Mutual insurance: A new frontier in China?

Tuesday, 19 January 2016

The International Cooperative and Mutual Insurance Federation (ICMIF) took the concept of mutual insurance to Beijing, China, earlier this month when Shaun Tarbuck (pictured), Chief Executive, joined the expert speaker line-up – which also included US insurance mutual, State Farm - at the Insurance Association of China (IAC) one day training seminar on 15 January 2016.

Shaun Tarbuck was joined by Thierry Weishaupt from MGEN, one of France’s largest health mutuals and an ICMIF member, to help deliver a short course to help accelerate the development of the modern insurance industry.

In February 2015, the Chinese Government passed a new law allowing the set-up of mutual insurers and it is predicted that these new insurance mutuals will be granted mutual licences some time during the first half of 2016.

Tarbuck commented “It is great news for the global mutual sector that the fourth largest insurance market is now permitting mutuals to be set up and is putting in place pragmatic controls to ensure that the fledgling sector can grow sustainably.”

China is the fastest growing of the major insurance markets, having grown by 188% in the last seven years, but so far the mutual sector has been excluded from this growth.

“So, why the sudden change of heart by the Chinese Government?” asks Tarbuck.  “Following detailed discussions with the Chinese Insurance Regulatory Commission (CIRC), I have concluded that the Chinese believe that mutual insurance could go some way to solving some of their economic and social issues.

“The social issues around funding healthcare; an aging population; the increasing number of natural disasters through the effects of climate change; and poverty alleviation in the rural areas of China has, I believe, all contributed to their decision to open the market to mutual insurers as a potential solution,” adds Tarbuck.  “The market penetration of insurance (premiums as a % of GDP) is still very low in China which at 3.3%, is similar to that of India, but less than half of the OECD country average of 8%.  This is a reflection I believe, of how insurance companies in China have thus far catered for the high net worth (HNW) market, of which there are many, but not the majority of the population.”

According to ICMIF’s 2015 Global Mutual Market Share research, the global cooperative and mutual insurance market represented 27.1% of the global insurance market in 2014, a significant growth in global market share from 23.5% in 2007. The model is the fastest-growing part of the global insurance market since 2007, with a 31% growth in premium income during this period, compared to a 13% increase for the global insurance market as a whole.

The social impact of mutual and cooperative insurance is also illustrated with over 1.1 million people employed by the sector across the world, and 920 million people being served as members or policyholders of mutual/cooperative insurers.

“One could argue that the Chinese have looked at the history of the development of mutual insurance in Europe and the way it served the previously unserved and provided inclusive protection for all in the early 1900s and saw the possibility that mutual insurance could be used to protect large numbers of the citizens of China in a similar way,” said Tarbuck. “More will become clear this year, but the advent of mutuality is certainly set to be a new and exciting frontier for China”.

The IAC training course follows an earlier ICMIF/MGEN presentation – led by MGEN’s Executive Director – Jean-Louis Davet – which was delivered to 100 potential mutual leaders and the Chinese regulator in Shanghai in November 2015.