—Jessica Xie, Hylant Group

Jessica Xie of Hylant Group’s Large Account Practice traveled back to her native China this spring to provide a state-of-the-industry report in the fastest growing segment in the world. What she learned was encouraging, but to the uninitiated, securing favorable coverage often requires patience and a firm grasp of some widely unknown local customs.

Arriving early in my client’s Shanghai office, its local directors and I caught up on personal news and proceeded to review the facility’s new property insurance I had recently secured.

The client – a large U.S. manufacturer – had an interest in a joint venture with a local firm. By all reasonable measures, the partnership was stable and had routinely followed Western protocols.

But it wasn’t long into my visit before we stumbled upon a disturbing fact: another policy somehow had already been secured. Unbeknownst to their American owners and to me, a local minority partner had purchased local coverage without notifying the U.S. managing partner.

The local insurance transaction was the result of a long-earned personal relationship, one of millions that drive the bulk of Chinese commerce nationwide. Blindsided, their American partners today are still working on the issues of the duplicate insurance coverage.

It was a valuable glimpse into a culture I’ve known all my life that has increasingly hidden behind a façade of Western business ideals. While China has miraculously transformed its economy, below the surface remains vestiges of old habits.  

Only within the decade have most Chinese businesses seen the need for any insurance at all. The concept exploded a few years ago, when motorists were first required to carry liability insurance. Today, businesses and individuals are shopping for everything from whole life and health insurance to directors’ and officers’ liability coverage.

Brokers worldwide have rushed in, but have been limited by a joint venture as required by Chinese law. That restriction lifts next year, leaving the market to likely widen even farther. 

Newly formed domestic carriers are dramatically undercutting their Western competitors with steep discounts. They have been quick to adopt Western cues, but I’ve discovered that low prices too often accompany poorly designed policies, badly worded contracts and seemingly absent claims services.

Nonetheless, foreign carriers continue to struggle for a competitive edge as the Chinese start to understand the value of a good policy. Agents of domestic carriers are everywhere, hocking coverage solely on the merits of price – on street corners and shopping plazas, hospitals and hotels. The offers are tempting and the promises convincing, but the services routinely deceive.
 
China, in fact, has no insurance professionals who were raised in the industry. It is simply too new. In fact, many state-owned carriers are run by former government bureaucrats, who jumped onboard overnight once the state saw the need. The same occurred within China’s banking and brokerage industry, and the results were near disastrous.  

As China’s insurance industry consistently grows near 25 percent, government regulations and supervision have lagged behind. The industry still lacks financial rating systems, and while there have been no reported insolvencies, no funds are available should the need arise. The sense among consumers, true or false, is that the government would step in if needed.

Read more of Jessica Xie's article, including how Chinese customs factor into complex transactions:
Download the complete CHINA REPORT PDF

jessica.xie@hylant.com | P 419-259-2729

ANN ARBOR, Mich. – Hylant Group has strengthened its capability to provide experienced management of insurance, risk and financial services by hiring Mark A. Miller as Regional Vice President – Michigan and the CEO of its Ann Arbor office. Mark comes to Hylant Group from Marsh, the world’s leading risk and insurance services firm with annual revenues exceeding $5 billion.

Clients can benefit from 20 years of market knowledge and industry expertise Mark brings to his new role at Hylant Group. He will oversee all Michigan operations including client service, business development, acquisitions, contractual and regulatory compliance, insurance carrier relationships, information management and staff management.

While Western sales professionals widely acknowledge that personal relationships foster big deals, the practice is considered more a rite of passage in China, where relationships dominate a culture driven by whom you know and can dictate failure and success.

Conversely, astute consumers are equally keen to the notion that cultivating vendor relationships attract exclusive discounts and enhanced service. These ancient customs remain as pervasive today as ever in a country where capitalism was put on hold for half a century. Favorable premiums still are frequently sealed over the chill of cocktails and a firm handshake. 

Even global carriers, as they descend upon the world’s fastest developing market, employ local representatives engrained with these same ideals. It is not uncommon for similar businesses to pay entirely different premiums through well-known Western underwriters based on the broker-client relationships.

“Anyone shopping for business insurance in China would be remiss to discount the effects of personal relationships and what they mean to a company’s bottom line,” said Rich Yarborough, a vice president with the Hylant Group’s Large Account Practice, who specializes in world markets. “It’s an issue that Western businesses too often ignore when entering this market.”

Yarborough recommends that Western businesses align themselves with large global underwriters that have an active presence in their area. They should seek professionals whom they trust and feel confident can cultivate an effective relationship before deciding on a final program.

“Relationships in the U.S. are important,” he said. “But in China you can’t just put out three bids and hope to get the best price. It just doesn’t work that way.” 

rich.yarborough@hylant.com | P 216-674-2453

While insurance in the United States and Europe has evolved slowly throughout the past two centuries, its history has accelerated dramatically in China, where in just eight years it has swept the nation and drawn attention from investors around the world.  

Mid 1980s | Deng Xiaoping opens market to private insurers

1992 | The first foreign insurance company, AIG, was licensed to write life and non-life policies in Shanghai based on a joint venture it established with a Chinese partner

Circa 1997 | Several more foreign companies establish joint ventures and receive licenses to sell insurance in China

1998 | Government establishes the Chinese Insurance Regulatory Commission

2002 | China joins the World Trade Organization and agrees to open the insurance market completely in 2007

2006 | Drivers’ insurance is mandated for drivers nationwide

2007 | Foreign brokers will be allowed to establish wholly owned operations in China subject to certain requirements

• China’s Insurance industry has grown an average of 26 percent for the past 10 years.
• Total premiums in China were $60 billion in 2005, and expected to reach $100 billion by 2009
• About 40 foreign insurers are established in Beijing, Shanghai, Guangzhou and Tianjin, including AIG, Liberty Mutual and MetLife. About that many private domestic carriers are also established in developed cities.
• Foreign insurers will be allowed to sell policies in 2007 without the need for a Chinese joint venture.  It was a condition of China joining the WTO in 2002.