Dust for some is gold for others
Updated: 2011-10-14 11:38
By Meng Jing and Zhou Lihua (China Daily European Weekly)
Insurance ventures reap rich premiums from province's urbanization spree
Development and construction sites dot the landscape in Wuhan. Though many feel that the construction sites are responsible for traffic jams and deteriorating air quality, others see them as signs of rapid urbanization and strong economic growth.
Joey Lee, general manager of the Hubei branch of Aviva-Cofco Life Insurance, a Sino-UK insurance joint venture, feels that the rapid urbanization spree has had a positive impact on the fortunes of insurance companies in Wuhan.
Justifying his claim, Lee says that new premium income, the main gauge of profitability for insurers, has soared in Wuhan with local economic growth outpacing the national numbers.
New premium income at Aviva-Cofco's Wuhan branch has risen from 139 million yuan ($21.86 million, 15.85 million euros) in 2009 (after opening operations in March 2009) to over 193 million yuan in 2010.
Hubei's rapid economic growth of around 14 percent in 2010, compared with China's average 10.3 percent growth, has helped Lee's branch outperform most of the company's other branches in China, especially those in the well-developed coastal cities.
"Nearly 26 percent of the 20,016 customers in Hubei province are high-end wealthy customers, or rather people who spend 10,000 yuan or more a year on insurance. In contrast, the national average for our company in China is just 16 percent," says Lee.
Thanks to the sizeable number of wealthy customers and the high degree of employee commitment, Lee's branch has been chosen (by the joint venture partners British insurance giant Aviva Plc and China's largest food manufacturer Cofco) as the pilot branch for better customer experience.
Though the honor has necessitated several changes to the branch's work protocol, from sales to after sales, and often involves overtime work for Lee and his team, they are happy and justifiably proud of their achievements.
"Our Beijing headquarters is the only branch that surpasses us with 28 percent of its around 58,116 customers belonging to the high-end category. But the Beijing branch has been in operation since 2004 whereas we started in 2009 as the 10th branch of the company," he says.
"Wuhan caught our eyes at that time as the local economy was booming and accounted for over 35 percent of Hubei's gross domestic product (GDP). It was also a gateway to Central China."
Despite rapid growth in premium income over the past two years, insurers are still keeping their fingers crossed for 2011. High bank interest rates have taken the sheen off the insurance business and along with it customers, Lee says.
Life insurance, a key part of the overall insurance business, for instance, had witnessed virtually flat growth in Hubei province in August compared with the same period of last year. However, Lee still feels that the overall insurance business for the branch will be good this year.
"We have an overall goal of catering to nearly 30 percent of the high-end wealthy customers in China by 2014. I think in Hubei province, we can achieve 40 percent due to the strong economic growth of Wuhan and Hubei," he says, adding that new construction projects in Wuhan involving 50 billion yuan investment and more can seldom be seen in other cities.
Like Lee, other JV insurers are also cashing in on the rapid urbanization boom in Wuhan. US insurance major Metlife consolidated its joint ventures in China earlier this year and entered the Wuhan market with a Chinese partner, making it the sixth joint venture insurance company in Hubei.
Despite the intense competition, Lee does not seem too perturbed. "The cake is quite big, and we want more companies to come in."
According to data from the Hubei Bureau of China Insurance Regulatory Commission, joint venture companies contributed around 1 percent of the region's 27.5 billion yuan original premium revenue from life insurance by the end of August this year.
"Clearly, there is a lot of potential for us to grow further," Lee says, adding that the JV plans to open two new sub-offices in Hubei province every year in the near future.
"Three out of our five sub-offices in Hubei have been in Wuhan. It is time now to go to the lower tier cities in Hubei," Lee says.