Building resilience in China

Alia Hasbullah
Pricing actuary and 2014 Actuarial
Development Programme graduate

China is the world’s fourth-largest market in insurance premiums and Swiss Re’s third largest in 2015. Yet compared to the size of its economy, China’s insurance market still lags far behind.

Normally economies and insurance grow hand-in-hand. As the tragic explosion in Tianjin suggests, there’s danger when the two get out of sync. The central government is well aware. In 2014, they set targets for insurance penetration, aiming to more than double insurance premiums per capita from USD 235 in 2014 to USD 571 by 2020 (the advanced market average is USD 3 621). This sends a powerful signal to both insurers and clients: risk management is a priority for China.

We’ve been in China since the 1930s. We opened a representative office in Beijing in 1995 and another in Shanghai in 1996, then a branch office in Beijing in 2003 to conduct life and non-life business throughout the country. In 2015 we completed the acquisition of Sun Alliance Insurance China Ltd to give Swiss Re Corporate Solutions a local base to help corporations operating in China. These investments are showing up clearly in our financial results, with premiums of USD 2.5 billion in 2015. Local talent has grown by more than 50% between 2011 and 2015 (see Closing the talent gap in high growth markets). China is the key market in our plan to generate 30% of our premiums and fee income from high growth markets by 2020.

Today the Chinese non-life market is dominated by motor insurance, and the life market is still relatively undeveloped. Yet there is more to the opportunity than simply offering the same support we offer elsewhere. We can also tackle new risks and pioneer new methods, and thus make China a model for the world.

Protecting lives and livelihoods

While China’s economy has been booming, the country’s ‘mortality gap’ has been widening — that is, the gap between the insurance Chinese families would need should a wage-earner pass away suddenly, and the resources they actually have available. Between 2004 and 2014 the gap grew by 14% per year, so that by 2015 it amounted to a staggering USD 32.1 trillion.

Closing this gap is partly a matter of consumer education, and also a matter of distribution — putting the solutions in front of the people at risk. Here technology is on our side. To help meet the challenge we tailored our online life underwriting tool, Magnum Mobile (see Insurance in your pocket), for our clients’ agents in 2015. In its first five months this tablet-based solution has already helped insure more than 1.4 million lives. This is a promising illustration of how technology will revolutionise the life insurance industry — and, hopefully, help close the global mortality gap.

We anticipate equally strong demand for private health insurance that can supplement public health care. By surveying around 3 000 respondents, we gathered valuable insights into the key factors driving Chinese consumers’ willingness to pay for such insurance. We’re sharing the results with our clients to help develop suitable, sustainable products. Such knowledge-sharing confers advantages to both our clients and society as we deal with the consequences of living longer lives.

Innovation for farmers

We are also learning how to make more risks insurable. Cotton farmers in Xinjiang, for example, have been vulnerable to cold weather. This risk is not covered by traditional agriculture insurance schemes due to the complexity of underwriting it. In 2015 we piloted the country’s first low-temperature weather index insurance programme to solve this problem. If successful, the programme will be expanded to cover the entire region, which produces more than 3 million tonnes of cotton per year. Such index insurance schemes (which automatically pay out when a given measure, such as temperature, falls above or below a specified threshold) can work for other crops, as well as for other perils, such as wind and rainfall. Indeed we have recently extended the concept to aquaculture, covering the production of millions of tonnes of fish, scallops, shrimp and other species from wind and other perils. We are also developing a similar programme for farmers in Heilongjiang, China’s biggest crop-producing province, following the Memorandum of Cooperation we signed with the local government in 2015.

Such accomplishments bear testimony to our vision to offer protection to those who need it but we haven’t yet reached.