Opportunities at a premium with massive development of online market and other factors

There are many dynamics at play in the Chinese market today for foreign insurers, and understanding them can make the difference between success and failure.

The changes and characteristics that need to be taken into account are:

* Foreign insurers can now write compulsory motor liability, removing the barrier to entry in 75 percent of the property and casualty market.

* Liberalization of life and motor insurance pricing has begun.

* The big domestic insurers are profitable but other players are struggling to break-even.

* The Chinese telesales model that quickly proved successful is now faltering due to regulatory control and customer fatigue of outbound selling.

* Bancassurance is not what it used to be.

* Customer loyalty is low and churn-and-lapse rates remain high.

* Online distribution is picking up and price comparison websites are emerging.

Distribution dynamics

The big domestic insurers that control the market — the top 10 have more than 90 percent — are so big and wedded to their traditional product sets and distribution approaches with banks, car dealers, agent sales forces and outbound telesales, that they are not agile and responsive to rapidly developing customer demand and behavioral change.

The bancassurance reforms started in 2010 by the China Banking Regulatory Commission and the China Insurance Regulatory Commission seem to be continuing, and this has hit the growth of life insurers who, as a result, are having to re-energize their agency sales forces.

Property and casualty insurance have continued to grow healthily, but mainly due to new distribution channels online and cross-selling.

Even for life insurance, I see online playing a more significant role. If not for closing sales, online is effective in attracting new customers and generating leads to be sold by traditional agents.

Foreign insurers, with their limited distribution muscle, continue to suffer unless they have teamed up with large domestic partners or are content to concentrate on niches that will generate profits rather than volume and market share.

Connecting online

The other dynamic is the rapid digitization of the consumer market. There are more than 300 million smartphones and tablets, which now outweigh fixed PC connections in China.

The Chinese consumer is forever online, researching products and services, reading and commenting about them on Chinese social networks such as Weibo.