Major U.S., Japanese and European Insurance Firms See Vast Promise in the Chinese, Southeast Asian and Other Emerging Markets

Global insurance underwriters are eagerly eyeing hundreds of millions of potential new customers in Asian markets. At the same time, life insurance firms and underwriters of personal lines, including health insurance, are anxious to sell to increasingly affluent Asian households. The Chinese government is making very basic health coverage available to virtually all citizens, but gaps in coverage will lead high income consumers to purchase supplemental or even full coverage from private companies. Major, government-sponsored health policies are also sold in such nations as Indonesia and Thailand. Despite many challenges, major U.S. insurers WellPoint, Inc. and Cigna Corp. are among U.S. firms that have been active in China.

India, especially, is seeing significant growth in health care initiatives. With its growing middle class clamoring for better and more modern medical care, some health care companies are investing heavily. Indian physicians (many of whom were trained in Western medical schools) are making strides in developing innovative and cost-effective new treatments.

Government spending on health care in India per capita is lower than any other major world economy. The Indian government established a national health program called Ayushman Bharat (PM-JAY), which allows low-income people to receive secondary and tertiary care at private facilities at no cost.

The recent history of growth in the Chinese market has been excellent. Unique “crisis management” insurance products for corporations have been crafted to suit the particular business and regulatory risks of China. Specialty lines such as aviation and marine insurance are also offered. Moreover, personal investment products are becoming particularly popular among China’s fast-growing middle class, opening up far-reaching new markets for firms that sell annuities and whole life insurance.

Manulife Financial Corp. (via its Manulife-Sinochem Life Insurance joint venture), New York Life Insurance, Japan's Nippon Life Benefits and New York-based Metropolitan Life Insurance have also been active in writing new business in China. Formerly, foreign insurance firms were restricted to doing business in a limited number of cities. However, China agreed to drop such restrictions when it joined the World Trade Organization. Additionally, the Chinese government now allows foreign firms to own up to a 51% interest in joint ventures within China—effectively enabling foreigners to control such partnerships.

Progress by foreigners into the Chinese insurance market has been relatively slow. Foreign companies, in addition to operating only as part of a joint venture with a Chinese company, must obtain licenses for each region in which they want to sell and also establish networks with hospitals and finagle access to patient data. In addition, many Chinese investors are having difficulty grasping the long-term nature of buying shares of insurers, expecting to see returns long before those investments have been able to mature.

Premiums on a per capita basis remain very low in much of the world, pointing to excellent long-term opportunity insurance products of all types, including annuities. It would be hard to overstate the importance of emerging and developing nations, especially China, India, Brazil and Indonesia, to the future growth of the insurance industry. Much of the world is still clearly a fertile field for expansion of companies that are willing and able to invest time and money in emerging markets. The insurance market in the emerging world will be boosted by a combination of rising household incomes, increasing education and financial sophistication among consumers, extending life spans, and a tradition of families relying on personal savings and initiative rather than government social programs to provide for retirement funds and health care.

The expansion of the middle class in emerging market nations will be of tremendous impact. As families acquire such things as automobiles, small businesses or nicer homes, they quickly realize the importance of insuring these valuable assets. Also, these families become good customers for life insurance and retirement products.

As the market in China expands, so do markets in other rapidly developing countries such as India, and areas such as Eastern Europe. Insurers are hoping to cash in on the growing markets with a variety of products, including “microinsurance” policies designed to appeal to people unfamiliar with the need for insurance coverage. These policies have very small premiums and cover a broad spectrum of assets from small appliances to livestock to burial costs.

Another approach is a hybrid policy that is part savings and part protection. Canadian insurer Manulife offers several hybrid policies that insure against critical illness while working as an investment.

Another target for insurers is people participating in nonprofit microloan programs which lend small amounts of money to the poor to start businesses or buy housing. Insurance companies are partnering with the nonprofit agencies to provide life insurance to pay off the loan should the debtor die.

This expansion is not without its difficulties, as insurers in many cases are dealing with people who have never heard of insurance before. Other problems include complex regulations under which foreigners must do business and the lack of actuarial data for many emerging communities. Despite these obstacles, watch for increasing activity of major insurers in these markets.

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