China Law Vision : China Insurance & Anti-Trust Lawyer : Dr. Zhan Hao : Grandall Legal Group : Anti-Monopoly & Competition Law : China Law Vision Blog

On the back of the glorious Chinese insurance market, for most of the foreign insurance companies, 2010 had still been a difficult year.  In 2010, the market share for foreign life insurance companies is only around 5% and the market share for foreign property insurance companies is only around 1%.  Apparently, foreign insurance companies in China did not share the benefits of the fast developing Chinese insurance market.

Foreign insurance companies are facing various problems in China. Stagnant market share, heavy pressure on premium income and difficulties on attracting and retaining employees are the three most common problems. Firstly, due to the unwritten rule of CIRC, CIRC only approve opening of one branch for each foreign insurance company per year.  So foreign insurance companies cannot open multiple branches in a short term and then cannot have more market shares as they wished. For example, AXA-Minmetals Assurance Co., Ltd. a joint-venture established in 1999, only opened 7 branches during past 10 years. Secondly, most of the foreign insurance companies face great premium pressure because they cannot use the most efficient way, such as bank-insurance link, to sell their products.  The main reason may be because most of the foreign insurance companies do not have close relationships with Chinese banks. If foreign insurance companies can solve this problem, then the premium income will rapidly increase. For example, the major shareholder of AXA-Minmetals Assurance Co., Ltd. has changed to ICBC, a giant bank in China, at the end of 2010. That means this company may sell its products through its shareholder ICBC’s branch network and can develop market rapidly in 2011. Thirdly, personnel in foreign insurance companies are very unstable. Most of the sales persons in foreign insurance companies have low level of education or have no insurance related experiences. They choose foreign insurance company as the first step to gain working experiences and as a springboard to a better job.  Furthermore, some foreign insurance companies put too much focus on the short-term premium income. So the short-term premium income takes a big part of KPI of sales persons. Many excellent sales persons cannot work under such heavy pressure and finally choose leave. 

To have a better 2011, foreign insurance companies shall take its own advantages such as differentiation of competitive advantage. Compare to domestic insurance companies, they have more diversified products and can provide more specialized services to customers. For example, some foreign life insurance companies are prompting high-level medical insurance products which target towards foreigners in China and the high income class Chinese. Those products are selling very well in China and gain good reputation in aforesaid classes.

For those foreign insurance companies which are still out of China and want to enter into the Chinese insurance market, the best advice from us is doing more investigations on the Chinese insurance market, think about how to solve those common problems, consider your advantages and your expansion plan.

(1) A formal application form. The information regarding the applicant and the representative to be set up shall be covered in the form. In respect of the applicant, it includes jurisdiction of incorporation, head office address, total assets as of the end of immediately preceding year, paid up capital, incorporation date and the registered office address, incorporation date and the registered office address, names of members of the Board of Directors and name of the General Manager. In respect of the representative office, it includes full name of the representative office, Address, zip code, telephone number, and fax number of the representative office, Name of the chief representative (the chief representative shall only work for one representative office), Names of other staff of the representative office (the number of the foreign staff working in the representative office shall be limited to a maximum of 3).

(2) An application letter addressed to the chairman of CIRC, signed by the chairman of the Board of Directors or the General Manager. The application letter shall cover Brief introduction to the Applicant, Purpose for the establishment of the representative office, Full name of the representative office, introduction to all staff in the representative office, Operational scope of the representative office, term of existence of the representative office, Address of the representative office, Other relevant information concerning the representative office.

(3) A notarized (and authenticated) copy of the business license or lawful certificate of incorporation or registration certificate issued by competent authority in the applicant’s home country.

(4) The articles of association, a name list of the members of the board of directors, and

(5) A name list of the management personnel or main partners.

(6) Annual reports for the 3 years prior to the application date;

(7) Opinion issued by the relevant competent authority in the applicant’s home country or region regarding the applicant’s establishment of representative office in China, or a letter of recommendation issued by relevant industry association. Such opinion shall or letter of recommendation shall refer to the applicant’s record of penalties received for the three years prior to the date of issuing the opinion or letter of recommendation and such opinion shall be notarized and authenticated.

(8) A Feasibility Report for establishment of the representative officel;

(9) A power of attorney for the chief representative executed by the chairman of the Board of Directors or General Manager of the Applicant;

(10) A declaration made by the Applicant, stating that the chief representative has no record of penalty(ies) due to any serious violation of law or regulation within the 3 years prior to the application date.

(11) Resume of the chief representative. In the chief representative’s resume, his or her name, Birth date, Nationality, Marital status, Summary of academic record and work experience commencing from high school to date shall be included.

(12) Other documents required by CIRC.

For the chief representative of the representative office, he or she shall have at least 5 years working experience; shall obtained a university bachelors degree or higher; If the chief representative has not obtained a bachelors degree or higher, they must have at least 10 years work experience.

But according to CIRC’s regulation, the precondition for the foreign investors to process the previous option 3 is that at least one representative office has been established by the foreign insurance company and existing in China for at least two years. The following focus on the requirements by CIRC to establish representative office.

According to the Administrative Provision for the Representative Office of Foreign Insurance Institution, the A foreign insurance institution that applies for establishment of a representative office in China shall meet the following conditions:

(1) Have strong business performance;
(2) Have conducted insurance for at least 20 years;
(3)Have no record of any serious violation of laws or regulations in the 3 years prior to the application date;
(4) Other prudential conditions required by CIRC.

In the abovementioned clause, the reference to “having conducted insurance for at least 20 years” means that the foreign insurance institution shall have continuously operated its insurance business for at least 20 years. If the foreign insurance institution establishes a representative office in China through a subsidiary, the subsidiary itself must meet the 20-year operational requirement. If the foreign insurance institution establishes a representative office in China through its insurance group, the manner of calculation for the 20-year operational requirement is as follows (whichever of the following occurs earlier):(a) the date on which the group has started to conduct insurance business; or (b) the date on which any subsidiary in the group has started to conduct insurance business.

The reference to “other prudential conditions prescribed by CIRC” herein includes but is not limited to the following:

(a)   the total assets of the Applicant shall exceed Two Billion Renminbi (RMB 2,000,000,000.00) or approximately Three Hundred Million US Dollars (US$300,000,000.00) by the end of the preceding year;

(b)   it is necessary and feasible for the foreign insurance institution to establish a representative office in China;

(c)   the proposed chief representative shall have knowledge of laws and regulations pertaining to insurance and management of the representative office;

(d)   the country in which the foreign insurance institution is incorporated and exists has a stable political and economic situation and has a valid and strong financial regulation system;

(e)   the applicant and its affiliate(s) shall have a sound corporate governance structure, have formulated rules for risk management, operated in compliance with relevant laws and regulations, and have potential for sustainable growth.

Items (a) and (e) are not applicable to non-profit foreign insurance institutions.