The Guangdong bureau of the China Insurance Regulatory Commission (CIRC) announced that they were planning to set up insurance companies at Xiaolan county of Zhongshan city, Guangdong province.

"The county insurance plan is under way. Since there were no such insurance companies in China before, they are very cautious about the policymaking and its feasibility," an unnamed source said.

Setting up county-level insurance companies is not as easy as establishing a commercial insurance company. Market positioning and operational problems are crucial factors.

At the end of March, since the premium income was decreasing rapidly, the CIRC Guangdong bureau initiated an investigation about the influence of the financial crisis upon the insurance industry in Zhongshan, and this investigation triggered the idea of setting up county insurance.

According to official statistics, by the end of June, Zhongshan's premium income totaled 3.04 billion yuan ($444.76 million), down 10.89 percent from the same period last year. Compensation and other expenses amounted to 589 million yuan, up 9.23 percent year on year.

An investigation in Xiaolan discovered that not only were the premiums dropping but that export credit insurance was also being affected by the crisis. Inspired by the county banks, local officials then suggested to the CIRC Guangdong bureau to establish county-level insurance companies.

At the beginning of April, an official of Xiaolan said they would continue to develop local finance, including a new type of insurance company, while adequately controlling the potential risks.

Eight commercial banks, 19 insurance companies and two securities companies have set up outlets in Xiaolan, a county with a population of 400,000, which all create a competitive market.

In June, after Xiaolan once again showed their determination to set up county insurance, Guangdong bureau issued another profound investigation, including the local economy, financial environment as well as the prediction and evaluation of county insurance companies' operation.

The result showed it is still difficult for the small-and-medium-sized enterprises (SMEs) to finance. Besides measures like guarantee and banking, the local government is also considering providing financing insurance to SMEs.

(China Daily September 14, 2009)