In May 1997 GAB Robins made a major commitment to the Chinese market, unprecedented in the international loss adjusting community. Simon Weston shared some of his initial experience of the territory with Global Reinsurance and we have now invited him to revisit the subject with an update.
For those of you who read my earlier article, I apologise for some initial repetition, but for those for whom this is a first reading, some recapitulation is necessary.
GAB Robins opened an international loss adjusting venture in China on 1 May, 1997 and did so by utilising the existing office network of their parent company. These covered 10 offices, with nearly 1,000 staff across China and included 4 testing laboratories.
The article concluded with the following summary, which I will repeat and thereafter move on to current development.
The reasons for opening a loss adjusting network in China are manifold and include inter alia:
* The development of the insurance industry in China is accelerating.
* Insurance products are becoming more sophisticated and diversified.
* Specialist non-life business operations are established.
* Domestic insurers are lacking in experience and expertise and need guidance.
* There is an increasing involvement of overseas foreign investors and reinsurers, with large project values to protect.
The challenge for GAB Robins and for me as technical director of their loss adjusting division, is to:
* Build our business upon a firm foundation.
* Assist in the development of the local market.
* Encourage our staff to achieve their individual potential.
. . . while at all times ensuring the quality of the work we perform is maintained to the international standards expected.
All of the above has to be combined with learning the language and the day-to-day pressures of running a loss adjusting office which, as many readers will know, does not often lend itself to having a great deal of free time. I find the prospect both daunting and exciting and one to which I expect to devote a considerable number of years.
It is clear from my experience in this territory that loss adjusting in China has unique features as well as features that are consistent with loss adjusting in other territories worldwide.
The unique features are naturally the way of doing business and the general culture in China, but allied to the fact that loss adjusting is a relatively new phenomenon in China and so insurers who have been used to performing this function themselves do not tend to use us for "day-to-day" business. As a result, most of the business we see is project-orientated, or of high value and/or complexity. These losses would be relatively difficult to handle in any business territory or culture, but the added "China factor" makes our job just that little bit more daunting, difficult and challenging.
Some examples may suffice. We are seeing an increasing volume of machinery breakdown claims with related business interruption aspects. These run the gamut through properly indemnifiable losses, to claims arising from machinery that has been poorly maintained, overloaded, run beyond design specification and/or basically "flogged to death".
Many of the business interruption losses we see are for start-up businesses with little or no track record and hence a degree of subjectivity enters into the negotiated final settlement of these claims. We have been surprised at the extent to which business interruption losses are an integral part of our day-to-day business. I estimate that nearly 60% of our claims have BI aspects attaching.
Pleasingly, as well as a quite difficult portfolio of claims to handle, we are getting support from a diverse base of business. There are three major national local insurers:
The People's Insurance (property) Co of China Ltd (PICC),
Ping An Insurance Company of China Ltd and,
China Pacific Insurance Co, Ltd (CPIC).
It is insufficient to say any of these three "support us" as they do and they don't. These are massive companies, which are differentiated into separate autonomous divisions and entities and maybe we will receive support from one branch or department etc, but not from others. This makes marketing a difficult task because much business in China is based upon personal relationships and physically getting to see all of these people across China in each department and in each town is an impossible task. Those who are missed out may take offence when they learn from others that we have been to see them and so this is a delicate balancing task that always has to be borne in mind during our marketing activities in China.
Similarly, many overseas insurers have policies that are fronted through the local insurers and we are getting support from these sources. Also, all of the major international brokers are represented here to varying degrees and broker network forms a valuable source of business introductions to us. I think it is fair to say that we are not overly dependent upon any one particular source of business.
Our sources of business are diverse and the types of claims we are getting are relatively difficult and complex to handle. On top of this, there is also the size of the country to consider and travelling. Physically getting to claims in a relatively short time span is difficult and handling and dealing with them over a reasonable time span is also difficult.
An example will suffice. We were asked to do two risk surveys in the Guangxi province. This involved us leaving Shanghai on a flight to Guilin (2 and half hours) in the late afternoon/early evening from where we were supposed to be met by the insured to be taken on to a nearby town ( a 4 hours drive) called Liuzhou. The insured's representatives were not there to meet us and we ended up travelling by public bus to Liuzhou where we arrived at midnight.
The next morning, having resolved problems with the hotel on the standard and type of accommodation against the sum of money they wanted, and having finally succeeded in getting the insured to track us down, we were taken on a 4 hour ride to the site where the survey itself took maybe 4 or 5 hours. We were then driven back to Liuzhou (4 hours) for an overnight stay before another 4 hour drive or so to the next site and another 4 or 5 hour survey. Upon completion of that survey (nearly 5 pm in the evening), the insured suddenly sprung upon us a request for three further locations to be seen, one a small production facility some 45 minutes away from where we were then stood and two others being warehousing facilities back in the town of Liuzhou.
Despite the insured's objections, I insisted upon carrying out the production plant survey that same evening and we finished at about 8 pm. At that time we were expected to spend the night with the insured before travelling back to Liuzhou next morning. However, I had another commitment to make the day after next and could not afford to lose time and spend an extra day on this survey. Consequently, we insisted upon being driven back to Liuzhou that night where we arrived at 1 o'clock in the morning. Later that morning, we completed the two warehouse surveys.
The total job had taken us from Monday evening through until returning to Shanghai on Thursday evening and we had put in an inordinate amount of hours to get the job done in that time. However, of course, it is difficult to convince one's principals that such number of hours need to be paid to achieve what they think is a relatively straightforward risk assessment.
As well as our core business of handling non-marine claims, we see some competitive advantage to be gained by expanding our service to include a comprehensive marine claims service across China. We have a natural advantage in that we have offices in most major ports in China and have experienced surveyors based at those ports. Obviously these surveyors are not loss adjusting personnel but they are able to provide immediate response and we co-ordinate their output through our control office in Shanghai. This aspect of our business is proving increasingly productive and already we have nominations to handle all marine cargo claims for three insurers with business interest in China. We see this as an area of growth in our operations.
As well as non-marine claims and marine cargo services, we have been surprised to find an increasing demand for risk survey expertise - over a wide range of industries. This, too, has given us thought-provoking challenges as we need to decide between the advisability of performing some of these surveys ourselves, with perhaps insufficient expertise to be wholly comfortable, and the need to provide our clients with a "one-stop" service in China. To date we have handled many such assignments, but also when the need has arisen, we have brought in expertise from outside of China to assist us.
Unfortunately, this is an expensive option for us as we can rarely afford to charge out to our clients the cost of the expertise we have brought in to handle the assignment. Strategically, this gives us a need to consider whether we should expand our operations in this direction or opt out of doing some of the more complicated risk surveys. This matter has not yet been resolved, but it is my thought we will seek to broaden our services and bring in the necessary expertise on a case-by-case basis. If demand then warrants we may consider bringing in experienced personnel on a permanent basis.
Liaison with the local market is carried out by senior expatriate personnel in our division, but also by our local staff and the business brought in on the back of these relationships cannot be over-emphasised. It is quite amazing for me to see what scope there is for our business to grow in this manner.
We have talked about the handling of non-marine and marine claims and risk surveys, but another major aspect of our growth has been in putting forward proposals for handling project nominations. Some of the sizes of the projects in China are astounding and project management services are extremely attractive to clients, brokers, insurers, and reinsurers alike.
Being in situ in Shanghai is obviously one advantage, but it is not the be-all and end-all of why we are getting increasing project nominations support. It is insufficient just to be in situ. You need to have the technical resources and the staff available to handle such matters. In this regard we have the advantage of our extensive existing network in China and the vast pool of experienced and qualified labour we have to draw upon. Increasingly in our discussions with prospective clients we are told that it is this factor above all others which sets us apart from our competition.
Because of this, we do not only pay "lip service" to the idea of fully utilising our network across China. We actually do so and so far without major problem. Again, an example will suffice. We have a consumer products division whose job is to carry out inspection and testing of products such as TVs, videos, clothing, textiles, shoes and other sundry items. Early in our operations we received a claim in excess of $1 million in respect of flood damage to a stock of more than 50 tons of raw material silk.
The insured on this occasion was without business interruption coverage. Their sole wish was to dispose of the stock and to continue productive trading. However, we felt it was necessary to wash, clean, segregate and restore the damaged materials before a proper evaluation could be made.
Unfortunately, the insured only had on-site capacity to clean and dry maybe 2 tons per day and there were no other available facilities within the area that could be drawn upon. The insured was unhappy at being required to cease production for maybe 25 days in respect of stock that they considered worthless and an impasse was reached. Now I am no expert on the silk and textile materials, but we do have such experts in the company. Not only that, but we also have a number of textile laboratories throughout China.
Accordingly, we drew upon our own experts to come and talk with the insured and a plan was drawn up for the salvaging operations and a methodology by which the results could be scientifically tested and evaluated. We were able to carry out all of these laboratory testing functions within our own organisation and we do not believe any other adjuster could have undertaken this task without having to subcontract this critical element of the claim.
Also, this particular claim involved us in carrying out a full stock reconciliation (one of only four such full reconciliations I have had to carry out in my career). This required us to station one adjuster on site for nearly seven consecutive days to oversee a team of 12 people carrying out this reconciliation. The claim involved seven site visits, and had this been undertaken from outside of China, the cost to insurers would have been substantially in excess of the charges which we levied.
The point I wish to emphasise is that we have a network, we have resources and we are able to satisfactorily draw upon them. There are other examples we can use, but these can be passed to interested readers on request.
Current economic status/business confidence
Shanghai is a wonderful industrious and busy commercial area, which is still growing and vibrant notwithstanding the woes affecting the rest of Asia. No doubt China will taste its own version of economic pain later, but for now, China has been able to withstand being drawn into the general malaise.
There is considerable internal pressure upon China to devalue its currency to make its exports competitive with the rest of Asia's, but there is external international pressure for China to hold firm.
My own impression is that China will not devalue its currency throughout the rest of 1998, but the position in 1999 is uncertain. What I do believe is that if China devalues its currency, Hong Kong will no doubt do the same and business confidence in the region will plummet. However, for now my own perception is that general business confidence levels remain high and outside investors are still interested in participating in large scale projects. These require financing and, or course, protection of those financial assets through insurance.
I see a continuing demand for the provision of international standard loss adjusting services and these we can offer at local point of delivery and at relatively economic cost. This gives us a leading edge in loss adjusting activities in China.
Future development of our operations in China
We are expanding our operations and SGS are likely to announce the opening of three new offices this year, Wuhan, Nanjing and Zhanjiang.
The Wuhan office is a loss adjusting led venture, instigated on the back of an agreement we have signed with the PICC in Wuhan to handle all of their claims for foreign investment enterprises over a certain threshold level.
We see Wuhan as being a strategically significant move for us as this is an excellent geographical base to service Three Gorges project work, which will become an increasingly predominant feature of large scale project work in China over the next few years.
Our Wuhan workstation is now open, but it is not yet a fully-fledged SGS-CSTC Standards Technical Services office as we are awaiting final legal approval and licensing. When this is approved, we will endeavour to place a high calibre individual within the office, one who has a civil and/or mechanical engineering background, together with relevant project experience work.
It is not easy to find such an individual, because due to my lack of fluency in the language, the appointee will also need to have fluency in written and spoken English and because of local regulations he will also require Wuhan residency status.
However, the challenge is there for us to make this venture as exciting and viable as the one we have set up in Shanghai. I have no doubt that with the right calibre person in place, this will be an exciting addition to the services we can offer to our international clients.
To bring this article to a conclusion, my assessment of the loss adjusting situation in China after one full year's operation is as follows:
* We are unlikely to see "day-to-day" loss adjusting business as known throughout the rest of the world.
* Those claims we do see are increasingly of high value and complexity and demand much from our team of workers.
* There is a challenge to obtain sufficient financial reimbursement for the amount of work we put into serving these claims, both on a travelling basis and on the extent of expertise we are having to bring in.
* Increasingly, project nominations form part of our strategy for delivering guaranteed levels of work through and beyond the year 2000.
* Development of our marine cargo services is an important means of generating day-to-day business and cash flow.
As always, we are keen to hear of anybody who might be interested in utilising our services and if there are any services that you think we might usefully offer, please let us know as it is conceivable that within our nation-wide organisation we already have the expertise available.
Simon Weston is technical director of the loss adjusting division, SGS-CSTC Standards Technical Services Ltd. Mr Weston stresses that this is a personal article and although care has been taken in its compilation, he does not accept responsibility for any factual errors that might be inherent. He can be contacted at: 10F, 3rd Building, No. 889 Yishan Road, Shanghai 20023, China. Tel: (86-21) 6495 1616 ext. 600. Fax: (86-21) 6495 5985.