Cathay Life Insurance
Grabbing China's Insurance Market After 12 Years of Groundwork
The first Taiwanese financial institution to have set up shop in China, Cathay Life also ranks third among foreign insurers in terms of number of sales offices there. What will be its next step?
Grabbing China's Insurance Market After 12 Years of GroundworkBy Yi-shan Chen
From CommonWealth Magazine (vol. 422 )
"Good morning, President Lee!" shouts a young man with youthful acne toward Lee Ching-lung, president of Cathay Life Insurance's Shanghai operations, as he squeezes into the elevator around 8 o'clock in the morning.
At Cathay Life this is a common morning encounter, only the setting is not Taipei, but Shanghai's Pudong district. Here the battle-tested sales troops are not middle-aged and elderly women, but 120 youngsters under 30.
It has been four and a half years since the 47-year-old Taiwanese insurance company set foot into China, founding a life insurance joint venture with China Eastern Air Holding, which is headquartered in Shanghai. Since then, Cathay Life has gone on to open eight branches in Liaoning, Beijing, Shandong, Jiangsu, Shanghai, Zhejiang, Fujian, and Guangdong, and 32 sales offices in 27 cities across China. Currently the company is applying to open a branch in Tianjin.
Among the 36 foreign life insurers that are doing business in China, Cathay Life has the third highest number of sales offices, behind American International Assurance, which looks back on a 17-year presence in China, and Aviva-Cofco Life Insurance, which has been active in China for six and a half years.
In the wake of the global financial crisis, China's industry watchdog, the Chinese Insurance Regulatory Commission, is putting the brakes on the establishment of new sales offices. But Cathay Life had already built its network before the expansion train came to a sudden halt.
"We have now begun to fill our network with content, we need to expand our organizational and operational scope," says Fate Chang, president of the Taiwanese mother company, explaining the current business strategy. Chang doubles as president of Cathay Life's China subsidiary.
Beijing Presence Crucial for Connections
That Cathay Life was able to expand its network before Beijing tightened its policy on the opening of new branches and sales offices shows that its managers have developed a keen sense for the workings of the Chinese government.
But this keen sense of political winds was honed over a dozen years of hard groundwork and farsighted investment. Wang Chien-yuan, the insurance company's Beijing chief representative, can relate a thing or two about these early beginnings.
Wang is not only an industry veteran, but also the pioneer among the China representatives of Taiwanese-funded financial institutions. Keeping a low profile due to the politically sensitive nature of its undertaking, Cathay Life formed a China working group in 1997 when the Taiwanese government still discouraged investment in China under its "no haste, be patient" policy. Wang was then drafted and assigned to Hong Kong.
Back then Wang, who sports a low maintenance crew cut, had a fixed monthly schedule – two weeks traveling in China, one week cultivating contacts, and one week writing fact-finding reports.
At the very beginning Wang did not know a single soul. In order to build his personal network Wang began to make friends with people in the Taiwan Affairs Office under the Liaison Office of the Central People's Government in Hong Kong, who introduced him to their friends.
Through his Hong Kong contacts Wang gradually built connections in Beijing, arranging meetings with representatives from the Taiwan Affairs Office under the Chinese State Council, the Chinese People's Political Consultative Conference, the Taiwan Businessmen Association, and even the Central Committee of the Taiwan Democratic Self-Government League, which consists of Taiwanese who remained in China after the end of the civil war in 1949 and their offspring. "My efforts began to bear fruit, and gradually this road opened up," Wang recalls.
After Wang had been traveling on business for three years, Cathay Life sensed as the 2000 presidential elections approached that the Kuomintang government in Taiwan might open up investment in China to boost its campaign. The company scrambled to apply for a representative office in the Chinese capital, opening a "Beijing office" that was true to its name. Now based in China, Wang made even greater efforts to make contacts with new people.
Whenever a new law or five-year plan was issued, and Wang was not sure what to make of it, he would look for people who could fill him in on background details. That approach allowed him to know which way the wind was blowing, what opportunities were available, which laws clearly prohibited certain actions and which laws were rather ambivalent, thus leaving room for creative interpretation.
Three years after being assigned to the Beijing Office Wang was diagnosed with a stomach ulcer. Despite the ailment, he kept downing alcohol on social occasions to make friends.
Thanks to Wang's insider connections Cathay Life got wind that Beijing was likely to open the insurance industry to Chinese-foreign joint ventures in 2004. As a result the company quickly secured China Eastern Air as its business partner, whereas its Taiwanese competitors Shin Kong Life Insurance and Taiwan Life Insurance took four years longer to find joint venture partners.
Cathay Life's Beijing office brought its skills into full play when it creatively circumvented legal hurdles to enable its non-life insurance sister company Cathay Century Insurance to enter the Chinese market.
Originally Cathay Century did not at all meet Chinese requirements for market entry. Foreign insurance firms need to have assets exceeding US$5 billion, a track record of at least 30 years and have had a representative office in China for two years before being eligible to obtain permission from Chinese regulators. But Wang had noticed that the concept of insurance groups was on the rise in China, and that the Chinese law did not explicitly stipulate that a non-life insurer's major shareholders must be non-life insurance companies.
Consequently he proposed that Cathay Century might as well partner with its older and richer sister company, Cathay Life, in a joint venture to meet legal requirements. Thanks to this creative approach Cathay Century was able to set foot into China in 2007, formally opening its China joint venture in Shanghai in September 2008.
While the Beijing office battles on the front line, back on the home front Cathay Life secretly recruits and drills troops.
Shanghai-based Lee reveals that Cathay Life started out with a China workshop, dispatching sales office supervisors to Chinese insurance companies such as Taikang Life and Chinalife at the company's own expense on three- to six-month consultant contracts to get to know the Chinese insurance business from the inside. These consulting stints helped Cathay Life personnel make friends in China and presented the opportunity to study actual market conditions first hand.
To date 150 Cathay Life managers have spent some time in Chinese insurance companies. The current supervisors at the insurer's 32 sales offices in China are all program veterans from the last decade.
Expansion First, Services Next
When Cathay Life began doing business in China in 2005, it initially followed a strategy of expanding its sales office network. Branching out from Shanghai, the company established a presence in all coastal provinces. But it treaded cautiously in sales and organization building.
Over the past four and one-half years Cathay Life only recruited people that had no prior experience in the insurance business to better build its own corporate culture.
Marketing Department general manager Zhang Yin Shou observes that the Chinese insurance market has not grown incrementally, but has rather leapfrogged certain stages of development.
For instance, China began selling investment-linked policies before even sufficient traditional insurance products were on the market. The professional training of sales personnel is unable to keep pace with such developments. As a result no special license is required for the sale of investment-linked insurance policies. Since new insurance companies keep entering the market, job hopping is extremely common in China; there have even been cases of hundreds of workers being poached by competitors.
Cathay Life hopes to cultivate its own leadership team. Even if the company encourages "industry colleagues to join," – in other words tries to lure them away from competitors – it does not offer any of the typical incentives. "Cathay Life does not grant any titles or positions. We want people to join because they really understand the company, and really care about its system and culture," says Zhang in explaining the recruitment policy.
Due to this cautious approach, despite being number three among foreign insurers in terms of number of offices, Cathay Life last year held only a tiny 0.1% share of the Chinese insurance premium market, posted just 12% growth and had a sales force of just 2,000 people. While Cathay Life has moved up two spots, it still ranks merely fifteenth 15 among the 36 foreign insurers doing business in China. And after five years of slow business development, Cathay Life's income from Chinese insurance premiums stands at less than 5% of its insurance premium income in Taiwan.
Zhirong Gong, president of China-based Cathay Life, attributes the slowdown in growth last year mainly to the termination of the company's bank insurance business. In contrast, the growth rate for individual and group insurance premiums reached 100%.
Breaking the Expansion Spell
It remains too early to say whether Cathay Life's China venture is on the road to success or failure. But it would be fair to say that Cathay Life is still groping its way down that road.
Chang frankly notes that the biggest obstacle to further developing the company's China business is human resources. "Before we went to China we only knew that it's a big market, but now that we have gotten really involved we discovered that it's actually too big, so that personnel development just can't keep pace," he says with resignation.
In China Cathay Life seems to be under a spell whenever it tries to expand beyond the scope of 100 sales personnel in a given location. Business grows rapidly as long as fewer than 100 people are working in sales, but once that mark is passed it has trouble maintaining its momentum of growth. Searching for a reason, Cathay Life (China) found out that its supervisors lack management skills.
Presently Cathay Life has been able to dispatch six core managers from Taiwan per sales center in China. As long as each of these points has fewer than 100 sales personnel the system works, but once more personnel is involved a second tier of supervisors becomes necessary. The problem is that some 90 percent of these locally hired middle managers are less than 30 years old and are often not mentally prepared to cope with the stress and responsibilities that come with a leadership position.
This year Cathay Life has changed its strategy. Aside from poaching talent from other companies, it has zeroed in on talent aged 30 to 45 with work experience outside the insurance business in the attempt to transform its personnel structure.
At the same time, it has looked to the example of its Jiangsu branch, which has been somewhat more successful in developing its business, for clues on how to break the spell.
For instance, the Jiangsu Branch groomed the heads of two sales offices. A closer examination showed that general manager Shang Ying-kai had been stricter than usual when interviewing candidates. Shang tries to recruit local applicants as much as possible. If someone from another part of China applies for a job, Shang demands proof of savings of more than 10,000 RMB. "To be realistic, Cathay Life's training period is very long and takes two and one-half months before a trainee will receive a training allowance. You need to have enough ammunition to be able to get through the training period. In business, just wanting to make money is not motivation enough," says Shang, explaining his recruitment criteria.
Charles Huang, Greater China managing director of Watson Wyatt Consultancy Ltd., which advises companies on organizational transformation, believes that dispatching all upper management personnel from Taiwan is not the way to solve the personnel bottlenecks in China in the longer term. Huang suggests that Cathay Life should regard high personnel turnover rates as a natural thing and cultivate talent amidst this competitive environment.
He points to his own experiences over the past four and one-half years, during which turnover among consultants working under him stood at 100%. But after three years, when the age of supervisors in middle management reached 34 to 37 years, Huang's team began to stabilize.
"In China you need to change your assumptions about personnel, because the situation is completely different," Huang asserts. In China employees have no qualms about jumping ship and going directly to work for the competition.
"We are fighting a long-term battle," says Gong, fully aware of the difficulties lying ahead. From the very beginning Cathay Life has set itself the target of breaking even within eight to 10 years – in a market where most foreign insurance companies make no profit at all.
For Cathay Life the China story is not over yet.
Translated from the Chinese by Susanne Ganz
Chinese Version: 交十二年朋友 搶十三億人保單