The Potential Growth Segment of Rural China

Being a Celent insurance analyst based in China, I sometimes meet with Celent customers who visit Beijing and share my insights on China insurance market growth and technology development. Many customers are interested in the potential market size, the competitiveness of the market, and the progress of technology. But recently, when I meet Celent customers in Beijing, they ask me a new question: will the insurance industry in China continue its high growth? Consumer confidence is down because of the global financial crisis and the many countries in recession. Thus China’s exports are decreasing quickly, and because this influences other industries, we’re seeing China’s economic development slow down. Facing this, the Chinese government decided to stimulate internal investment and consumption. Since China has a population of 1.3 billion, it is a big market for its own products. At present, the rural areas in China are underdeveloped, and rural incomes are much lower. Some government policies are aimed to increase rural people’s income. So in the not too distant future, the rural area could be a large potential market for many industries, including insurance. The insurance premium from rural areas is very low. The market is dominated by a few large insurance companies and is still not highly competitive. The products being sold in rural areas are not specialized for rural people and thus couldn’t arouse their interest. The distribution channel is still dominated by sales agents. In June 2008, China insurance regulators started the micro-insurance experiment. To participate in the experiment, companies must develop simple products targeting low income people in rural areas, with payouts of RMB 10,000 Yuan to RMB 50,000 Yuan, low premiums, simple underwriting rules, and a simple claims process. The regulation also promotes the use of multichannel distribution and new technologies such as wireless solutions. By entering into the rural area, in the beginning, insurance companies may only get a very low premium from each client. However, as a mid-term to long-term investment, the rural area is a huge potential market for insurers, and future, rapid growth could still be expected.