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McKinsey: Life insurers should tap rural areas
By Hu Yuanyuan (China Daily)
Updated: 2005-10-14 08:53
To strengthen China's emerging life insurance sector the country should make
more effort to exploit the huge potential in vast rural regions, suggested a
report from McKinsey & Company.
According to the report, most insurance companies don't provide sufficient
coverage in under-developed areas. New entrants, especially foreign insurers,
have concentrated on the wealthiest, most developed areas, leaving vast
under-developed areas of the country without recourse to this powerful financial
tool.
"Developing business in rural regions needs more innovation and government
support," said Peter Walker, director of McKinsey's New York Office.
"The government may enforce insurers to expand their business to rural areas,
or the insurance company can develop tailored products with comparatively low
premiums," Walker added.
McKinsey believes that the sound development of the insurance sector can help
to address two key challenges facing China: raising sufficient funds for the
development of China's infrastructure to support continued economic growth, and
developing a modern pension and social welfare system.
By integrating a variety of resources, the industry can steer personal
savings into much-needed long-term financing for major infrastructure projects.
And the development of the life insurance industry can also help reduce the
financial burden of the government as it can replace or supplement the social
welfare system.
Lured by an industry with an annual growth averaging 30 per cent over the
past two decades, an increasing number of foreign insurers have jumped into the
Chinese market.
But Dominic Barton, the regional leader of McKinsey (Asia) believed that
Chinese insurers should first of all sharpen their competitiveness and
management before they go global.
"As the Chinese insurance market is still quite young and boasts great
potential, Chinese players should first of all tap into the domestic market,"
Barton told China Daily.
Only about six per cent of Chinese consumers have a proper understanding of
the benefits of insurance.
"Besides, insurance is a very personalized product and mainly sells through
agents, thus making it harder for foreign competitors to gain market shares."
(China Daily 10/14/2005 page9)
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