Comparisons and References: SMEs Non-life Insurances Between China and UK

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1 Comparisons and References: SMEs Non-life Insurances Between China and UK KANG Yi, XING Xiuqin, SU Yanzhi School of Management, Beijing Union University, P.R.China, Abstract: This paper contains comparisons of Small and medium-sized enterprises (SMEs) non-life insurance in development environments and services between in China and in UK and references in SMEs non-life insurance to China from that in UK. According to the comparisons in developing environment including roles of SMEs and development of insurance industry, and SMEs non-life services including insurance product, marketing channels and satisfaction of the SMEs, conclusions are made great distances exist between these two countries and SMEs non-life insurance will be in a good development. With the globalization of economy it is necessary for China to use that in UK for references in the senses of SMEs, services of the insuranced and the environments by the government to promote the SMEs non-life insurance. Keywords: SMEs non-life insurances, China, UK, Comparison, References 1 Introduction Small and medium-sized enterprises (SMEs) are socially and economically important since they contribute to entrepreneurship and innovation. They are literally the engine that drives the worldwide economy forward, and yet for all they contribute and add, SMEs are still incredibly vulnerable for more and more risks they are facing in many ways. But in China only financing on SMEs has been focused, in fact SMEs are in risks of not only financing but also many kinds of loss in non-life such as product liability, indemnity and so on. Now in China no such securities from these risks are provided by the government, and most SMEs can not afford these losses, which has been one of the most obstacles in the development of SMEs. Obviously SMEs non-life insurance is an effective way to ensure the development of SMEs from the loss.in fact in China even with the rapid development in SMEs and the insurance industry SMEs non-life insurances are still developing rather slowly. Even there are very few studies on SMEs non-life insurance both in theory and in Practices. With the globalization of economy the insurance industry in China with the goal to keep developing are in more and more fierce competition. Developing the SMEs non-life insurance market will be made to realize the goal for the insurance industry and win the competition for the insurers. And the lessons from the financial crisis that many SMEs were bankrupt also show that it is necessary to develop the SMEs non-life insurance to ensure the SMEs. In UK SMEs non-life insurances are more developed. In this paper comparisons are made to give guide and references to the development in China. 2 Comparisons in Development Environment of SMEs Non-life Insurance In China there is less emphasis on SMEs non-life insurance than SMEs financing. SMEs non-life insurance has greatly lay behind of the development of economy in China for many reasons and can be reflected in many ways. Development environments can be important factors. Development environment of SMEs non-life insurance can have impacts on the current and future development of SMEs non-life insurance. Of these factors of development environments roles of SMEs in the economy and the current insurance development are the two main factors 2.1 Roles of SMEs in the economy 809

2 Roles of SMEs can decide the future of SMEs non-life insurance to some extent. The more important roles SMEs play in the economy, the better the SMEs non-life insurance will develop. In UK SMEs non-life insurances are in a good development for the contributions of these SMEs. Nowadays SMEs in China are also making more and more contributions and getting more and more focus. From the following table SMEs both in China and in UK are important for their contribution to GDP, employment and so on. And SMEs in China has been obviously the backbone of the economy just as that in UK. It can be concluded that SMEs non-life insurance in China will also playing more and more important roles with roles of SMEs and will be developed better and better. Tab1 comparisons of SMEs s role in China and in UK Index In China 1 In UK 2 number more than 42 million More than 4.6 million SMEs share 99.8% 99.9% Turn over of GDP 59% 51.5% of Employment of all 80% of the jobs 59.2% 2. 2 Development of the insurance industry The development of the insurance industry can decide that of SMEs non-life insurance. Developed insurance industry can accelerate the development for its concept, management and rules. And so on the other hand it will slow down that of SMEs non-life insurance if the insurance industry is less developed or backwards. In China the insurance industry is still at the primary stage. Obviously there are great distance between China s insurance and international insurance. It can be proved by the following Tab. and Tab.. For those countries with developed insurance industry such as in UK, U.S. insurances are also more developed with high insurance penetration and density and more policies. Tab. 2 Life Insurance Penetration & Density in 2006 (by country) Index UK Japan US Korea India China World Avg. Penetration 13.1% 8.3% 4.0% 7.9% 4.8% 1.7% 8.1% Density 5140$ 2829$ 1790$ 1480$ 38$ 34$ 497$ Sources: Life Insurance Council, India, 2006 Insurance category Tab. 3 Average Number of Policies per Customer (by Country) Mature Country France Germany Switzerland UK USA Average Auto-insurance Liability insurance Others Non-life insurance Sources: Capagemini Analysis, 2007 As for insurance in China and in UK great distances between them exists. SMEs non-life insurance is one of the insurance products which keep the same level with the insurance industry. SMEs non-life insurance are more developed which means SMEs non-life insurance will be more and more developed 1 Sources: from NDRC in Sources: small and middle-sized enterprise statistics for the UK and regions at the start of

3 with the development of insurance industry. 2.3 Concept of insurance On the whole the concept of insurance in China is a little backwards. It has been proved the concept of insurance has been the main reason for the less developed insurance in China. Concepts of insurance which are lack of science or backwards there exist many kinds. Some think they do not need insurance for their strict management, advanced equipment and professional workers. Some says that insurances are rather expensive and will not buy insurance to reduce the cost for more profit especially for those small-scale enterprises. And also regard that the insurance products are not what they need. And in China even there are such traditional concepts that insurance can bring out misfortune in some SMEs. Even those with advanced concept of insurance have doubts about the function of SMEs non-life insurance. But for the above concepts of insurance can also be main factors that hamper the SMEs non-life insurance. On the whole Only very few have the right sense of SMEs non-life insurance and are willing to have these insurances.. For those in UK most of the SMEs have scientific ideas of insurance. What they care about is how to get more coverage with the least cost. 3 Comparisons in SMEs Non-life Insurance Services It is known to us all the services can be measured or reflected in many ways. Now in China SMEs non-life insurance services are not well provided. Fewer products and less marketing channels can be the main reasons and the less satisfaction can be the obvious sign. 3.1 SMEs non-life insurance products In UK there are three main types of insurance include liability, vehicle and indemnity and two mandatory business insurance policies for SMEs: employers liability, which affects all businesses employing staff and protects against claims arising from injury or illness sustained by employees; and professional indemnity, a mandatory cover for members of certain trade bodies, which protects businesses providing professional advice or consultancy from claims for genuine mistakes but there are numerous others available. However, In China there are less than 10 insurances which can be for SMEs. Of these few insurances motor vehicle accident liability insurance are compulsory, which are required to all the motor vehicles in China, and trade credit insurances are operated as policy insurance by government and only the SMEs comprehensive insurance is special for SMEs, which is of rather high price for most SMEs. Liability insurance Vehicle Insurance Tab. 4 Comparisons of SMEs non-life insurance between in China and in UK In China In UK * trade Credit insurance(policy insurance) *Employer Liability(required) * shortage-mortgage guaranty *Public Liability insurance *Product Liability *Restaurant liability insurance *Motor vehicle accident liability compulsory insurance (required to all the motor vehicles) *Fleet Insurance *Business Vehicles *Company Vehicle Insurance Indemnity None *Negligent Advice *Professional indemnity insurance(required) 811

4 Others Overall products * SMEs comprehensive insurance Less than 10 More than 20 *Business Interruption * Pub & Wine Bars insurance *Residential property insurance *Unoccupied property insurance *Van insurance and so on The SMEs non-life insurance products show that there are great distances between that in China and in UK by the comparisons. But SMEs non-life insurance is being developed to meet the need of SMEs. 3.2 Marketing channel Marketing channel can affect greatly in many ways, which can influence the sense of SMEs and decide the coverage and development speed of the SMEs non-life insurance. In UK according to Targeting SMEs in UK General Insurance 2008 there are the following characters: Channel broker a bank or building society internet or phone online internet Tab. 5 SMEs non-life insurances marketing channels in UK Marking in UK The majority of SMEs 72.8% purchase their commercial insurance from a broker, illustrating the dominance of this channel. Among those SMEs that would consider a purchase through a bank or building society, obtaining a cheaper quote was by far the key motivator for doing so, with 59.6% of SMEs stating that they would purchase their insurance through this channel in a bid to save money. A significant proportion of SMEs are open to purchasing their insurance via the internet or phone. The convenience factor of the phone is appealing to many SMEs considering a telephone purchase. Over a third of SMEs would consider a purchase The internet is the least common platform for SMEs purchasing commercial insurance While In China there are many marketing channels such as agents, brokers, internet, telephone, bank insurance and so on. But for SMEs non-life insurance the main channel is agents. The reasons are that for there are fewer products for SMEs and fewer consumers in SMEs the insurers regard the large enterprises as their customers. Very little human recourses contribute the coverage of SMEs non-life insurance. 3.3 Satisfaction of the insurances SMEs Insurance being as a service industry, the development of SMEs non-life insurance can also be measure by the satisfaction of the SMEs. In UK according to UK Commercial insurance distribution 2009 these are: *The majority of SMEs remain satisfied with their insurance provider *A large proportion of SMEs are unlikely to switch to a new provider *Only 22% of SMEs have switched to a new provider over the last two years *SMEs belonging to the wholesale, retail trade and repairs sector are more likely to switch providers *Just over 10% of SMEs are planning to change providers over the next 12 months SMEs switching to a new provider do so on the basis of price. 812

5 But in UK Almost 60% of SMES don t believe they are getting the best deal on their business insurance and three quarters of them will be heading online to find better value cover. Besides that a lack of transparency means that small businesses cannot be sure they are being offered the right cover at the best price, and the Coverzones research showed that 77 per cent of SMEs would appreciate a similar online comparison service for their business insurance. This is even more so the case among time-poor owners of SMEs employing 2-3 people (87.5 per cent) and those employs people (81 per cent). And in China on the whole there is a lower degree in satisfaction in the insurance industry. As for SMEs non-life insurance there are fewer satisfactions for the following reason. For those insuranced SMEs they do not think the insurance can work well for the bad insurance indemnity in China. Let alone those SMEs without SMEs non-life insurance even if they have enough capital for insurance. On the whole in China there are very few SMEs that have SMEs non-life insurance policy. In Henan provinces from January,2007 to August,2008 PICC in Henan Province which take up 60.52% insurance share in Henan underwriterd 3910 SMEs non-life insurance, but In Henan there are about 2.8 million SMEs. Even in more developed city of Shanghai on the statistics in June, 2007 the insurances SMEs is less than 5% of all the SMEs. 4 References from SMEs Non-life Insurance in UK to that in China 4.1 SMEs strengthening the sense of insurance Sense decides action. To promote the development of SMEs non-life insurance it is necessary to strengthen sense of insurances. Firstly, the traditional concept and fluke psychology should be abandoned. Insurance is right tool to transfer. The perception that insurance is a cost rather than a necessity still exists among entrepreneurs. Secondly, realize the importance of SMEs non-life insurance for SMEs. SMEs non-life insurance can play important role for the expansion and development to compete in the market. Thirdly, SMEs non-life insurance can help SMEs reduce the loss to minimum and is regarded as one of the most economic way. 30% of the SMEs in the HSBC survey admit to having filed claims, and 44% of those in turn reported claims based on accident or injury among employees, going back to employee coverage. Nineteen percent indicate loss of key personnel as a consequence of illness, injury or death. Fourthly, in the construction of harmonious society in China realizing the significance of SMEs to the contributions to economy and society is of importance. 4.2 Insurer enhance the SMEs non-life insurance services for SMEs Only when the SMEs non-life insurance has been enhanced SMEs non-life insurance can be developed widely and fast. To realize the enhancement the following are necessary. Firstly, develop more SMEs non-life insurance products on scientific researches. More SMEs non-life insurance products to be chosen and scientific, reasonable insurance rate are the basis to improve the coverage rate of SMEs non-life insurance. Only so the need of SMEs non-life insurance can be better met, ensuring the further development. Secondly, strengthen the risk management. For the insurers to win in the competitions and keep long-term sound and healthy development risk management must be enhanced which is the basis and necessary from the premium rating, risk assessment, indemnity and so on. Besides more and more scientific method in management should be studies and more and more profession talents are in great need. Thirdly, innovate in the marketing channels. Good marketing channel can ensure the market share and reduce market cost to make profit. The innovation should be combined with the character of SMEs and need of SMEs non-life insurance. For In China there is too much dissatisfaction with the insurance marketing innovation must be made on good quality. 813

6 4.3 Governments improving the SMEs non-life insurance environments Government can play key and decisive roles for SMEs non-life insurance. Firstly, establishing institutions is necessary. Especially a leading department of government should be set up as soon as to make development guidelines to promote the SMEs non-life insurance. Secondly, the supervision department should play full role in the SMEs non-life insurance for the orderly market and rapid growth. In China the insurance industry is still at the primary stage of development, related rules are not perfect or do not work well. To keep the sound and healthy going of SMEs non-life insurance the supervision should be made strictly only so the roles of insurance can be played. Thirdly, some policies should be made to accelerate the development of SMEs non-life insurance in taxes, fund and etc., which is greatly needed for SMEs and the insurance industry. For SMEs premium can be the main obstacle to have non-life insurance for their limited profit and for the insurer they aim to make profit, which are conflicts, so only policies are made the incentives of SMEs and insurers can be promoted.. 5 Conclusion With the development of SMEs and its more and more important roles in the economy it is necessary to accelerate the SMEs non-life insurance to ensure them from more and more risks. This paper is to give guide and references to SMEs non-life insurance in China. This paper contains two key parts which are comparisons and references. By comparisons of SMEs non-life insurance in development environments and services in China and in UK conclusions can be made that SMEs play important roles both in China and in UK from the quite proximity in their contributions to employment, GDP and so on. But there are large distances in development between in China and in UK. In China there are great imbalances in SMEs non-life insurance demand and supply which can be reflected from the insurances products, marketing channels, satisfactions of SMEs and so on. So it is necessary for China to use the experiences in UK for references to promote the SMEs non-life insurance that are strengthening the sense of insurance in SMEs, enhancing the insurance service in the insurer and improving environment by the government. References [1]. ZHOU Yuyang. Development of SMEs insurance market. China Insurance (in Chinese) [2]. DENG Yani. Analysis of insurance in SMEs in city Wuhan. Modern Business Trade Industry 2007(in Chinese) [3]. PAN Jun. Analysis of insurance supply in private enterprises. Shanghai Insurance. 2006(in Chinese) [4]. Bank of England. Quarterly Report on Small Business Statistics. Domestic Finance Division,