Chinese insurance companies were bracing for an onslaught by global competitors last month when a commitment to the World Trade Organization dictated opening the borders to foreign competition.
“Almost all insurance business is opening to foreign insurers,” says Xiaolin Li, a dean at Beijing-based Central University of Finance and Economics. “The exceptions are group insurance and life insurance, which requires a foreign insurance company to set up a joint venture with a local partner.”
In fact, foreign firms began arriving well ahead of the anticipated rush. According to the China Insurance Regulatory Commission (CIRC), the number of foreign-funded insurance companies in China increased from 14 in 2000 to 40 in 2005. More than half of the insurance companies in the Global Fortune 500 set up shop in China before last month.
China’s largest national insurers have upped their technology investments, but experts say smaller Chinese insurers still have much to learn about IT.
According to Beijing-based CCW Research, Chinese insurers invested 1.5 billion yuan (U.S. $190 million) in IT in 2005, an increase of 10.8% from the previous year. Spending is expected to expand to 1.7 billion yuan (U.S. $215 million) this year. CCW Research is a joint venture of Framingham, Mass.-based International Data Group and China’s Ministry of Information Industry’s Institute of Electronic Science & Technology.
But the spending increases aren’t keeping pace with the growth of the industry, CCW reports, with premiums increasing by more than 100% in recent years.
“Judging from the whole financial industry, IT investment in the insurance industry is lagging far behind the others,” confirms Thomas Wong, chief analyst at Beijing-based Analysys International. “The increase rate is disproportionate to the insurance premium increase.”
According to Wong, technology in domestic insurance companies isn’t as advanced as in other financial sectors, such as banking. “What national insurers are doing now is still consolidating data and building up core systems, which other institutions have already completed,” he said. “And some smaller insurers haven’t even started that yet.”
Overseas insurers completed that work long ago, Wong notes. “People at the management levels don’t understand the benefits that come from having good IT systems,” he says. “They don’t attach enough importance to it.”
As a result, only the largest insurance companies, and those with some degree of foreign ownership, are handling technology well, he says.
One company with some foreign ownership is Manulife-Sinochem Life Insurance Co. Ltd., a joint venture of Canada’s Manulife Ltd. and China Foreign Economic and Trade Trust & Investment Co.
“They designed a customer-oriented service at the front-end, which requires CRM system support at the back-end,” Wong says. “Their product design is closely connected with the IT system and the IT accommodates the product quite well by playing a supporting role.”
Having a foreign partner was important, too, he adds. “When overseas insurers come into China, they bring their mature technology as well,” he says.
A large domestic insurer looking at IT seriously is China Pacific Insurance Group Co. Ltd., which is developing an electronic business platform to sell insurance. “This project shows that large national insurance companies are increasingly aware of the importance of technology,” Wong says.
Meanwhile, China Life Insurance Group Co., another major national insurer, has almost completed its data consolidation-a task some smaller companies haven’t begun. And Pin’an Insurance Group Co. of China has started building a technology platform early and has already established an e-commerce brand, known as PA18.
According to CCW, large international vendors with practical experience in big international insurance companies and a good understanding of the insurance business have been coming to China, and big national firms tend to choose them as IT partners.
Paul Robinson, IBM’s insurance leader for the Asia Pacific region, told INN that IBM is working with all the large insurers in China. The latest project, he says, is with Taikang Life Insurance, the fifth largest insurer in China. The project is so cutting edge, he says, that many would consider it advanced even for a global insurer.
The project is designed to help the insurer take advantage of industry data models that support China’s unique requirements, Robinson says. In addition, local companies have an edge over foreign competitors in their contact with Chinese customers.
“National insurers have well-developed and extensive distribution systems,” says Robinson. “We mustn’t overlook these advantages.”
But foreign insurers can bring a good general understanding of customers, as well as advanced IT system and operational practices into China’s marketplace, he says.
“There’s a series of key areas that would worry me and also national insurers-the sophistication of the competition which would come into the country from outside,” says Robinson. “There are very powerful companies that have been operating in the insurance industry for a very long time.”
China national insurers have a lot of catching-up to do, adds Robinson, stating that the local companies do not always know leading practice.
Today, technology in insurance companies extends beyond some big machines in a far-off, little-seen server room, industry observers say. Technology now permeates all of a company’s operations, and the best companies take advantage of technology to improve processes through the entire business cycle, they add.
IBM is showing Chinese customers what technology is available and what it can accomplish, Robinson says.
“I think attitudes will fully change over time, but I am not expecting major changes in the next two or three years,” he says.
According to Wong of Analysys International, technology should transcend national borders. “A Chinese insurer can buy the same IT system that their foreign counterparts have,” he says. So, in theory, Chinese insurance firms can leapfrog over stages of development.
“However, limited by their budgets, some national insurance companies wouldn’t be able to buy the most advanced servers,” he adds.
“There is a very strong push from the regulator, the China Insurance Regulatory Commission,” IBM’s Robinson says. “The CIRC hopes to have these companies improve their operations very quickly.” To ensure that they are standardizing some practices, the push is coming not just at the national level but from within the industry itself, Robinson says.
On Sept. 22 and 23, 2006, the first Insurance Information Summit took place in Beijing. At the meeting, Guang Pei, deputy of China’s Insurance Industry Standardization Committee, said that after a year of preparation, two basic standards in the insurance industry could be announced by year’s end – the standard for insurance terms and the standard for data interchange between banks and insurers.
He says other standards are coming, including some for short-term insurance product sales platforms and mobile customer service platforms.
“Since China’s insurance technology and standardization have a late start, international standards will serve as a major reference for Chinese ones,” says Pei.