Flight insurance dispute soars
By Jiang Yan (China Business Weekly)
Updated: 2004-04-02 09:29

When Capital Airports Holding Co (CAHC) and the New York-based Metropolitan Life Insurance Co officially launched their 50-50 joint venture in Beijing last Thursday, the discussion over China's flight insurance market heated up - again.

A passenger passes by a flight insurance sales counter in Guangzhou International Airport. The Beijing Capital International Airport's decision earlier this month to sell flight insurance policies from newly established Sino-US MetLife Insurance Co stirred up heated debate. [newsphoto]

The joint venture, Sino-US MetLife Insurance Co (MetLife), was approved by the China Insurance Regulatory Commission (CIRC) in February.

Earlier this month, the Capital International Airport Co Ltd (CIA), a CAHC subsidiary, announced MetLife will be the sole seller of flight insurance in the capital airport, beginning on March 15.

Before that, a total of 19 insurers formed a consortium to sell flight insurance policies there and allotting profits according to market shares in the capital.

The announcement stirred up heated disputes. Some insiders and experts said it is an industry monopoly. While the CIA argued it is merely a company decision to pursue higher profits.

The first round ended up with MetLife postponing its entry into the airport while the union of 19 other companies continued to sell flight insurance policies there.

Now the second round begins.

"There is no result yet," said Li Peiying, CAHC's general manager.

"We are in active negotiation under government co-ordination."

He was referring to the CIRC, the industry watchdog, and its Beijing bureau.

They are expected to work out which insurers are qualified and how they are going to sell flight insurance in the airport.

Li said: "There will be more than one insurer selling policies in the airport."

The company will establish a fair-competition mechanism under government instruction, to let all players participate, according to Li.

While the capital airport is just opening up for market competition, Shanghai's airports are on the forefront.

In the country's financial hub, market competition for flight insurance sales was adopted last year.

"As the number of insurers increases, market mechanisms are needed," said an official at the Shanghai Airport (Group) Co Ltd, who wanted to be anonymous.

Shanghai Airport (Group) Co Ltd controls the two airports in Shanghai - the Shanghai Pudong International Airport and the Shanghai Hongqiao International Airport.

Last year, there were over 30 insurance companies competing for the 10 sales counters in the Shanghai Pudong International Airport.

The winners are now paying the airport according to customer flow instead of insurance premiums, with a minimum fee ranging from 20,000 yuan (US$2,415) to 36,000 yuan (US$4,348) per month.

"The airport is a very important sales platform for flight insurance," said an official at the Haier New York Life Insurance Co Ltd, who also asked to remain anonymous.

"As a newly established insurance company, the airport provides an important channel to let customers know our company."

She said the market mechanism gives her company even opportunities to compete with rivals with longer histories. The insurance company has sales counters in both airports.

However, some experts have different ideas.

"International guests have their first impression about our country at the airports," said Hao Yansu, an insurance professor with the Central University of Finance and Economics. "Too many flight insurance sales counters in airports may harm the airports' international image."

He suggested people buy flight insurance when they are purchasing air tickets, and that the airport may sell flight insurance to customers in their ticket offices to simplify procedure.

But the official from Shanghai Airport (Group) Co Ltd worries about fake policies and market disorder.

Xu Wenhu, director of Insurance Research Centre in Fudan University, said the final solution lies in the development of substitute products for flight insurance.

Currently, many insurance companies in China have developed such products. For example, China Life Insurance Co Ltd has developed an insurance product against traffic accidents on buses, ships and planes.

Customers pay a yearly premium of 100 yuan (US$12) for the product.

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