law in February 2015 allowing for the set-up of mutual insurers. “It is predicted that these new insurance mutuals will be granted mutual licences some time during the first half of 2016,” reports the ICMIF.

“It is great news for the global mutual sector that the fourth largest insurance market is now permitting mutuals to be set up and is putting in place pragmatic controls to ensure that the fledgling sector can grow sustainably,” Shaun Tarbuck, ICMIF’s chief executive, says in the federation statement.

“More will become clear this year, but the advent of mutuality is certainly set to be a new and exciting frontier for China,” Tarbuck comments.

Detailed discussions with Chinese Insurance Regulatory Commission (CIRC) representatives indicate “the Chinese believe that mutual insurance could go some way to solving some of their economic and social issues,” he notes.

“The social issues around funding healthcare; an aging population; the increasing number of natural disasters through the effects of climate change; and poverty alleviation in the rural areas of China has, I believe, all contributed to their decision to open the market to mutual insurers as a potential solution,” he adds.

Tarbuck (pictured right) points out that at 3.3% – less than half of the 8% for OECD (Organization for Economic Cooperation and Development) countries – market penetration of insurance (premiums as a % of gross domestic product) in China is still very low. “This is a reflection, I believe, of how insurance companies in China have, thus far, catered for the high net worth (HNW) market, of which there are many, but not the majority of the population.”

ICMIF research shows that the global co-operative and mutual insurance market represented 27.1% of the global insurance market in 2014, up from 23.5% in 2007. “The model is the fastest-growing part of the global insurance market since 2007, with a 31% growth in premium income during this period, compared to a 13% increase for the global insurance market as a whole,” notes the federation statement. [click image below to enlarge]

ICMIF recently took the concept of mutual insurance to Beijing when Tarbuck joined the expert speaker line-up – which also included State Farm out of the United States – at the Insurance Association of China’s (IAC) one-day training seminar on Jan. 15. Tarbuck was joined by Thierry Weishaupt from France health mutual MGEN to help deliver a short course to help accelerate the development of the modern insurance industry, ICMIF reports.

This past November, the federation adds, an ICMIF/MGEN presentation was delivered to 100 potential mutual leaders and the Chinese regulator in Shanghai.