Chairman and CEO of Marsh greater China talks about managing risks in the Chinese market

---By Jody Braverman

With annual revenues exceeding $5 billion, US-based Marsh Inc has approximately 30,000 employees worldwide providing risk and insurance advice and transactional capabilities to clients in over 100 countries. Marsh is part of the Marsh & McLennan family of companies, including other world leaders like Kroll, Mercer and Putnam Investments. In 1999, Marsh acquired the global operations of Sedgwick as well as Sedgwick's operations in the China market. Paul Wilkins was appointed managing director and CEO of Marsh Greater China at the beginning of this year after heading up the Taiwan operations for the preceding five years.

What is the nature of Marsh's business in China?

It's the same as our global business, which is risk and insurance services. Our client base is generally large, international, commercial enterprises that are already invested in China or are thinking about investing in China. The client base here also includes domestic Chinese companies that are growing with the economy. Chinese companies that are becoming regional or global companies are investing outside of China and entering new risk areas.

What sort of services do you offer?

For many years we've had our international clients from around the world who have been invested in Asia and increasingly in China. There's an understanding that the needs of these companies are different here than they are in the home country. China is a huge country, and you have tropical conditions in the South, sub arctic conditions in the North, and most of the investment is in the coastal regions which are, in many places, prone to flood damage and tsunamis, typhoons, earthquakes and all the things that go along with that. In terms of infrastructure here in China, particularly when you go inland, it may not be at the same levels that companies are used to in their home countries; the response to things like flooding and fires and other emergencies may be different from city to city or province to province. In some areas you have a very high concentration of investment and people, so the impact of potential catastrophes is higher in some areas than others. So there are many things that are different and unique that international companies want to understand and want our help with in managing their risks.

What about for your Chinese clients?

Chinese companies that are investing outwards have the same issues. They may be very confident with managing their risk exposure in China, but when they're invested in Africa or Latin America, the United States, or Europe, they find that they're exposed to different things. In particular is the liability issue; liability exposure is so different in the US than it is in China, so they come to us for help in managing those risk exposures. What we've done is created a group that we call China Client Services which provides Chinese companies with access to our global network, so, for example, if a domestic oil company makes an acquisition in Africa, chances are that Marsh will have an operation already in that place and we can link things together and use our local knowledge to proved advice on particular risk issues in that country.

How did Marsh get to be such an expert on China, enough to advise foreign companies here?

We've had continuity of operations here since 1981, and nobody else comes anywhere close to that. The insurance broking market is only progressively being opened up under WTO regulations, starting with the accession to WTO in 2001. Since 2001, there have been more than 300 broker licenses issued in China, and those licenses range from just a one- or two-man operation through to some growing local broking companies or joint ventures with other international companies. But the oldest of those are only since 2001, so we've been here a comparatively long time. We've learnt a lot in that time, and we're learning more everyday.

Who does Marsh employ?

We try and employ the brightest people in the insurance industry. Right now, on a global scale, our operations here are relatively small. We have three offices in Beijing, Shanghai and Guangzhou, respectively, and across those offices we have 80 professionals. But we are very much in a growth phase now, so we anticipate those 80 people could potentially double in size a year from now. We are very actively recruiting people and rolling out training programs.

What qualifications would someone need in order to work for Marsh here?

It's different at different levels. If you bring people in at the graduate entry level, you have to build their experience, and you can do that through training programs here in China or swaps within the regional network, thus providing them with experience in our operations in the United States or Europe. This very much fits in with our China Clients Services Network - making sure we use the whole global network. We have people at medium levels with five years of experience in the industry, which would have come from working in an insurance company. Insurance companies are well established here, but broking is pretty new. They know all about insurance, but we have to help them develop the risk consulting skills.

Then we have senior management people that we have to put through training. We have what we call an advanced leadership program, which is an 18-month training that we put our more senior management through to help them develop their overall management skills. So, we have training opportunities at various levels. We spend a lot of time and money on providing training to build our people. Do you cater to mainly foreign or domestic companies now, and how do you see this demographic changing over time?

Our original purpose for being here was to service the needs of our European or US multinational companies who were starting to invest here in China. Right now, by volume of business, it's probably 75 percent international business. That part is continuing to grow, and it's growing quite quickly because the companies that have been here for a long time are now bigger and demanding a broader range of risk services from us. There's also a second wave of companies coming in - many companies feel that they cannot afford to not be in China - and many of those are our international clients and are looking to us for services.

So that part of the business is growing for us, but our objective is to bring more of these international services to the local companies here who are just beginning to demand risk-consulting services. I don't know what the demographic will be, but we would hope in the not-too-distant future that it's more 50/50, or even skewed more towards local companies.

What is the demand for your services now compared to five years ago and in comparison to projections for five years from now?

The demand is great; as I said, we anticipate having double the number of professionals in a year's time. Largely the demand is coming from both sides, international and local companies. Our regulator here is CIRC (China Insurance Regulatory Commission) and they, themselves, are leading an initiative, or a mandate, to develop the awareness of risk management within China. So even the risk regulator is driving and increasing the awareness of the need for risk management. What do you foresee the future risks being as the economy grows and deregulates?

The future risks for Chinese companies are largely to do with their regional and global expansion. For example, if you're a major Chinese company and you're selling domestically and you start exporting to Europe or to the US, all of a sudden you become liable for your products causing injury or damage to consumers. It's quite different in the domestic environment, in that if someone in the US gets injured because of one of your products you can be subject to liabilities of hundreds of millions of dollars. So they want to know how we can help minimize risks and provide insurance protection against those risks.

What about the risk of avian flu?

Nobody really quite knows how this is going to develop. We saw what happened in the region with SARS. Avian flu could peter out, or it could be similar to SARS, or it could potentially be worse. Many companies want to take a serious look at what measures they can put in place in relation to risk control if avian flu really develops and gets out of hand. We've had a lot of people coming to us, and we're now working with them to develop business continuity plans specifically for avian flu. Most international companies have their business continuity plans or disaster recovery plans, but they haven't really considered avian flu, so they now need to get together the components that would cover a pandemic contingency.

What sort of regulatory constraints are there for foreign companies in the insurance industry here?

The insurance industry is pretty open now. Under the WTO accession agreement, there is a scheduled opening up of the insurance market that applies both to insurance companies and to risk consultants like us. Each year there's been a progressive movement to open the market under this plan, and what we've seen is that, step by step, all those things have been followed to the letter of the law. So by the end of this year, which is the end of the initial five-year opening up phase, foreign companies can apply to have wholly owned foreign enterprises in the insurance broking industry providing that they prequalify.