Since China’s market opening more than 30 years ago, the country’s non-life market has recorded a breath-taking expansion. It has risen to the world’s 3rd largest non-life insurance market, with premiums of US$ 126 billion in 2013, only slightly behind Germany (US$ 133 billion). US is the largest non-life insurance market with premium of US$ 726 billion. Even though slowing significantly since 2011, the average inflation-adjusted annual premium growth rate over the past ten years came in at 17%, i.e. markedly above China’s spectacular GDP growth. As a result, non-life insurance penetration (the share of premiums in GDP) has increased from 0.9% to 1.4% over the past ten years, as compared with the global average of 2.8%.

Headwinds in motor business

Robust new vehicle sales in the wake of rising levels of income have been the biggest driver of non-life premium growth in China since the beginning of this century. However, the future expansion of motor business is likely to slow because of the planned liberalisation of motor premium rates and increasing restrictions on car ownership and usage in some major cities which suffer from heavy traffic and air pollution. In addition, pressure on profitability derives from increasing costs of spare parts, higher manpower costs in auto repair and spiralling levels of compensation for personal injury will also slow down the growth in this sector.

Prospects for agricultural insurance remain bright

Specialty lines, and agricultural insurance in particular, offer a brighter picture. The government subsidies programme has boosted premium income, making China the world’s second largest agricultural insurance market after the US. The potential for further growth is significant as the Government and the CIRC remain committed to promoting agricultural insurance, including crop, forest and livestock cover, in order to enhance the living standards of the rural population and to ensure national food security.

In contrast to the successful Public-Private-Partnership in agricultural insurance, China’s natural catastrophe insurance coverage remains largely unaddressed. For example, in 2008 only 0.2% of economic losses from the Wenchuan earthquake were insured. It is much to be hoped that the lessons from the agricultural insurance programme will also benefit the future coverage of natural catastrophe risks.