China's Insurance Tiger Licks Its Chops

Ping An is big and aggressive and may eat foreigners' lunch

It's one of the biggest money pots anywhere: the $845 billion in personal savings of China's billion-plus population. Most of it sits in state-owned banks, earning minimal interest. For financial-services firms around the world, landing some of this prize is one of the great goals of the next decade.

Insurance companies are particularly avid. The Chinese, worried that their shaky state pension schemes might collapse, are snapping up policies to use as savings vehicles for their old age. The world's largest insurance company, American International Group Inc., got its foot in the door in 1992 because it had sold policies in China before communism. With Beijing poised to enter the World Trade Organization, other foreign insurers are eager to grab a share of the action.

QUICK STUDY. But they should watch their flanks. Chinese insurance firms--state-owned and inefficient though many are--won't roll over and die when the foreigners pile in. Indeed, one, Ping An Insurance Co., is already eating the foreigners' lunch and is making a bid to be China's insurance champion. "WTO is good news for us," says Ping An Chairman Peter Ma. He's counting on WTO membership to level the playing field with state-owned powerhouses.

Pretty gutsy talk. But Ma, 46, has reason to crow. Although his company didn't open for business until 1988 and didn't begin selling individual life policies until 1995, by last year Ping An had 22.5% of China's life-insurance market. It is second behind the state-owned former insurance monopoly, China Life Insurance Co., which has 65%. In Shanghai, China's top life insurance market, Ping An has 55.11% of the market, vs. China Life's 17.5% and AIG's 9.3%.

Ping An owes its success in part to an aggressive, well-trained sales force, led by the hard-driving, 46-year-old Ma, whose early work included driving trucks loaded with dynamite to construction sites during the Cultural Revolution. Ping An's investors include investment banks Morgan Stanley and Goldman Sachs, who have pushed Ping An to be a competitive player. Ping An boasts 230,000 sales agents, who gather at their offices every morning to sing company songs and recite slogans and listen to exhortations to meet their quota of $600 in new premiums every month. The firm's top 100 salespeople make more than $120,000 a year in a country where the average income is just $760.

Ping An's strong suit is customer service. It sports a 24-hour call center and a Web page offering financial advice, online sales, and money transfers. Ping An spends 2% of its premium income on information technology to help track market niches and find new customers. That will rise to as much as 5%, says Chief Information Officer Louis Cheung, a former McKinsey & Co. consultant.

The attention to detail shows in the numbers. Ping An's aftertax profit hit $169 million in the first six months of this year, compared with $155 million for all of last year. Premiums in 2000 were $3.3 billion, which Ping An aims to more than double this year. "They are competing very effectively," says Henry Cornell, a Goldman, Sachs & Co. managing director who sits on Ping An's board.

BIG BET. Of course, the competition is only beginning, with AIG and most other foreign insurers confined to Shanghai and a few other cities until the WTO agreement takes effect. And Ping An could still fall victim to its own aggressiveness. Some of its new products are risky, such as a whole-life insurance policy that invests 15% of its premiums in the volatile local stock markets. With bank and bond interest rates in the single digits, customers have flocked to the policy. Sales topped $9.6 million the first day it was offered in October, 1999.

But should the local bourses crash, this brilliant product will be a dog, and Ping An will have a big marketing problem. But for now, the company is thriving. Foreigners, watch out.

By Alysha Webb in Shanghai and Mark L. Clifford in Shenzhen

    Before it's here, it's on the Bloomberg Terminal.