China has always evoked enormous interest in the minds of all insurance industry watchers in India because of the common population factor, which is one of the major indicators of a country's insurance potential.

China opened up as long ago as 1986, breaking the monopoly of the state-owned People's Insurance Company of China (PICC). Although the first foreign insurance company, American International Assurance (AIA) was granted an entry only six years later in 1992, it was given dual licences to conduct both general and life insurance business. That does not go to say that policies in China were liberal; AIA's operations were strictly confined to Shanghai then, and even now, China continues with its policy of opening up province by province. As a result, twelve years after liberalisation there are as many as 23 players (if one includes domestic players,as well), and that's a far cry from a public sector monopoly. But if one analyses their geographical operations, streaks of extereme circumspection still show through: of these, only three companies are allowed to operate on a national scale. Furthermore, the Insurance Supervisory Authority exercises considerable control over the granting of licences, not to speak of monitoring of products and pricing. There is an obvious upside to this: cashing in on the Eastern European experience, China has largely been able to avoid a slew of under-capitalised, un-supervised insurance companies from bursting onto the scene.

While this is easily understood, what is more remarkable is that there has been a virtual business explosion in the insurance sector in China in spite of these tight controls. Life insurance in particular has registered a 80 per cent -plus growth in 1997 alone, with a doubling of its premium income from USD 6 billion to USD 11 billion in a matter of two years . This is in real terms, even after adjusting for inflation. Targets for 2003 are USD 40 billion. What's more, for pessimistic soothsayers in India, there is the dampener that the state-owned PICC is nowhere close to extinction; in fact, in keeping with trends in most countries like South Korea, Sri Lanka, Bangladesh, Pakistan and Malaysia, growth has been good for it simply because the market itself has grown. In keeping with a trend typically seen the world over after countries opened up, PICC's market share has decreased to 70 per cent, business has grown in absolute terms after liberalisation. Insurance sector analysts predict that the same phenomenon is likely to be replicated in the case of LIC and GIC.

But can this growth in China be sustained amidst a regime of tight controls?

It may be difficult to sustain or create new levels of growth over a period of time with too many controls in areas like products and tariffs, especially as other markets like India open up and the Chinese markets reach saturation. In fact, even otherwise the slowdown may manifest itself first in the non life sector, which has also seen good levels of growth in terms of insurance for large projects riding high on the crest of a foreign direct investment (FDI) boom. Recently, China reported a 9.5 per cent decline on a year-on-year basis in actual FDI , caused by investor concerns about the stability of the curency coupled with weak domestic demand, oversupply in many industrial secors and a squeeze on corporate margins have led to deferred investment and created wide disparities between total contracted investment ($578 billion) and accumulated inflows ($271.7 billion as on February 1999).

Non life insurance in China grew rapidly on the strength of project insurance backed by an unparalleled FDI inflow , which grew from 3.4 billion to $ 45.6 billion in 1997-98. India has not yet been able to match that.

So, can India bank on the Chinese experience and couple growth tempered with cautiousness? Perhaps yes, but only up to a certain extent, given the fact that most markets with potential are nearing saturation. Secondly, like China, the proliferation in nuclear and single-child families in India will boost growth in the life, pensions and personal segment.

However, to achieve this, private sector players will have to go out of their way to "sell" insurance more proactively; in China, foreign players adopted the agency distribution system to market products on the doorstep, which has yielded remarkable results.