On China Sceptics

18 Lloyd's businesses are now trading on the Asia platform in Singapore
18 Lloyd’s businesses are now trading on the Asia platform in Singapore

The formation in Singapore of Lloyd’s Asia platform in the late 1990s came too late to make an impression in Japan and South Korea. By the time London capacity and capability arrived locally, the industry in those two countries had already developed long-standing relationships with major reinsurers in Europe, USA and Bermuda. Instead underwriters in Singapore set about building a business in the far smaller but more inviting ASEAN group of nations: Indonesia, Thailand in particular. That is until now. The emergence of China, a $25 billion reinsurance market, is today offering Lloyd’s another crack at the big time. An opportunity to prove that risk syndication and a highly specialist approach to underwriting can work not just in London, but also with scale in the emerging economies of the world.

The leadership at Lloyd’s are clearly taking the challenge seriously. After initially establishing a reinsurance presence in Shanghai in 2007; a direct Chinese licence was added in 2010. The Chairman John Nelson has made it his priority to attract interest in the Lloyd’s model from the major Chinese insurers, not least as a market for them to invest in to develop an international portfolio. Today 18 Lloyd’s businesses are represented in Singapore and with the recent addition of Brit and Kiln there are a further 8 now operating in Shanghai. Yet, despite all this effort, the Chinese business written at Lloyd’s whilst growing is still tiny: less than $100m across the Singapore and Shanghai platforms.

Meeting underwriters in Singapore recently, it was evident why the good intent towards China has not yet translated into a meaningful revenue flow. A number remain sceptical about the reliability of the placing information provided to them and the underlying business quality. As if to prove the point, that very week China suffered its worse factory fire for decades; a blaze at a poultry processing plant killing 119 workers; most of who reportedly died trapped behind blocked exit doors. An extreme occurrence perhaps but the horrific absence of even basic safety standards inevitably reinforce a view held in some quarters of the underwriter community that at best China is a step into the unknown or worse still a place to lose one’s shirt.

China is rapidly modernising and some of the negative perception may soon seem outdated. Nevertheless improvements in workplace safety; better enforcement of building regulations and a more disciplined approach to risk management are surely required if assets are to be insured profitably to international standards. As Lloyd’s leaders may soon discover, their good work thus far in obtaining licenses, opening offices and building commercial relationships will amount to little if underwriters have only a limited appetite to grow their business in China.

3 thoughts on “On China Sceptics

  1. What this also shows is one of the key ethical strengths of the insurance market, with disciplined underwriting signalling to a country’s business community how certain practices will increase or decrease the rate on offer. Those signals then start to tilt operating practices towards a safer and more stable business environment, from which everyone benefits in the long run.

  2. Roger

    A quote from lessons learnt in doing business in China from
    One Billion Customers by James McGregor ( details see link)

    “China is all checks and no balances. Chinese government anti-corruption drives are not cynical exercises. But the effect is minimal because the overall system is almost incompatible with honesty”

    As Duncan says, practices need to fundamentally change if underwriters are to base their offering on the truth rather than a blurred view of exposure and experience.

    1. Lloyd’s leaders had the vision and determination of stepping into the Chinese market at an early stage when it was opened, ahead of many others in the industry. We knew it was/is a strategic move. The Chinese insurance market is a novice market, in contrast with the Western. Legislation is one thing; reality is another. Two years’ opening of the market is incomparable with two hundred years’ accumulation of expertise. In these two very different markets, the concept of health and safety, disclosure, exposure and integrity (in the same industry) are perceived considerably different; people’s understandings and expectations differ; the same as practitioners – in addition to the potential political risks in China’s internal market. Improvement in the Chinese market in relation to the system and structure, the industry, and the market itself will certainly take time – likely to be longer than the medium-term future; it is a process that is to be designed only for the long term. To minimise the risks of the explorers, do their due diligence, and do more, on top of all the checks that already exist and are compulsory when entering into the market. I heard about some practitioners’ regret of having stepped into the Singaporean market late (about 15 years ago) – how is that market now? Having said those, the Chinese market is huge and awaits exploration, as well as the expertise through those new comers’ stepping in. Suit risk takers?

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