Unreasonably low premium rates in China's non-life insurance sector, coupled with inadequate awareness of insurance protection, is hampering the hugely promising industry's long-term growth, reported China Daily on Monday.

But international reinsurers are by no means losing their interest and confidence in the Chinese market and economy, says Munich Reinsurance Group, the world's leading reinsurance company.

Widespread price competition among local non-life insurance companies, at a fiercer level than in many other markets, has pushed premiums rates in the Chinese market down to unreasonably low levels, says Ulrich Trumpp, Chief Executive of Greater China & Southeast Asia.

"The premium rates are not acceptable," he said, adding that it is not rare to see non-life premium rates in the local market, such as in insuring power stations and metro systems, that are only one-third of levels in other markets.

Local analysts have also been addressing the problem, warning that it may endanger solvency capacity at some insurers.

And local insurers have already been encountering increasing difficulty in finding international reinsurance coverage due to the low rates.

Local players have made some attempts to end undercutting, but the overall situation has yet to see significant improvement.

Moreover, Trumpp said, a lack of risk awareness among many Chinese companies, especially State-owned enterprises that are long accustomed to the government paying the bill for all losses, has left many major risks uninsured.

"If China does not have insurance coverage, the economic downside, no doubt, is much bigger than buying coverage but paying risk-adequate premiums for insurance," he said.

Munich Re listed the 10 "most prioritized risk categories for China" at its first Property Insurance Symposium and Fair in Beijing last week, including such fast-growing areas as hydraulic engineering projects, underground railway construction, auto production, steel plants and power plants. For the occasion, it deployed 40 experts from different high tech fields.

The topic selection was in response to requests of the local industry and a result of considering the company's know-how, Trumpp said.

Rapid growth in all those areas, however, has been a major attraction to international reinsurers. Shortly after Munich Re opened its first Chinese branch in Beijing last year, Swiss Re and General Re Corporation, another two of the world's largest reinsurance players, have set up shop in the Chinese market.

But Trumpp said business volume remains small for his firm for the time being. "China is still in its infancy for Munich Re," he said.

"We are not taking undue risks unless the price is risk-adequate," he said.

"We stand for what we are covering."

Although the market conditions remain challenging for international reinsurers, Trumpp said his company is optimistic about future growth prospects given the huge potential of the Chinese economy, believing that the local insurers and customers "will learn to think differently."

"China's insurance industry is developing at an incredibly rapid rate to cope with the country's economic needs. We are committed to supporting this development through the provision of reinsurance at risk-adequate rates which are sustainable and provide long-term security," he said.

Also, he said, the China Insurance Regulatory Commission, the local insurance watchdog, is leading the industry "towards the right track" as it tries to enforce solvency margin requirements and raise actuarial standards among local insurers.

"We are not frustrated," Trumpp said.

"We are investing in training and expertise," he said. "We are exchanging know-how, helping develop new insurance products, training people, and learning from the local market."

Munich Re started co-operating with Chinese insurance industry in 1956, and maintained the ties at times when the local industry was largely suspended for political reasons.

"That means we go for a long-term partnership," Trumpp said.

Source: China Daily