(May 31) – “Sy Sternberg, the chairman of New York Life Insurance, is in China this week trying to figure out whom to meet so as to ensure that his company is next among the dozens of insurers who have applied for a license to do business in China, writes Craig S. Smith in today’s New York Times.
“‘We don’t know what the process is in awarding licenses,’ said Mr. Sternberg, though New York Life has devoted more resources than almost any other American insurer to securing the right to operate here. He has tried to touch all the bases — from officials of the China Insurance Regulatory Commission to Prime Minister Zhu Rongji. Still, he cannot be sure that he has met the person who makes the final decision.”
“So it goes in China’s murky business world, where market access depends on whom you know and how happy you have made them — though no one will tell you who those people are. Instead, chief executives like Mr. Sternberg operate on supposition and hearsay to identify the hidden decision makers and cultivate ‘top of mind,’ which means making their company the first that Chinese leaders think of when considering foreign supplicants from their industry.”
“China’s entry into the World Trade Organization is supposed to change all that, and with the House willing to grant China permanent normal trade relations, American companies are expected to share in any W.T.O. bounty. The Senate is also considered likely to approve normal trading status for China. Were Congress not to grant Beijing such status, it could enter the W.T.O. anyway and exclude the United States from many trade benefits that W.T.O. membership conveys.”
“As part of China’s W.T.O. membership, the country has promised to publish all rules and regulations governing trade and to create clear procedures for acquiring licenses to do things like sell insurance in the country. If Beijing holds to its promise, China will undergo a sea change in how business is conducted and take a step toward government by rule of law instead of administrative fiat.”
“‘It’s not going to happen overnight, but 10 years from now we’ll look back and say it was a turning point,” said Patrick Cranley, the head of the Cigna Corporation’s efforts to win a license in China and chairman of the American Chamber of Commerce here in Shanghai.”
“In fact, China’s transition to Western-style transparency is likely to be piecemeal and slow. But the insurance industry is one of the areas that promises a reasonable pace of change, for one thing because there is little concern that foreign companies can dominate a market in which comfort and familiarity play such a key role. The state-owned People’s Insurance Company of China currently has 70 percent of the market.”
“Domestic companies stand to benefit almost as much as foreign concerns from the promised candor. Already, Western insurers have helped crack open markets that orthodox state-owned companies never considered or dared not try to enter for fear of angering officials in Beijing.”
“For example, no Chinese insurer sold life insurance to individuals before the American International Group won a license to do so in Shanghai seven years ago. The slim commissions paid to Chinese insurance agents did not warrant the effort. Then A.I.G. began paying its agents as much as 40 percent of the first year’s premium and the individual life insurance business took off.”
“‘No one imagined that Beijing would allow that, so no one ever tried,’ said Albert Lu, a former agent for the China Pacific Insurance Company and now ING Insurance’s chief representative in China. All major Chinese life insurers offer individual policies today. “
“China needs a developed insurance industry now more than ever as the country tries to shift the burden of cradle-to-grave benefits away from its over-encumbered state enterprises, half of them only breaking even or losing money. Instead of providing free medical care, many state-owned companies are buying health insurance for their employees. A move from state-subsidized housing in favor of individually owned homes has increased the need for property and casualty insurance. And many people now buy life insurance with an annuity attached that serves as a pension.”