Regulatory Foundations for Bancassurance in China

By Hans-Günther Herrmann, Paul, Weiss, Rifkind, Wharton & Garrison, Hong Kong

2003 is likely to be a decisive year in the development of bancassurance in China, which has been a hitherto under-developed field in the PRC. The scope of bancassurance ranges from the simple distribution of insurance products in bank branches to joint ventures between banks and insurance companies and universal provision of integrated financial services. As China's financial markets develop, some of the world's largest financial institutions with both banking and insurance operations have taken a foothold in China. In October 2002, HSBC purchased a 10% equity interest in Ping An Insurance Co., and in December last year Citibank bought a 5% equity interest in Shanghai Pudong Development Bank. Other leading international insurers are obtaining licences to operate in China in the wake of the country's accession to the World Trade Organization (WTO).

As global and domestic competitors respond to these moves, many will look to bancassurance as one of the most promising distribution strategies. A recent Swiss Re report estimates that bancassurance could capture 13% of life insurance premiums and 6% of non-life premiums in Asia by 2006, and the industry could reap substantial cost savings thanks to the lower cost of bank distribution versus agents.¹ According to the China Insurance Regulatory Commission (the CIRC), in China bank distribution accounted for 17.1% of life insurance premiums in 2002.