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RR RUEHCN RUEHGH RUEHVC
DE RUEHGZ #0812/01 2700601
ZNR UUUUU ZZH
R 270601Z SEP 06
FM AMCONSUL GUANGZHOU
TO RUEHC/SECSTATE WASHDC 4046
INFO RUEHOO/CHINA POSTS COLLECTIVE
RUCPDOC/USDOC WASHDC
RUEAIIA/CIA WASHDC
RUEKJCS/DIA WASHDC
RHHMUNA/HQ USPACOM HONOLULU HI

UNCLAS SECTION 01 OF 02 GUANGZHOU 030812 
 
SIPDIS 
 
USDOC FOR DAS LEVINE AND ITA/MAC/AP/MCQUEEN 
TREASURY FOR OASIA/ISA KOEPKE AND DOHNER 
STATE PASS CEA FOR BLOCK 
STATE PASS FEDERAL RESERVE BOARD FOR JOHNSON/SCHINDLER 
STATE PASS SAN FRANCISCO FRB FOR CURRAN 
STATE PASS NEW YORK FRB FOR DAGES/CLARK 
STATE ALSO PASS USTR STRATFORD/WINTER/MCCARTIN 
PACOM FOR FPA 
 
SENSITIVE 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: EFIN ECON EINV WTRO CH
SUBJECT: Foreign Insurers in South China See Systemic Problems 
 
REFERENCE: A) Guangzhou 30413, B) Guangzhou 8541 
 
(U) This message is sensitive but unclassified.  Please handle 
accordingly. 
 
¶1. (SBU) Summary: Representatives of AIU and Metlife and the Consul 
General reviewed the difficulties of operating in South China's 
"cutthroat" insurance industry at a luncheon on September 25.  They 
cited unethical sales agents and the poaching of staff by 
competitors.  Local regulators are still not transparent in their 
decision-making, less by design and more by virtue of their lack of 
experience.  End Summary. 
 
Unethical Agents 
---------------- 
 
¶2. (SBU) Simon Foo, General Manager of AIU's Guangzhou branch, and 
Augustine Chow, General Manager of Metlife's Guangzhou branch, told 
the Consul General that unethical insurance sales agents are rife in 
South China.  This is particularly true in the auto insurance 
sector, in which foreign firms are not yet allowed to participate. 
Agents are deceitful when engaging clients, many of whom are 
unfamiliar with insurance services.  The representatives blamed the 
"cutthroat" nature of South China's insurance industry and a lack of 
willingness by, or inability of, local regulators to clamp down. 
 
¶3. (SBU) AIU's Foo added that Chinese banks continue to issue a 
large number of short term (two-or-three year) insurance policies. 
As a result, agents are under constant pressure to renew policies, 
and in many cases sell at discounted premiums.  These factors in 
turn explain why insurance rates are falling in China while they are 
rising throughout the rest of the world - book now, worry later. 
Metlife's Chow estimated that up to 30 percent of agents for 
domestic companies do not have minimum required qualifications, but 
are sent out into the marketplace to sell because of the pressures 
managers are under to deliver results. 
 
Poaching is Widespread 
---------------------- 
 
¶4. (SBU) Responding to the Consul General's question about staff, 
AIU's Foo and Metlife's Chow said Guangzhou has a shortage of 
qualified professionals.  (Bank representatives said the same thing 
in a recent meeting - see ref A.)  Metlife recruits proactively but 
still rarely reaches its hiring goals.  Though Metlife only opened 
its Guangzhou office in April 2006, it has already seen significant 
turnover, some people staying for little more than the duration of 
the training.  Both representatives said it was not uncommon for 
companies to poach staff from competitors (at a meeting the week 
before, Guangzou-based bankers told us that this rarely happened in 
the banking community; there was a gentleman's agreement in place 
with regard to personnel). In one case Sunlife hired away one-third 
of the staff of Metlife's Beijing office. 
 
¶5. (SBU) Foo said communication among foreign insurance companies in 
Guangdong was weak, owing in part to the absence of an association. 
(Guangdong-based foreign banks do have such an association).  No 
foreign company has yet taken the initiative to spearhead such an 
organization.  In a conversation with AIA's Burton Lai on September 
25,  the CG suggested that an association be organized and offered 
to meet with representatives shortly after its formation to discuss 
ways to improve the insurance environment in Guangzhou. 
 
Transparency: Opening Branches 
------------------------------ 
 
¶6. (SBU) Opening new sales offices or branches outside of Guangzhou 
remains a challenge.  Foo said local regulators lack experience and 
are thus generally hesitant to approve such offices, though Shenzhen 
is an exception to this rule.  Personally meeting with local 
officials and regulators is often the best way to break the logjam. 
(Note: AIU received a license to operate throughout Guangdong 
province in mid-2006.  Foo said the entire process, from application 
to approval, took approximately two months.  This may owe in part to 
a letter sent by former Consul General Dong to Guangdong Vice 
Governor Song Hai on behalf of AIU's application (ref B).  End 
note). 
 
Nevertheless, CIRC Can Be Helpful 
 
GUANGZHOU 00030812  002 OF 002 
 
 
--------------------------------- 
 
¶7. (SBU) Foo said CIRC is generally helpful and does not show 
favoritism to local insurance providers.  However, Chow added that 
regulators have insisted that Metlife detail its business strategies 
during the application process.  He blamed this on their lack of 
experience, though noted this information is very useful to domestic 
competitors.  CIRC has cooperated with AIA on setting up seminars 
for regulators and city officials in Guangdong regarding services 
such as product liability, marine coverage, and export credit 
insurance.  This type of event is "win-win," as it expands AIU's 
market presence while improving the competitiveness of local 
companies and the understanding of local officials. 
 
Comment 
------- 
 
¶8. (SBU) China's insurance industry woes - inexperienced regulators, 
unethical agents, and a shortage of qualified staff - are 
attributable - perhaps more charitably than warranted by the two 
insurance representatives - to its youth.  As a consequence, foreign 
firms are clearly disadvantaged and their ability to sell their 
products affected.  When asked whether China's leaders would address 
these issues, Metlife's Chow said a couple of "big collapses" by 
domestic companies would likely need to occur first. 
 
GOLDBERG