China has been opening up its insurance market in the past two years by strictly following commitments under the terms of its World Trade Organization (WTO) accession, a senior regulator said.

Meng Zhaoyi, deputy director-general of the International Department of the China Insurance Regulatory Commission (CIRC), also said foreign insurance companies have mostly witnessed faster growth over their local counterparts. He explained this would continue as restrictions are phased out and the authorities further broaden investment channels.

"We have been opening up strictly in accordance with WTO commitments, including business scope, geographical requirements and market entry," he said in an interview with China Daily.

China has passed two formal reviews by the WTO since its entry at the end of 2001. Despite complaints from some WTO members about the nation's implementation of commitments in various aspects, the insurance sector was not, during both reviews, singled out for questions.

Beyond the reviews, however, there have been complaints about the insurance sector, which Meng said were largely groundless.

"What some nations demanded of the reviews was mostly way beyond the content of WTO (commitments)," said the official who participated in some of China's accession talks.

Meng noted that member countries were generally more positive on China's performance during last year's review than the year before "because we understood each other better," he explained.

Some foreign insurers, however, criticized China's practice of delaying announcing market-opening policies until the last minute and interpreted that as the country's unwilingness to fulfill its obligations. But Meng disagrees. "(Opening on) the last day is consistent with the very essence of having a transitional period," Meng said.

In that case, the authorities still have up to six months to decide whether to approve or disapprove applications from foreign insurers after they submit the application, he added.

Nine foreign insurance firms have entered the Chinese market since accession, bringing the total of foreign insurers operating here to 37. They include 20 life insurance joint ventures, 14 non-life branches of foreign insurers, and three foreign reinsurers.

Ten more cities were opened to foreign insurers last year, adding to the five opened upon accession.

All geographical restrictions are scheduled to be removed before the end of this year. That will then allow foreign insurers to set up shop in any Chinese city, but the CIRC still needs to revise regulations to apply a rule that allows an insurer with a branch in a city to operate in the entire province.

The rule was applied to Chinese insurers last October.

In terms of the business scope, China has fulfilled all of its WTO promises in the non-life sector after allowing foreign insurers into short-term health and casualty insurance at the end of last year.

The CIRC is currently reviewing applications by some foreign insurers to sell short-term health and casualty products.

For life insurance, China is expected to implement all commitments regarding the business scope by the end of this year, which includes opening up group insurance and annuities.

As China opens its door to foreign insurers, local insurance companies are also expanding their overseas presence. They have so far set up more than 30 entities, including representative offices, in foreign markets such as the United States, Britain and Southeast Asia.

Although there is largely no legal restraint on Chinese companies, many of them have faced obstacles due to "more than necessary" requirements by local authorities, Meng said.

Some US states, for example, do not allow Chinese state-owned enterprises to set up shop there, or require the general manager to be a US citizen.

China used to require general managers of foreign insurance firms to be able to speak Chinese to facilitate communications with local regulators, but later dropped the requirement.

"China has been doing a fairly good job in terms of national treatment," the official said.

Since the first overseas insurer entered the Chinese market in 1981, foreign insurance companies have, overall, witnessed steady business growth, Meng explained.

Premium growth at most foreign insurers has hovered above 40 percent in recent years, as compared to about a 30-percent average among local insurance firms.

"Their growth is accelerating and they are likely to experience expansive growth in the coming three to five years," he said, citing factors like rapid economic growth and the local residents' growing incomes and awareness of the industry's importance.

Although the removal of geographical restrictions at the end of this year will allow foreign insurers to expand further in the country, Meng said he expected them to largely keep their focus on major cities.

Foreign insurance firms have grabbed a 12 percent market share in China's commercial hub of Shanghai and 13 percent in Guangzhou, in South China. Both cities were opened to the sector upon the nation's WTO accession.

The firms have set up operations in the first 10 cities that were open to them, but none has applied to enter the five cities opened last December.

Meng said his commission has found irregularities with foreign insurers, but said they generally have complied with Chinese regulations.

"They did relatively well in terms of internal control and management," he said.

The rapid growth of foreign insurers will put growing pressure on their local counterparts, the official said, urging Chinese insurers to be quick in catching up in the areas of management know-how and internal control to avoid being elbowed out of the market.

"It may not be obvious just two or three years after accession, but you are going to see it (some local players being forced out of the market) five to 10 years down the road if they move too slowly," Meng said.

In the months to come, foreign insurers are likely to see a better policy environment. The official said his commission is working closely with the People's Bank of China, the central bank, on the possibility of allowing foreign insurance firms to negotiate more than one-year deposit agreements with banks, an instrument in which many local insurers currently hold a big part of their funds.

"This is a major breakthrough," Meng said.

(China Daily January 19, 2004)