PICC: Our three measures to survive and compete against a dominant player

As one of the world’s largest and fastest developing countries, China still heavily relies on the engine of exports in driving its economic growth. The Chinese government takes export credit insurance as a top priority (in fact the first and foremost in its most recent policy blueprint) to encourage and boost Chinese exports. Following this direction, together with the impetus to break the monopoly of its official ECA, China’s Ministry of Finance decided in late 2012 to open its short term export credit insurance to commercial players. In January 2013, PICC became the first insurance company to get the license and mandated to expand outreach to SMEs and to work on a commercially viable basis.

Being Asia’s largest non-life insurance company, PICC has a market share of more than 34% in the Chinese property and casualty insurance industry, in which credit insurance is a sub-category as defined in the Chinese Insurance Law. We are especially strong in corporate business, with more than 2.5 million corporate clients for which PICC provides various kinds of products. In addition, above 170,000 full time employees work in our 4,500 branches and sub-branches all over China. Many of them are not new to export credit insurance, as PICC used to be the first and the only insurance company to underwrite this business for 13 years before Sinosure became independent from us in 2001. All of the above advantages add up to become the growth soil of our export credit insurance: huge client basis and extensive sales and service network. PICC is present within one hour’s journey of every Chinese exporter.

While we are mobilising our full strength to satisfy the demands of our existing customers and to make our entrance into the market a significant one, the official ECA of China, Sinosure, is working very hard and aggressively to push up the penetration rate of export credit insurance, but not for a profit. Competing with such a fearless player in such a red-hot market as China, PICC has adopted three measures in order to compete and survive.

First, to compete professionally. There has always been an argument for playing BIG first instead of professionally. Yet as the first state owned financial enterprise to be publicly listed in an overseas stock exchange (HKEX) as early as in 2003, PICC puts underwriting profits as its highest priority and requires every business line to make money to answer to our shareholders. We do not want to sacrifice the interests of our treaty reinsurers either. If we need their long time trust and support, we have to adopt and adhere to the world best practices. The standards of the world’s best commercial credit insurance companies are the ones we work by.

Second, to train our own staff and make our own underwriting decisions. Unlike other players that followed us to get their licenses, PICC’s top management have decided from the very beginning to build up a specialised team and nurture our own staffs to make our own underwriting decisions. Its Department of Credit Insurance & Surety enjoys the same status as Motor Vehicle Insurance Department (the latter has an annual premium of more than €30 billion), reports directly to PICC’s top management and hires the most employees at our headquarters. We are active in ICISA and applied to return to Berne Union as soon as we became qualified. We do our own policy and buyer underwriting decisions to make sure that we satisfy the demands of our own customers.

Last, but most importantly, to make full use of our advantages. As the requirement to get the export license has long been nullified, every business on the Chinese soil could be our potential client. Our competitors are present mainly in the big exporting cities and cannot afford to build their own sales and service force extensively. With our organisational competitive edge, PICC moved very fast and soon beat off other players in small and medium cities in the western and mid-western provinces where the exporters long for localised services in connection with other kinds of non-life insurance products.

On a playing field that is not yet levelled out and that is dominated by a giant official agency, we have managed to survive, compete and make inroads. Our business has grown significantly and steadily, earned profits for the past three years. About 90% of our 16,000 clients are small and medium exporters, making the product more available to SMEs in more remote areas. We admit that we are still at the inception and there is a long way to go. The most important thing is to live up to our original high ideals yet respond nimbly to changing opportunities.

Zhongzhu Chen

General Manager of Credit Insurance and Surety