Insuring Growth

By LANCE MAUGHAN

ING is one of the top foreign enterprises entering China's insurance market.

Personal insurance and banking products are just taking off among China’s growing rich, says Patrick Poon, veteran of international financial services group ING.

ING is among the top three foreign companies in China’s life insurance market. But the firm has bigger ambitions, says Patrick Poon, the avuncular Hong Kong finance guru who was until recently charged with heading up the firm’s expansion in the Mainland. ING has been spending big recently to ensure “ sustainable development in its various businesses which span the insurance, banking, and asset management sectors,” explains Poon. Some of those expansionary yuan went on buying a stake in Bank of Beijing, one of the country’s better-regarded lenders. In southern China, the Dutch-based multinational operates through Pacific Antai Life headquartered in Shanghai - a joint venture with China Pacific Holdings - with operations in Dongguan, Guangzhou, Nanhai and Shunde. In the North, the firm operates through ING Capital Life, a Dalian-headquartered joint venture which operates branches in Beijing, Shenyang and Jinan in a link up with the Chinese owned Capital Group.

With such a growing presence in the PRC insurance market, ING is obviously confident in the potential of the market here. What do you base its confidence on?

China’s life insurance penetration rate is only 2.2 percent of GDP. That’s low by international standards. The pensions arena is currently being heavily promoted by the Chinese government as it looks to reduce its future health and pension liabilities. Foreign players only have around 3 percent of the market share. It’s these low levels of overall insurance penetration and the burgeoning participation by foreigners that highlight the long-term growth potential that makes China such an attractive opportunity. In addition, China’s middle class - defined by the government as households with incomes between RMB 60,000 and RMB 500,000 per annum - is now about 5 percent of the population, yet by 2020 that segment is anticipated by the government to be nearer 45 percent. This increase in wealth in turn fuels the demand for more and more personal financial services as people become increasingly affluent.

To join the WTO China promised to level the playing field for foreign institutions like ING. Have things been going to plan?

Growth in the insurance market is coming though the timetabled deregulation agreed as part of China’s accession to WTO membership. An example of this was the change in regulations in December 2004 that allowed foreigners to offer group insurance. Both ING life insurance businesses have group licenses, which allow it to offer non-tax deductible pensions products.

What is the regulatory situation now for foreign insurers - has the market opened quickly enough for foreign insurers? What would you most like to see change, from a regulatory point of view?

China is an emerging market and the financial services sector is undergoing considerable structural change, both through market forces and through the liberalization agreed under the WTO timetable. China has achieved huge changes in a few short years - changes that took decades in Europe and the US, and this rapid pace of change does not appear to be slowing. Rather than the regulatory environment, I feel the main hindrance to growth is the ability to hire seasoned professionals with solid experience in financial services - and that’s a feeling shared by many in the industry.

ING took a 19.9 percent stake in Bank of Beijing. How is it making its presence felt there?

Another great growth opportunity comes through bank assurance as account holders look to raise the return on their bank deposits. ING is taking advantage of this opportunity through its stake in Bank of Beijing, the country’s second largest city commercial bank in terms of assets. It’s targeting account holders with insurance and wealth management products from sister ING companies.

ING recently chose Shandong (rather than other, richer provinces) as the territory for the rollout of new branches for its insurance business. Why?

Shandong was a natural choice for the expansion of ING Capital Life, which is based in Dalian in Northern China. Following on from the expansion into other cities in Liaoning Province, this new business is located across the Bohai Bay from the headquarters. Also, Shandong is the third most populous province in China so it offers attractive opportunities for rapid growth since foreign insurers can now expand on a province-by-province basis. Once branch operations are underway in Jinan, allowing ING to target over five-and-a-half million people, it is then entitled to start procedures to open sales and marketing offices across Shandong to sell insurance to more of the province’s 91.8 million inhabitants. ING’s two life insurance licenses mean it can expand to the north via ING Capital Life and concentrate on expansion to the south through its second life insurance business, Pacific Antai Life Insurance. That’s headquartered in Shanghai and is also active in Dongguan, Guangzhou, Nanhai and Shunde, which are all south of the Yangtze River.

Which products do you expect to be particularly successful for insurers like ING?

Expect increasing interest in online insurance services and demand for investment-linked products. In general, participating policies are the most popular as customers take advantage of the investment returns that are above and beyond the typical 2.5 percent guaranteed rate of return. ING will be selling traditional life, universal life and personal accident policies initially. But in addition, ING Capital Life plans to launch investment-linked insurance products this year. Once these investment-linked products have been launched in Dalian, they will be rolled out to the other branch operations, depending on demand.

What is ING’s strategy going forward in China’s insurance market? More branches in more provinces? Or a broader set of products?

ING is looking to open more branches in more cities/provinces pending the necessary regulatory approvals and is continually looking to broaden the range of products in line with the financial needs of its customers. In terms of business plans, ING is confident that it can continue to develop its businesses across the spectrum of financial services, leveraging international best practice and the strength of its partners, to the benefit of consumers in China.