Nearly four years after China entered the World Trade Organization (WTO), the rapidly-growing insurance sector remains the only financial sector that has opened its doors almost completely.

As foreign insurers ramp up expansion plans in one of the world's most promising markets, are the local players, who still dominate, secure? Are the authorities still keen to continue opening up, and how are they going to tackle the regulatory challenges as the number of players increases?

Wu Dingfu, chairman of the China Insurance Regulatory Commission (CIRC), shared his views with China Daily. "Joining the WTO is like riding on an international train," he said. "Because you are not the conductor, you cannot stop the train anytime you want, nor can you jump off."

But nor is there any need to jump off the train. "Overall, the benefits of opening up outweigh the impact," Wu said. "The consensus between the government, industry and academia is that we should continue opening to the outside world."

Still, the train may be running faster than many Chinese insurers think. They may be complacent because they have dominant local networks and know foreign competitors hold only a little less than 3 percent of the current market share.

But they are not working hard enough to prepare for the impact.

"They are wrong in thinking that way," said the top regulator. "With the transitional period for the insurance industry having ended, the impact of foreign insurers on local insurers will become increasingly evident."

China scrapped geographical restrictions on foreign insurance companies at the end of last year, enabling them to operate in any province where they have a branch and apply to set up operational entities in any city.

And as foreign property insurers were allowed to convert branches into subsidiaries from the end of 2003, the subsidiaries are also expected to apply to open new branches.

"Pressure from the market entry of foreign insurance companies is currently weaker than in the early days of WTO membership, but applications by those operating here to open new branches are rising, and the impact is no less than what we experienced when they first entered the market," Wu said.

To defend their positions, the official said, Chinese insurers need to change their mindsets, pay more attention to the quality of growth and profitability, and have a long-term view.

Though not as quickly as Wu would like to see, local insurers are on the move. Pressing ahead with internal reforms, the three largest Chinese insurers have launched successful initial public offerings in the stock market, strengthening their corporate governance and management, while more than 10 new Chinese insurers were approved last year.

What foreign and local insurers are competing for, and developing at the same time, is an insurance sector that Wu said is still in an early development phase.

After more than 20 years of growth as high as an average of 30 percent per year, the sector still only accounts for 3.8 percent of China's financial industry in terms of assets, and total premiums were just 3.4 percent of gross domestic product, compared to 9.36 percent in the United States.

"In terms of premiums, the annual premium income at some individual American or European insurers is equivalent to the total premiums in China in one year," Wu said.

It is the strong urge to develop the local insurance industry, and allow it to play a bigger role in the economy, that is behind the authorities' determination to usher in foreign competitors who have expertise and capital.

"Essentially, we need to accelerate the pace of reform and improve our competitiveness. That is why China is continuing to open up and honor its WTO commitments," the regulator said.

More than 40 foreign insurers have set up shop in China, and while their market share nationwide remains small, they have grabbed a share as large as more than 10 percent in wealthy cities like Shanghai and Guangzhou.

The growing importance of the Chinese market, coupled with the need to learn from foreign counterparts, is making Wu and his colleagues increasingly active in the international community. China will host the annual conference of the International Association of Insurance Supervisors (IAIS) next year in Beijing.

"The fact that China is the most populous developing country and the largest potential insurance market determines that CIRC, as China's insurance regulator, will inevitably play a key role in the IAIS," said Wu, who attended the IAIS 2005 annual conference in Vienna, Austria, that concluded last week.

Enhanced international exchanges will help Chinese regulators improve their supervisory work and heighten risk management, by learning from foreign markets.

And in an era of globalization, China's insurance authorities, by enhancing international cooperation and promoting their influence, will "improve the transparency of the opening up of China's insurance market, which will help earn understanding from other countries and help to gain the initiative in multi-side negotiations, all of which will help to create a favorable international environment for China's insurance industry," Wu said.

It will also "help Chinese insurers familiarize themselves with the international market, paving the way for their international strategies," he added.

(China Daily October 28, 2005)