Foreign life insurance companies in China expect to grow their premium income by up to 30 percent over the next three years, international accounting firm PricewaterhouseCoopers said in a report on Monday.

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The optimistic prediction is based on their current market penetration of just 2 percent, a strong rise in premiums, and the relative strength of China's economy, according to its Foreign Insurance Companies in China 2012 Survey.

Premium income growth is anticipated to be as much as 20 percent over the next three years, for companies specializing in foreign property and casualty insurance, according to the report.

"Optimism among foreign insurers belies the continuing challenges they face trying to build market share in China," said Tom Ling, PwC's China insurance industry leader.

PwC figures show that the 27 foreign life insurance companies have a 4.3 percent market share, and the 21 foreign property and casualty companies have a 1.2 percent market share.

Foreign life insurance companies said they expected their overall share to increase to around 5 percent by 2015, while foreign property and casualty insurers believe their share will remain the same in three years.

The figures are actually significantly lower than the 10 percent to 20 percent total market share foreign life insurers had originally forecast when they were surveyed in 2007.

Two property and casualty respondents said they were predicting a jump in their market share to 5.5 percent by 2015, with their confidence stemming from the opening of the mandatory third-party liability sector, which will create additional sources of revenue, they said.

"If you look at the commitment of these companies to the Chinese market, the 31 respondents that we spoke to made it clear that China remains very much their main hunting ground," said Ling.

"In fact, their commitment level is at its highest since 2008," he added.

Compared to the rest of Asia, China remains an underinsured market. Despite the strong ongoing premium growth, penetration rates are still below most other Asian markets, at around 2 percent overall, the same as for the property and casualty sector.

The report suggested that as foreign insurers grow their business in China, considerable additional capital will be needed.

The 18 life insurance respondents forecast that the current capital of 54 billion yuan ($8.57 billion) will increase to 83 billion yuan by 2015. The life insurance industry is also experiencing major realignments in its distribution channels.

More than half of the respondents said there is a continuing trend toward bancassurance, while direct marketing and telemarketing are also important channels for the insurance players.

"While the bancassurance channel has enabled foreign firms to grow market share, it has come at the cost of direct customer interaction," said Shu-Yen Liu, PwC's actuarial practice leader for China.

"A focus on ways to reach consumers directly will be a priority for foreign insurers, as will building critical mass and increasing the expertise of their workforce."

Selling through agents was the channel to see the biggest decline, with two-thirds of respondents believing it to be losing traction after reaching its peak of 3 million agents in 2010.

Nine of the 14 life insurance respondents said they planned to lay off between 20 percent and 40 percent of their agents this year, while three participants said they would dismiss up to nine in 10 of their agent network.

Surprisingly, the report revealed that a majority of foreign insurers thought they did not have the right people in place to deliver on their current strategy.

The most common concern centered on a shortage of staff with 20 years or more experience. Twenty-six of the respondents believed that the talent shortage will have a considerable impact on top line growth over the next three years.

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