Senior Chinese officials on Friday encouraged more private investment in China's fast-growing insurance industry to promote its healthy growth through diversifying shareholding structures.

At a high-profile forum, representatives from insurance companies and experts also called for speedier legislation to provide more specific guidelines and standards to help the industry address pressing corporate governance issues in an increasingly competitive marketplace.

"We believe that with the rapid development of the insurance industry, there will be more and more private investment participating in it," said Wu Xiaoping, vice-chairman of the China Insurance Regulatory Commission (CIRC).

"We expect private capital to play a bigger role in the insurance market," Wu told the Insurance Investment Diversification and Corporate Governance Forum co-sponsored by his commission and the All-China Federation of Industry and Commerce (ACFIC), which represents China's private sector.

Huang Mengfu, chairman of the ACFIC, pledged all-out support for private businesses investing in the sector, saying it will "not only promote the shareholder structure diversification of the insurance industry, but give further encouragement to private businesses to diversify their operations."

Chinese regulators loosened controls on private investment in the financial sector earlier this year looking to open the market further to foreign capital. A growing number of private Chinese investors, such as billionaire Liu Yonghao who is also among shareholders of the nation's only private bank China Minsheng Banking Corporation, have entered the insurance sector in recent years.

Private investors hold more than 90 per cent of Minsheng Life Insurance Co Ltd, whose establishment two years ago was widely seen as the birth of China's first private insurer.

But given the special role insurance firms play in maintaining social stability, Wu said his commission will manage the pace of market entry "in a prudent manner."

While new insurers need to be seen as necessary in meeting local demand for insurance coverage, they are encouraged to head to the less developed central, western and northeastern areas of the country, and specialize in such fields as agricultural, health and pension insurance, the official said, adding that this would help optimize the structure of the industry.

The CIRC approved 18 new Chinese insurers in the last year and a half, following a 7-year hiatus on new approvals. Many of the new insurers reportedly have varying levels of private investment.

But private investors face increasing suspicion over their corporate governance structure, while State-controlled insurers, which still dominate the market, face the challenge of checking the power of the largest shareholder. Private insurers are also encountering the problem of management efficiency erosion as a result of having too many shareholders, said Yang Huabai, director of the Department of Laws and Regulations under the CIRC.

He also called attention to the fact that some shareholders, particularly in insurance companies where private investment dominates, are pursuing short-term profits or even using insurance firms as a financial tool for their other investments.

"Regulators need to pay special attention," Yang said.

To help Chinese insurers better manage the challenges in corporate governance as a result of growing foreign rivalry and broadening links with the capital market, experts and insurers have called for an early enactment of the industry's first guidelines on corporate governance, which the CIRC is currently drafting.

"Regulators need to enhance research and guidance on new practices in the industry, such as the chief executive officer system, long-term incentive system and integrated business models, and revise pertinent regulations when conditions are ripe, so as to meet the demand of improving the corporate governance of insurance companies," said Guan Guoliang, chairman of New China Life Insurance Co.

(China Daily Agency April 23, 2005)