China's first specialized health insurance company commenced business on Friday, blazing a trail that promises to better extend health insurance coverage.

The establishment of PICC Health Insurance Co Ltd also marks a step forward in the plans of PICC Holding Company, which controls China's largest property insurer PICC Property and Casualty Co Ltd, to grow into a financial conglomerate.

The company, with 1 billion yuan (US$120 million) in registered capital, is 51 per cent owned by PICC Holding and 19 per cent owned by German health insurance giant DKV. The remainder is held by three other companies including China Huawen Investment Holding Co Ltd.

The establishment of health insurance companies "will help alleviate a shortage of health insurance products and reduce the financial burden and management costs of the Chinese Government," said Tang Yunxiang, chairman of PICC Health Insurance.

"The establishment of PICC Health Insurance is also a reflection of PICC's strategy of comprehensive operations," he added.

PICC Holding also has an asset management arm, and is reportedly preparing a life insurance subsidiary.

The demand for health insurance is high in the world's most populous country. As many as 65 per cent of Chinese residents see illness as one of their three biggest concerns, PICC Holding said.

According to a survey by McKinsey, the market could hit 300 billion yuan (US$36 billion) by 2008.

Yet despite the huge growth potential, commercial health insurance still plays a minor role in the local market, covering a meager 3 per cent of Chinese people and 6 per cent of local residents' total medical expenditure, said Wu Dingfu, chairman of the China Insurance Regulatory Commission, the market watchdog.

And local health insurance providers - including 29 life insurers and eight property insurers - are frustrated with the inherent risks of the business. Loss ratios for health insurance services has reportedly amounted to as much as 200 per cent at some insurers in recent years.

(China Daily)