Sunday, November 19, 2017

China overtakes Japan

China is on course to overtake Japan as the world’s second-biggest insurance market during the course of this year. Indeed, it has probably done so already.

This comes as no surprise, of course. Since the global financial crisis in 2008, China’s insurance market has been growing at an impressive 16.8% a year, compared to Japan’s leisurely 2.4%, according to Allianz’s research arm.

Japan retained its lead over China by a razor-thin margin in 2016 and will certainly lose it in 2017. Swiss Re reports that written premiums in Japan totalled US$471 billion last year, compared to US$466 billion in China. On current growth trajectories, China will write an extra US$79 billion of premiums this year, while Japan adds just US$11 billion.

As recently as 2000, China was the 16th-biggest market globally in terms of premiums written. But despite its impressive growth, China has a long way to go to catch the US, which wrote US$1.35 trillion of premiums last year.

However, it still has plenty of room to grow. China’s 1.37 billion citizens spent an average of US$340 each on insurance last year — which, for comparison, is roughly the same as Thailand. The insurance penetration rate was 3.6%, putting China on par with Malaysia in terms of insurance market development.

The maturity of China’s insurance market varies significantly from region to region, and this gives some indication of the potential as the rest of the country catches up. For example, people in Shenzhen spent close to US$2,500 each on insurance. If the rest of China showed similar demand, total premiums would easily be more than US$3 trillion.

During the next decade, one in three dollars of additional premiums will be earned in China, according to Allianz.

Even so, there are clearly some wrinkles. China’s insurance market is currently distorted by out-sized demand for investment products, and it is not clear how this market will develop given the rosy return expectations and under-rated risks — as we report here. Having said that, growth expectations in the life segment remain at 20% or more for now.

Elsewhere in the region, the most dynamic countries in terms of overall premium growth are Indonesia at 19.1%, Vietnam at 17%, Sri Lanka at 9.9%, Pakistan at 9% and India at 9.1%, while the laggard country is clearly the Philippines, where premiums shrank by 0.4% last year.

Across the region as a whole, Allianz is forecasting average growth of 7%, with slightly stronger expansion in the life sector compared to property and casualty.

Meanwhile, Swiss Re points to digital distribution as a notable trend looking forward.

“There has been a proliferation of direct digital distribution channels in recent years, in some markets,” it writes. “The digitalisation of insurance distribution is set to continue, but the pace of change will vary across markets. Digital channels will ultimately be used throughout the distribution process, from information gathering to purchase completion to after-sales service.”

However, traditionally intermediated insurance business will continue to play an important role, particularly in Asia.

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