David Peng is a person who believes in "reaping what one sows" and he displays his commitment to this belief by taking incremental, yet definite, steps to expand the Guangdong market by investing in client education and personnel training.

"We may be a small player in China's insurance industry, but every step we take shows our long-term commitment to this market," says Peng, general manager of AIU Insurance's Guangzhou branch.

AIU is the overseas property-casualty insurance division of American International Group Inc (AIG). When it first obtained its licence to set up a branch in the southern city of Guangzhou, the approval had a lot of strings attached. Even to this day, compulsory insurance is still off limits to the company.

But Peng says the company is not deterred.

"We are not blindly pursuing bigger market share," he notes. Instead, AIU has adopted a policy of product differentiation by going up market.

Compared with domestic competitors, international insurers like AIU are often smaller in scale, with fewer branches and limited product lines. Despite such limitations, Peng insists that a disadvantage can be turned around if one knows how to operate in an emerging market.

AIU comes with its own unique strengths, he says. Not only does its parent company AIG have a Standard & Poor AAA rating, but AIU itself is also rated highly, which is rare for an insurance company in our post-9/11 world.

"Suffice it to say, only a few in our industry get this rating and it is a shot in the arm with regards to boosting our clients' confidence in the claims services that we provide," says Peng.

China's insurance industry is, on the whole, still in a preliminary phase of development and management tends to be "in broad strokes", says Peng. In comparison, AIU's approach is more nuanced, he insists. The company places great emphasis on innovation and has focused on only a few niche markets where it can excel.

One area where it has achieved number one status in Guangzhou is export product liability. The Pearl River Delta (PRD), of which Guangzhou is the hub, is considered "the world's factory ". However, export markets like the US, EU and Canada have very strict laws concerning product liability. Consumers in the West are also more litigious, which puts PRD manufacturers in a vulnerable position. All this adds up to market demand which the company has been happy to cater to.

Peng explains that importers in the West generally buy their own liability insurance, but many of them also want their vendors to do the same.

"Nobody knows who will become the target of a lawsuit when a consumer is injured by a faulty product. It may be the retailer, the wholesaler and it certainly could be the manufacturer," he says.

He cites the example of a PRD exporter who did buy product liability insurance from a domestic insurer for his merchandise but, for one reason or another, the insurance purchased was rejected by his overseas vendor. When this exporter switched to AIU, whose brand recognition, among other qualities, was deemed acceptable by the buyer, there were no questions asked.

"Being part of a giant multinational corporation has its advantages," says Peng. "AIG has branches or subsidiaries in more than 130 countries and jurisdictions and we can tap into that network so that customers can access our services almost anywhere in the world."

Earlier this year, a Guangdong battery manufacturer was sued by a Netherlands consumer because a battery leakage corroded his motorcycle. He sought 2000 euros in compensation. After a brief investigation and loss assessment, AIG Europe promptly paid the amount in full on behalf of AIU Guangzhou.

Another case, this time in the more litigious US, concerns a Florida boy who was injured in a bicycle incident. His parents sought compensation of US$150,000.

Since the manufacturer was insured by AIU Guangzhou, AIG's claims network in the US looked into the matter and helped convince the claimant to accept compensation of US$18,000.

"This case demonstrates our commitment to our clients. That particular client had a deductible which is much higher than US$18,000. That is to say, below the deductible, AIU would not lose a penny. But our colleagues in the States bargained it all the way down to uphold the principle of trying to minimize the loss to our client," says Peng.

To minimize its own risk and losses, AIU has spent a considerable amount of energy and resources in educating its clients about manoeuvring in the hazardous waters of international trade.

"As private businesses join the fray, they should know how to protect themselves and increase their competitiveness in the world market," he says.

At the Canton Fair in recent years, AIU sponsored several product liability seminars and training sessions for exporters and talked about risk management.

It also sends out loss prevention engineers to conduct surveys and assessments of risks, to clients or potential clients, and provide recommendations for risk management. AIU's engineers sometimes even help the client design product manuals that are more user-friendly and less likely to be misunderstood.

A new marketing tool that has been in use for half a year - with satisfactory results - is Work Site Marketing. WSM is a distribution method used for selling voluntary insurance products, usually accident and health insurance, to employees at their place of work with the sponsorship and backing of their employers.

After seven months of effort, thousands of employees have been signed to benefit schemes provided by AIU Guangzhou through WSM.

The rollout of new products is always based on solid research and understanding of the local market, says Peng. Instead of squaring off against competing product lines, AIU often fills voids in the marketplace.

So far, AIU has a product line that includes fire insurance, property all risks, business interruption, money insurance, products liability, short-term accident and health insurance which includes both international and domestic travel insurance.

"We don't just jump into any market segment that appears lucrative," says Peng. For example, although automobile insurance accounts for over 60 per cent of the mainland non-life insurance market, AIU has yet to venture into this area. The main reason is that foreign insurers are not allowed to provide compulsory insurance and third-party liability insurance for automobiles is regarded as compulsory to some degree.

"This is a grey area," says Peng. "The law so far does not say a car owner has to purchase third-party liability insurance, but there are indications that some government agencies seem to think this way. We don't like to cut corners, so we have chosen to wait for a time when government policy is totally clarified.

"Another reason is that, unless we are quite certain that our service can keep up with our products, we would rather not offer the products in the first place. We want to be the best in whatever we do."

All these preparations are part of a strategy of pursuing "consistent, predictable and quality earnings" in an environment of rapid change.

For 10 years, AIU has been grooming a well-trained and highly disciplined direct sales team that can satisfy its future needs for expansion. "When restrictions are eased on December 11 we can go into other cities in Guangdong," says Peng.

"We have always emphasized integrity as the crucial quality in recruiting and training, and so far we have not had a single incident of corporate violation of any kind," Peng says proudly.

"Even officials at the China Insurance Regulatory Commission (CIRC) often cite us as exemplary.

"What we do will help increase the penetration rates of all insurance products and introduce international standards into the mainland's markets. And an expanding market will bring benefit to all players, including AIU," he concludes.

Editor: Olivia