INSURANCE CONSIDERATIONS FOR CHINA
(LGL006)
Speakers:
Wise Xu, Deputy CEO, Willis China
Laura Langone, Senior Director, Global Risk Management, Juniper Networks, Inc.
Learning Objectives
At the end of this session, you will:
•  Make sense of regulatory compliance within the Chinese
insurance industry
•  Mark the differences between the U.S. and the Chinese
insurance markets
•  Consider your risk management options for program structure
An Overview of China’s
Insurance Industry
Wise Xu
Deputy Chief Executive Office
Willis China
China Insurance Market Overview
Market Review
2012 - 2016 GDP
25000
Nominal GDP in bn US$;
Real GDP Growth
20000
15000
10000
7.35% 7.6% 7.4%
7.7% 7.7%
5000
By 2024,
China’s
GDP is
forecasted
to be the
world’s
No. 1.
0
2012 2013 2014 2015 2016
2024
2007 – 2013
Non-life insurance
penetration
0.49%
0.39% 0.43%
0.71%
0.61% 0.65%
0.80%
2007 2008 2009 2010 2011 2012 2013
MARKET HIGHLIGHTS:
§  The economy has shown signs of maturing with a decline in GDP growth in
recent years.
§  The Chinese government is introducing reforms which could have a significant
impact on the demand for insurance.
§  Non-life insurance penetration levels are growing but remains low compared to
the global average.
Source: Na+onal Bureau of Sta+s+cs' Database; Market Intelligence calcula+on based on: HIS Global Insight, (2014), www.ihs.com; CIRC, (2014), www.cic.gov.cn Insurance Market Review
2007 -2014 Non-Life Premium Trend
140
120
100
80
60
40
20
0
Non-life premiums (in US$ bn) versus non-life premium growth (in %)
2007
2008
2009
2010
2011
2012
2013
2014
Premium Income
31.6
36.2
44.2
60.7
72.9
87.6
104.6
116.18
Growth Rate
32%
17%
23%
36%
20%
20%
19%
15.95%
MARKET HIGHLIGHTS:
§  China’s non-life & life insurance sector has continued to grow faster than GDP.
§  Following the cooling of China’s booming economy in 2011 and a challenging
solvency situation, the growth levels have declined.
§  However, the market is expected to benefit from a Second Wave of development
driven by favorable government policies.
§  Market consolidation will be more frequent.
Source: Market Intelligence calcula+on based on: CIRC, (2014), www.cic.gov.cn Insurance Market Review
2014 Market Share Breakdown
Proportional split of premium by insurer
Foreign
(in %)
2.2%
Sunshine
P&C
China
3%
Continent
3%
China
Insurance
5%
China Life
P&C
5%
Other
Locals
17%
PICC
34%
2007 – 2014 Foreign Player
Market Share
Evolution of percentage share of foreign
2.5%
insurers in Chinese market (in %) 2.2%
2.0%
1.5%
1.6%
1.2% 1.2% 1.1% 1.1% 1.1% 1.2%
1.0%
CPIC
12%
0.5%
PING AN
19%
0.0%
2007 2008 2009 2010 2011 2012 2013 2014
MARKET HIGHLIGHTS:
§  The “Big Three” (PICC, Ping An, and CPIC) still control almost two thirds of the market share.
§  Market players (Non-Life only):
•  64 (43 Domestic Funded Insurers, 21 Foreign Funded Insurers)
•  7 Licensed Domestic Reinsurers
§  Foreign insurers play a more prominent role in specialist classes
Source: Market Intelligence calcula+on based on: CIRC, (2014), www.cic.gov.cn Insurance Brokers in China
§ 
§ 
§ 
434 brokers in total by 2012 year-end
EUR 4 Billion of Non-life premium placed via brokers in 2012, market
share of 6.2%
In-house brokers for state-owned enterprises dominate the market
• 
• 
• 
• 
• 
• 
• 
• 
§ 
Chang’ an (State Grid)
Beijing Union (Department of Education)
Kunlun (China National Petroleum Corporation and PetroChina)
Zhong Sheng (PICC Group)
Air Union (China National Aviation, Eastern Air and Southern Air)
Zhong Ren (Guangdong Yuedean Group)
China Resources
COSCO
All major international brokers present in China
(Willis, Aon, Marsh, JLT, Lockton and etc.)
Loss Adjustors in China
§ 
§ 
A total of 325 loss adjustors in China by 2012 year-end, most of
which are regional and dedicated for motor claims handling
Largest domestic adjustors are:
§ 
International adjustors include:
• 
• 
• 
• 
Cunningham Lindsey
McLarens
Crawford
Pierre Leong
Insurance Laws & Regulations
in China
Insurance Laws & Regulations
in China
Supervisory Body
§  China Insurance Regulatory Commission (CIRC)
China Insurance Law
§  Effective October 1, 1995
§  Newly-revised version to eliminate any non-compliance with WTO
requirements effective January 1, 2003
§  Recent revision made on 31st August 2014
Admitted Insurance /
Geographical Restrictions
§  Risks in China to be insured with insurer(s) licensed in China
§  100% pure fronting is prohibited. Some level of risk must be
retained by the local insurance market
§  Insurance has to be purchased from an insurer located in the
same city where the risk is domiciled except for a “Large
Commercial Risk”
• 
Definition Large Commercial Risk: Total investment exceeds RMB150 million
(USD24.52 million) and total annual premium exceeds RMB 400,000 (USD
65,409)
Major Compulsory Insurance
Auto Third Party Liability
§  Compulsory Auto Third Party Insurance from July 1,2006
§  Restricted to domestic insurers only
§  Indemnity Limit: RMB 122,000
Workers Compensation Insurance
§  Social scheme run by the government (Social Insurance Bureau) effective January
1, 2004 Dependent on various regions / provinces and at various stages of
implementation
Personal Accident for Construction Workers
§  Contractors are obligated to provide personal accident insurance for workers
engaged in “dangerous” works on a construction site
Environmental Liability Insurance for certain high-polluting industries
§  More details in later pages
Mandatory Environmental
Pollution Liability Insurance
Effective March 2013, the following industries are
required to take out environmental liability insurance:
§ 
Miners and processers of heavy non-ferrous metal ore
§ 
Heavy non-ferrous metal smelting industry
§ 
Lead battery manufacturing industry
§ 
Leather and leather product industry
§ 
Chemical raw material and chemical product manufacturing industry
Besides the above-captured compulsory industries, The Guiding
Opinions recommends that following industries also consider purchasing
environmental liability insurance:
§ 
Petrochemical industry
§ 
Producers, warehousers, users and transporters of dangerous
chemicals
§ 
Hazardous waste treatment industry & Industries with dioxin emission
Mandatory Environmental
Pollution Liability Insurance
Municipal governments enact practical regulations and promote the
development of environmental pollution liability insurance.
•  Scope of mandated industries is defined by municipal governments, sometimes wider
range of industries is given in high risk area;
•  Most provinces implement compulsory insurance regulation and others encourage
enterprises to keep pollution liability policy with subsidy;
•  In many provinces local government play an active role in compulsory coverage design,
co-insurance panels are established, or dedicated broker appointment;
•  In many provinces, broader coverage from commercial markets cannot replace
compulsory one.
Workers Compensation &
Employers Liability
§  In 2004 Workers Compensation (Work-related Injury) Insurance
became compulsory as part of social security scheme
§  New Employment Contract Law of 2011 gave more protection to
employees
§  Low benefits and coverage gap under the Workers Compensation,
which leads to increasing needs for commercial Employers
Liability insurance as supplementary cover
Workers Compensation &
Employers Liability
§  Areas to review for possible gaps:
•  Professional Chinese Nationals with salaries above local average
•  Expatriates
•  Employees who incur medical expenses while overseas
•  One-off unemployment compensation for Injury Levels 1-5
§  It is important to understand that benefits programs (Accident,
Pension, Medical & etc.) CANNOT respond to legal claims
arising from employees
Reinsurance
New Reinsurance Regulation came in force from 1July 2010
§ 
Reinsurance offer to domestic carriers as priority is no longer required.
§ 
Maximum outgoing cession of 80%.
New Rules for Reinsurance Enrollment (effective 1 Jan 2016)
§ 
Applicable to all reinsurance companies and reinsurance brokers
§ 
Different schemes applicable for domestic and foreign reinsurance companies
§ 
Key information disclosure requirements
§ 
Cleared list vs Black list
§ 
IT infrastructure development for enrollment and management
Other Important Regulations
Minimum Property Insurance Rating Regulations
§  Nationwide Requirement – Pure Risk Minimum Property Rating for commercial
buildings, public roads, subway and power plants
§  Provincial/Municipal regulation – Currently enforced in 20+ provinces or cities
• 
Applies to broader scope of industries
• 
With practical stipulations in details
• 
Rating differs from area to area
• 
May affect premium allocation under global program
• 
A Large Commercial Risk may be exempted in some Province/Municipal
Cash Before Cover (CBC) – Provincial/Municipal requirement for
non-life insurance
§  Currently enforced in Guangdong, Liaoning, Zhejiang, Sichuan, Hubei, Hunan,
Shandong, Nanjing, Shenzhen and others
Key Challenges in China
Challenges in China:
A Market far from mature
§  China market is unique and different from the West
§  Local laws subject to continual changes and therefore many
uncertainties
§  Interpretation of law & insurance policy wording dependent on
the individual concerned
§  Ambiguous policy terms and conditions
§  Very often claims are settled on a compromised or negotiation
basis
Challenges in China:
Coverage Restrictions
The following coverages are not always available in China:
§  Full Earthquake Cover
§  Full waiver of subrogation
§  Interdependency (Customer/Supplier) cover with adequate limit
§  World-wide jurisdiction under General Liability
§  Pure Financial Losses
§  Fleet Motor policy
Challenges in China:
Cultural Differences
§  Very few Chinese enterprises have dedicated Risk Manager
positions
§  Insurance procurement and broker selection is perceived as
a local decision
§  Cost-driven and money-swap strategy prevails
§  Lowest deductibles are preferred
§  Appointment of insurance brokers mainly due to compliance
consideration
Challenges in China:
Latest Development
§  Tighten environmental requirements – New Environmental
Protection Law
§  Increasing Labor cost – It can mean a lot
§  Claim Issues
§  Increasing D&O exposure
Risk Management
Considerations
Laura Langone
Senior Director
Global Risk Management
Juniper Networks, Inc.
Type of Risk IP Protection
High
Identifying Risks of Doing Business in
China: How much risk are you willing to take?
Export / OFAC Compliance
Compromise of U.S. Ethics Laws
Ineffective Legal Entity and Business
Structure
Partner Turning Competitor
Potential Impact
Negative Impact on USG-Related
Business
USG-Related
Business
Export / OFAC
Compliance
IP Protection
Ineffective
Legal Entity &
Business Structure
U.S. Ethics
Laws
Partner Turning
Supply Competitor
Chain
Profitability
in China
Market
Restrictions
Profitability in China
Supply Chain & Operational Risks
Low
Market Restrictions
High
Likelihood
Risk Managers should be aware of each type of risk associated with doing business in China,
with IP risk proving the most relevant and immediate
Medium
Risks should be managed through an
integrated, cross-functional program Type of Risk
IP Protection
Ineffective Legal
Entity & Business
Structure
Negative Impact
on USG-Related
Business
Partner Turning
Competitor
Export / OFAC
Compliance
Market
Restrictions
Compromise of
U.S. Ethics Laws
Profitability in
China
Sample Roadmap
Function Responsible For Mitigating Risk
Executive Office
Operations
Sales & Marketing
Finance
HR
IT
Legal & Risk
Key Takeaways
¡  Risk mitigation in China requires a cross
functional program with executive
sponsorship at the highest levels of business
¡  Risk mitigation includes three steps: design,
implementation, ongoing management
¡  The most effective programs contain constant
feedback loops to take into account changing
legal and economic environment
Evaluate Risk Appetite Statements:
Determine Risk Transfer Opportunities
Return
Risk
Tips
ü  Establish boundary statement
ü  Focus on tolerance levels impact
ability to allocate more into product
development
How much risk are you willing to take in pursuit of your business and strategic objectives?
i. 
We must be in China for market prevalence and long-term share. We are willing to take
significant risk (e.g., IP, Market, Infrastructure Costs, Supply Chain) to do so while
managing these risks to the best of our ability .
ii.  Where we will transfer and/or mitigate risk based on a cost/benefit evaluation. Risks we can
easily transfer through insurance (e.g., fire, transit) and hedging (e.g., FX), we will do so
where economical, required by law, and minimizes our overall risk profile.
iii.  Risk we cannot easily mitigate, we will work with the business units and functional areas to
implement mitigation, monitor and manage accordingly.
Example: Supply Chain Risk in China:
Risk is significant dependence on Contract
Manufacturers in APAC, specifically, China.
Understand our exposure on a
Portfolio basis and loss scenarios
We’re able to assess the
product impact in the event
of a crisis
We have visibility to our
spend within our Supply
Chain including external
partners
We have visibility to:
•  300+ of our direct and
sub-tier suppliers
•  2,000+ supplier sites
worldwide
•  22,000+ part numbers
Juniper Hardware / Products
> Billion
MX
PTX
2 CM’s
5 Sites
13 DOF
sites
E
Series
EX
5 ODM’s
15 Sites
2 DOF sites
115 Direct suppliers
1,512 Sites
15,000+ Parts Numbers
190 Sub-tier suppliers
552 Sites
7,000+ Parts Numbers
M
Series
Evaluate our supply chain risk
based on risk categories
Financial Health
Credit Risk
Z-score
Debt Rating
Natural Disaster
Geopolitical
Macroeconomics
Local
Financial
Risk Score
Location
Risk Score
Recovery
Business Continuity Plan Risk Score
Recovery Time
Portfolio of Risk
Individual Risk Evaluation of a loss from a
CM in China
Prioritize Suppliers Based on
Risk Categories
§  Single Source Vulnerabilities
based on Commodities
§  Location vulnerabilities
based on Country
§  Sub-tier supplier
Dependencies
Apply Business Continuity Plans
Overview of the three scenario impact analysis:
•  Minor Impact – Local fire / partial facility closure (Scenario A)
•  Medium Impact – Facility going offline for a duration of time (Scenario B)
•  Major Impact – Long term non-operational failure of the site (Scenario C)
Impacts are assessed based on two cases:
•  Best Case
•  Worst Case
For which the sensitivity analysis focused on:
•  Useful inventory
•  Main site bring-up delay
•  Back-up site bring-up delay
•  Revenue lost with respect to the delay
Proactive Supply Chain Risk Management:
Real Time Monitoring with Prospective Planning
Risk Transfer & Claims Management
China Exposure
China Property Type Risks & Red Flags
Contract with CM on Key Terms:
ü Named Perils v. All Risk Policies – Don’t rely on local only
•  Indemnity, BCP, Inventory, Insurance
ü Loss Control & Engineering Standards Differ – engage
your team to educate and enhance standards
Local Policy with CM
•  Potential gaps in local policy, basic-terms
Local Policy Juniper
•  Still basic but maintain for legal compliance,
claims and local payments as required
Global Master Program Juniper
ü BCP programs are more like Emergency Response – train
real-time and improve annually – meet the team
ü Large facilities & Multi-Tenant – build customer relations,
engage through BCP and pre-claim meetings
ü Components Supply & Quality – insert a local Juniper
Quality Control person on-site – be present
•  If all else fails, provides CAT coverage, triggers
ü Logistics & Delays – hold inventory on-hand in other
global resources to negotiate local market
locations
Look to the Contract and BCP for
Un/ Underinsured Loss
Level III
Global Corporate Policy Juniper
(STP & Property Program)
Global Brokers with Local Claims Expertise
Level II
Level I
Local Chinese Property
Policy Juniper
Global Broker
Decentralized
with local
Local CM Policy
network
In Local Market
Key Lessons Learned §  China is changing, both economically, governmentally and
demographically
§  Global Companies need to understand their unique risks and
develop mitigation strategies to the many inherent risks of doing
business in China
§  Select the “right” set of external support and expertise to assist with
understanding the Chinese market, insurance landscape and risk
management challenges, including legal, tax, IT, brokers, insurers,
suppliers, and resellers
§  Always have a strong legal and business foundation for business
relationships
§  Do the right thing locally while protecting assets globally
THANK YOU
Q&A