3. 2
1 Executive summary
The aim of this paper is to evaluate the current challenges and
opportunities of China’s Auto insurance reforms, and how foreign investors
navigate and succeed in a complex regulatory and competitive market. This
report uses the SWOT analysis to identify the potential market opportunity
and apply Niche Market and Marketing Mix Strategy to position the right
customers and seek the possible market space in the competitive market
environment. At last, Recommendations for foreign insurers to develop
local project team, strengthen relationships with governmental offices,
Invest in technology and develop claims modeling and leakage
management, improve the customer relationship management are strongly
suggested.
2 Current Market Situation
China is the largest auto insurance market in the world and the daily sales
reach 40,000 vehicles, and china will continue maintain this position,
however, a recent survey conducted by the professional-services firm
PricewaterhouseCoopers International Ltd showed that foreign insurers'
market share in China has not changed greatly in recent years. Life insurers
now have about 5 percent of the market and property and casualty insurers
about 1 percent - the lowest such proportions found in Asia.
In the past decades, foreign insurance companies are only allowed to sell
Motor commercial insurance (optional) but are prohibited from selling
mandatory third party liability (MTPL) .The majority of drivers tend to
choose the same insurer for both optional and compulsory coverage,
therefore foreign firms has been effectively blocked from the he country’s
entire auto insurance market by China’s restriction. On May 2012, the
compulsory third-party auto insurance has been open to foreign companies
by china, which means China has given foreign insurers full access to its $32
billion auto insurance market, allowing them from this month into a
segment of the business that was earlier reserved for domestic players in
4. 3
the world's biggest automobile market. This action will help foreign
companies to boost their market share in the non-life segment Industry and
give foreign sellers of insurance a great development opportunity in China
auto insurance market. The local insurers have to improve own products
and services to survive and compete with their counterparts in the
competitive market.
With the liberalization of motor pricing and opening of compulsory motor
liability insurance to foreign insurers, China non-life insurance market will
continue to evolve rapidly, at the same time, foreign Insurance industry will
inevitably face the increased demand and higher expectation of services
from consumers.
As China’s economy continues to grow and the urbanization accelerates,
China government has committed to provide key support to grow the
insurance sector. All these factors will create the enormous challenges and
opportunities, highly favorable conditions for sustained growth of the China
non-life insurance market.
3 SWOT Analysis
(Strengths, Weaknesses, Opportunities, and Threat Analysis)
3.1 Strengths
Foreign Auto insurance can be focused on 2 strengths.
Rich experience
The decades of experience in data processing, underwriting and pricing will
bring the standard practices in mature markets and improve the
performance of mandatory third party liability automobile insurance
market as well as the whole auto insurance market.
Advanced products and supporting technology
5. 4
3.2 Weakness
Limited networks
Foreign insurers’ limited (or non-existent) networks could impact their
performance negatively, in spite of the advanced products and supporting
technology they can offer.
High commissions and risk management
High commissions and risk management could be major difficulties when
entering the Chinese auto insurance market.
Lack enough Market Exposure and promotion
The challenges of distribution and limited market share compounds the
need for improved brand awareness among foreign insurers. Foreign
Insurer generally lack enough market exposure and promotion in the high
growth China market, so foreign companies should place more attention to
the China Auto distribution management and branding recognition.
3.3 Opportunity
Policy
Third-party auto insurance fully access to foreign firms, this change will
stimulate foreign non-life insurers' business and help them to acquire
future market share in China.
Increasingly strong after-sales service awareness
In this day and age, Chinese customers gradually realize the importance of
after-sales service after experiencing the poor after-sales service and claim
system provided by local insurance company. Foreign insurers should take
6. 5
this opportunity to enhance own after-sales service and claim management
system to win more potential customers.
3.4 Threat
the Threat of Competitors
The primary competitors to the foreign insurers are the large domestic
insurers. China local insurance company are equipped with mature
distribution system and networks, so they are able to compete effectively
with their counterparts ( foreign insurers) in the domestic market and
recognize that the foreign companies represent no threat to their market
dominance and control.
The restriction of Insurance regulator
Foreign non-life insurers also need time to introduce new products and
obtain approvals from insurance regulator, so the insurance regulation
restricts their market development and business exposure.
SWOT analysis
STRENGHTS
1,Rich experience
2, Advanced product and technology
WEAKNESSES
1, Limited networks and sales channel.
2, High commissions and risk management
3, Lack of market exposure and promotion
OPPORTUNITIES
1, compulsory third-party auto insurance
open to foreign companies
2, Increasing strong after-sales service
awareness
THREATS
1, the Threat of Competitors
2, The restriction of Insurance regulator
7. 6
4 Critical Evaluations of Marketing Situation and Niche Marketing
Given the above situation analysis, we are certain that China’s motor
insurance development will continue to thrive and become one of the
world’s most important non-life insurance markets. With the open of
compulsory third-party Auto insurance to foreign companies, foreign
insurers will be able to full access to china auto insurance market, which
provide foreign insurers a equal market competition opportunity with
domestic business in the world’s biggest automobile market. Foreign
insurance companies should take this opportunity to develop and expand
own network and business channel, using Niche Marketing to target the
upper-class luxury Auto market to find possible market space, in the
meanwhile, reducing out-bound telesales and focusing more on internet
sales, in-bound telesales, cross-selling, and claim service quality
improvement.
It is challenging for foreign insurance companies to compete with major
players in China Auto insurance market, such like Ping An, PICC, CPIC Auto
insurance, so foreign insurance company should pursue higher margin
niche markets and develop targeted insurance products by giving full play
to its own advantages and taking advantage of government policy support.
Foreign insurance company should not only define the market segment by
cars but also focus more from the consumer types. The right market
segment and brand positioning will provide the completive advantage to
foreign insurers. Taking AIG for example, AIG should target the luxury car
users market and consistently focus on the brand positioning as “high
quality and service” in the upper-market, strengthening and improving
branding, product and service management.
8. 7
5 Market Mix Strategies
5.1 Product Strategy- Product innovation and differentiation
Product Strategy is defined the combination of the goods and services of
the company offers to the target market (Armstrong & Kotler, 2009, P.51).
It is generally believed that nothing adds value more effectively than
marketing a good quality product. Product innovation refers to developing
new products and service models targeting selected consumer segments
with unique features, by focusing on customer needs and innovation, and
to help build your brand (Armstrong & Kotler, 2009, P.51).
The current severe problem in the Auto insurance industry is that products
offered by different insurers are identical, which lead to the “war Price’’ in
the Auto insurance market. Each insurance company offer cheaper price to
compete with their counterpart and try to acquire more market share. In
terms of this situation, foreign insurance company should focus on the
product differentiation strategy, offer the products with high quality and
service, and constantly engage in product innovation, introduction and
diversification.
5.2 Pricing Strategy:
Price is the amount of money customers must pay to obtain the product.
For these years, in order to improve the market dominate position and
popularity, domestic insurance players use high discount, low price and
expand the insurance service range to attract the potential customers and
acquire the market share. This phenomenon is inevitable in the short-term
time and pricing will gradually become market-driven. Foreign insurance
companies should continue invest in more sophisticated pricing,
underwriting, marketing, customer retention, and claims management
models, in order to improve management decision-making and gain
advantage in an increasingly competitive market; what’s more, foreign
9. 8
companies should also focus on developing new products line and service
to develop its up-market, then using the Value-added pricing with a higher
price to gain the customers in the up-market.
5.3 Distribution--Booming new distribution channels:
It has become imperative for foreign insurance companies to gain a better
understanding of customer behavior, developing the multichannel
distribution systems and booming new distribution channels to reach more
potential customers.
5.31 Telesales
Insurance telesales has been expanding rapidly in China since 2007, when
Ping An Property & Casualty first introduced motor insurance telesales
products. The telesales recorded the highest growth rates for three
consecutive years from 2010 to 2012, and the premium income generated
by motor insurance telesales rocketed by an average annual rate of 150
percent from RMB 5 billion in 2009 to RMB 78 billion in 2012. The
percentage of motor insurance premium generated by telesales also leaped
from 2.4 percent in 2009 to 19.5 percent in 2012. Despite the impressive
growth rate of motor insurance telesales, there is still great potential for
10. 9
the development of direct marketing in China as compared to western
economies such as the UK and USA, where the percentages of direct
marketing ranges from 25 percent to 45 percent (Finance News, 2013).
5.32 Internet sales
The scale of internet sales of motor insurance products is still modest
compared with the rapid growth of telesales. With the increasing
percentage of 30- to 40-year-old car owners and the rise of e-consumption,
insurance purchase via internet is gaining popularity. Young car owners
tend to be more sensitive to price and coverage differences of motor
insurance, which gives rise to price comparison websites that help car
owners identify the most cost-effective insurers and the most suitable
product package.
Internet sales is currently processed at insurers’ own websites or through
third-party websites. Eight out of top 10 non-life insurers have established
their own internet sales platform. A number of leading insurance groups
have even started integrating group resources to set up internet sales
entities offering non-life insurance, life insurance and other financial
products. Internet sales platform of motor insurance products can offer
quick quotes, online premium discounts and recommend the most suitable
product based on the information provided by car owners. Some party
websites, such as baoxian.taobao.com, baoxian.com etc, Distribute motor
insurance products of several insurers and are able to help car owner
identify the best product by comparing offerings from various insurers.
Foreign insurers should take the advantage of own technology and mature
overseas experience to develop internet sales.
5.33 Cross sales
Cross-selling is also becoming increasingly popular in the motor insurance
sector and a key driver in enabling large insurance groups to achieve better
than industry growth rates. Selling motor insurance through channels such
as subsidiary banks, life insurance agencies etc, has already generated more
than 10 percent of their premium income. Encouraged by policymakers,
large automobile manufacturers and car dealers are also setting up their
own professional insurance intermediaries. Foreign insurance company,
take AIG for example, should strengthen the motor insurance distribution
11. 10
system management, cooperating with more car dealer and manufacturers,
building up auto club to focus on the potential customers and develop the
cross –selling, positioning the right customers to sell the auto insurance
when selling them the cars.
5.34 New branches
Foreign insurers can seek the ability to expand their branch networks more
aggressively to exposure customers in more cities in china. Centering the
first-tire city in china, such as Beijing, shanghai and Guangzhou, and
gradually expand more networks to the second and third tire cities.
5.35 Buying stakes in
Acquiring or forming a strategic partnership with domestic insurers will
continue to be another option for foreign insurers to rapidly expand their
market share.
5.4 Promotion-Increasing brand awareness
An important challenge is the low level of brand recognition for the foreign
insurers, so strengthening branding recognition by car users will be a key to
acquire more market share in the competitive market. Foreign insurers can
use social media such as micro-blog, RenRen website (equivalent to
facebook), Auto club forum etc to develop the branding awareness in the
public. Furthermore, using TV commercial, China local website (sina, sohu,
163 etc) would be another options to promote own brands and services.
6 Recommendations
According the analysis of China Auto insurance market, a number of
recommendations are suggested.
6.1 Developing local project team
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Foreign insurers should develop ideally Chinese speakers with experience in
Chinese and international market and companies, and thorough
understanding of Chinese business culture and needs, deep understanding
of local market and regulatory requirements.
6.2 Development of good relationships with governmental offices,
especially CIRC
6.3 Investment in technology
Investing in technology, analytical database development can achieve data
analysis and risk segmentation by data collection and analysis. This will
allow better risks to be targeted and poor risks to be avoided. Even in the
current regime pricing variation based on risk profile can be applied to aid
risk selection.
6.4 Developing more sophisticated and innovative motor insurance
products and pricing models
Developing more sophisticated and innovative motor insurance products
and pricing models has become a major trend in developed insurance
markets in recent years, For example, telematic devices installed in vehicles,
are coupled with GPS and mobile communication technologies to collect,
transmit, and analyze driving behavior data in order to calculate an
accurate and fair premium.
6.5 Using external advisors
External advisors with strong capability and extensive experience can
provide insurers with a wide range of consulting services related to motor
insurance, such as pricing tools/software, data review, gap analysis, model
validation, automatic underwriting systems, process streamlining, internal
risk control, and training etc.
6.6 Improving Customers’ Relationship Management
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Making strongly commitment to customer satisfaction making many
company successful (Article base, 2005-2008); collecting and processing
more customers satisfaction surveys including using the questionnaire and
customers product preferences.
The customer relationship scheme is various including regular newsletters,
regular phone calls, sales promotions, new product test; as well as the
additional information can be sourced through these contacts. A great ability
to develop products to customer needs can be done by this scheme, and
then a good relationship with customers can be maintained and improved.
6.7 Claims modeling and leakage management
There is an increasing need to drive down claims costs, not just to improve
results but to allow lower premium levels to the customers. Insurers need
to make a goal of significantly improving claims supply Chain efficiency and
squeezing ‘leakage’ out of the claims system. More sophisticated use and
control of repair networks and partners is called for, and the larger foreign
insurers may have the scale to invest in their own repair networks.
.
6.8 Developing the Marketing Research and applying Marketing Plan Tool
Collecting the marketing information by making good use of the methods-
marketing research to o better understand the consumer environment and
monitor competitors’ actions to better respond marketing challenge and
opportunity. At the same time, applying some marketing plan tool such as
CIM’s Marketing Planning Tool, this tool has been developed by CIM to help
company set the objective and create the plan.
7 Conclusion:
With china auto insurance reforms, foreign insurers will confront with more
challenges and opportunities; therefore, foreign investors should take this
advantage, defining the right market segment and marketing strategies to
acquire more market share in China Auto insurance market.
14. 13
8 References
Armstrong & kotler. (2009) Marketing, 9th edn, Pearson education,
Australia.
Software, Inc (1995-2009), Plan writing for Marketing, Retrieved May 10, 2014, from
http://www.marketing-plan-brs.com/marketing_plan_reviews.asp
The Chartered Institute of Marketing (2008) Welcome. Write your own Marketing Plan,
Retrieved May 11, 2014, from
http://www.cim.co.uk/marketingplanningtool
Articlebase.com (2005-2008) Commitment to Customers Satisfaction, Retrieved May 11,
2014, from
http://www.articlesbase.com/career-management-articles
www.pwchk.com (2011) foreign insurance companies in china, Retrieved
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