China’s attempt to spur the launch of mutual insurance companies has gotten off to a very slow start.
Approximately 18 months after issuing regulations intended to spur growth of mutual insurers, more than 30 applications for a mutual insurance company license remain pending. Something must be done to accelerate this process in order to insurer market success, A.M. Best said in a new industry briefing.
“The industry believes there is a need to both speed up the mutual license approval process and educate the general public about the characteristics of mutual insurance companies to avoid a major market failure,” A.M. Best said.
There certainly is room for growth in China. As. A.M. Best notes, global mutual insurance premium takes up about 27 percent of the total, according to the International Cooperative and Mutual Insurance Federation. In the U.S., it is more than 31 percent; the number surpasses 44.4 percent Germany; in France, it is 47.4 percent. In China, however, mutual insurance premium encompasses 0.3 percent of the total premium income.
According to A.M. Best, the China Insurance Regulatory Commission issued a trial regulatory framework for mutual insurance organizations in early 2015, outlining requirements for applying for a mutual insurance company license. With the 30-plus applications still pending, the question remains why the process is taking so long. A.M. Best said that it may be hard for start-up mutual insurance companies to get going while the China mutual insurance market is in its infancy and regulators are still developing various requirements for the sector.
“It will take years and a sizable group of participants to determine whether China Mutual’s results will be comparable to the established U.S Market,” A.M. Best said.
Delays have led to some market problems in China. According to A.M. Best, some non-insurance and online systems have started using the terms “mutual” or “cooperative” to attract members and their insurance contributions. But Chinese regulators have now warned the public about those illegal operations.
To accelerate the legal mutual insurance process, A.M. Best said that mutual startups in China should have a clear business plan to address future risks, and also make sure insurance professionals are properly educated about mutual insurance company needs.
“To ensure a smooth transition when introducing the mutual insurance structure in China (where insureds are customers and also owners), education is the key to success,” A.M. Best said in its briefing. “The insurance professionals running the mutual insurance companies should bear in mind the characteristics of mutual insurance companies. On the other hand, the consumers need to understand policyholder rights and responsibilities.”
Just as importantly, A.M. Best noted that mutual insurers simply have “a different organizational structure for an insurance company but should be viewed and evaluated the same way as all the other insurance companies and subjected to” requirements issued by China’s regulators.
Source: A.M. Best