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International Investment Strategy - Professionalizing Investment and Risk Management

International Investment Strategy

Investment management is a critical pillar of the insurance business, and one that is particularly important for large incumbents who have significant assets under management. The stakes are high. If they get this right it can serve as a structural advantage; on the other hand, the risk of not getting this right can be fatal - Asian life insurers are under tremendous pressure due to the high cost of their liabilities and, thus, any mis-steps in investments can ruin the entire franchise.

Local incumbents have traditionally viewed investment management as an afterthought. For decades, in many companies, the investment function has been organized as a department under finance. This is because for a long time, in most Asian markets, investment options have been rather limited by regulation and an immature capital market. Hence, the investing of insurance assets has been rather straightforward, mostly involving fixed deposits, government bonds, and in some cases, large real-estate holdings. During long periods when interest rates were high, this investment strategy served the incumbents well. However, the situation has changed considerably in recent years.

Life Insurance Product Development Process - Winning Through Product Innovation

Life Insurance Product Development Process

We have already talked about the shift across Asia from traditional life products to investment-linked vehicles, along with the need to tailor products much more to the needs of individual channels and customer segments. All this requires an upgrade of product development capabilities at life insurers across Asia.

First, life insurers need to link product development much more closely to channels and customer segments, systematically understanding their specific needs better and incorporating their insights into the product development process. For example, Prudential (UK) has been very successful in South Korea with products that are linked to specific investment themes that hit the nerve of the market - such as a Viemam fund incorporated into a investment-linked policy in 2007 (although given the volatility in these emerging markets these products obviously have a highly speculative element and can pose large risks mis-selling).

Job In Bancassurance - Creating Value In Bancassurance

Job In Bancassurance

Bancassurance has grown from almost zero in the year 2000 to a range of 30-50 percent share in most Asian markets. However, insurance companies have found it increasingly hard to generate value in this channel that is proportionate to the top line. Banks have been able to negotiate very competitive commissions across Asia, and products are mostly very simple, single-premium, investment products that offer little differentiation in the market beyond price. Life insurers and banks often have arm's length relationships where the life company is barely more than a capacity provider.

Banks have mostly focused on converting their customers' deposits into simple savings products that have a more attractive interest rate - and hence, the product has generated strong customer demand. In this scenario it is very difficult for the life company to add a lot of value to what the banks are doing; since the banks are adding all the value, the low share of the profits to the insurer is probably justified. But, as we described, we believe that in most Asian markets, banks will soon have collected the low-hanging fruit and growth in these types of products will max out - if they don't change their model. 

Success In Insurance Sales - Restructuring Of Sales Force

Success In Insurance Sales

We see rejuvenating sales forces as the number one priority for most established insurance companies in Asia, in particular the local incumbents. However, it is also probably the most difficult endeavor for them, since this involves facing up to a lot of legacy issues, and potentially challenging some highly engrained cultural values at these companies. The pace of these changes reflects the resolve of the top management.

There are some encouraging signs. A few of the large incumbents have started to hire new, better-educated agents and provide them with improved training while gradually eliminating unproductive sales people. Some of the bigger players in Japan and South Korea have started to cut down the size of their housewife agency sales forces.

Success In Insurance Business - What It Takes To Win In Asia

Success In Insurance Business

When viewed from 10,000 meters, the pace of change in life insurance in Asia can appear almost glacial. Most of the large players have been dominant for a very long time, and the market-share rankings in most countries barely shift from year to year. However, there are many forces that are about to change the industry fundamentally. In fact, life insurance in Asia is reaching an inflection point, where the industry; in the next 5-10 years, will likely witness some very dramatic changes that will make it look very different from the one in 2008.

Key Success Factors 
Asia is entering a new phase of development following a period of extraordinary growth. While the overall growth drivers in Asia remain very strong for the next 5-10 years, competition is increasing significantly, margins are beginning to erode, and local and foreign players alike will have to build superior skills in distribution, product innovation, operations, and investment management to be able to sustain current levels of value creation. We see five key success factors to win in Asia over the next decade:

Diffusion Of Innovation In Health Care - Innovating In Insurance Health Care

Diffusion Of Innovation In Health Care

Distribution Innovation - The emergence of real, online approval has been the major innovation in distribution in the Australian life insurance industry. Historically, Australians have bought the majority of their insurance as part of their mandated, retirement-savings plan, or for a small percentage of relatively wealthy Australians, via financial advisors. Recently, high quality, online coverage options are beginning to emerge, increasing the ease of access for ordinary Australians. This online approval functionality is also being rolled out to third-party intermediaries (such as financial planners) in the hope that it will increase sales of the product given the quick turnaround time for approval. ING Direct recently launched an online approved product allowing the customer to buy up to US$450,000 of coverage in 10 minutes.

Allianz have launched a similar product allowing coverage of up to US$1 million. This market is still young with great potential for growth. In particular, offshoring or outsourcing the underwriting and claims processing for these types of polities has the potential to yield significant cost savings.

Australian Annuity - Collective Failure To Respond

Australian Annuity

There are a number of reasons why the Australian life insurance and annuity markets have not penetrated the retail customer base more effectively. These include 
  • inadequate product offerings, 
  • perceived attractiveness of alternatives, 
  • insufficient consumer education, and 
  • a laissez-faire government approach.

Australian Superannuation Companies - Australia Financial Sector

Australian Superannuation Companies

Deregulation and the Emergence of Bancassurance Models 

Since the deregulation of the Australian financial sector, the major banks' desire to develop bancassurance models has played an important role in shaping the life insurance industry. A large percentage (63%) of the Australian banking sector is shared between its top four banks-Commonwealth Bank of Australia (CBA), Westpac, National Australia Bank (NAB), and Australia and New Zealand Banking Group (ANZ).

However, prior to the 1980s these colossi of the local market were not able to offer insurance products as a result of strict domestic regulation. For a period of 35 years, the Australian banking sector was one of the most heavily regulated in the world, as the government operated through the banks to implement monetary policy. While the tight regulation did not directly affect life insurers, it did prevent banks and other financial institutions from entering the industry.

Australia Life Insurance Market - Life Insurance In Australia

Australia Life Insurance Market

Despite its geographical proximity, the Australian life insurance industry bears little resemblance to the other markets. It is well established, having matured over the past 15 years, and remains relatively small, with US$31.2 billion of sales in 2007. Australian insurers have not connected more with the rest of Asia due to a history of poor expansion outcomes and ongoing fears about regional fundamentals, including fallout from the Asian financial crisis of the late 1990s.

Although there are few growth prospects remaining in Australia, we are cautiously optimistic about the future of the industry. In particular, there are opportunities to more effectively extract value from the risk and savings needs of Australian consumers. For example, there are many unmet risk management needs that must be addressed, such as longevity and morbidity risk, that have been opaquely transferred from government to individuals over the last 20 years or so.

Insurance Competitor Analysis - Increasing Competition Between Foreign and Local Players

Insurance Competitor Analysis

A hallmark of the Southeast Asian market is the proliferation of foreign players. In all five markets, foreign players have more than 50 percent of market share, with a handful of leading multinationals - namely AIG, Prudential (UK), and Manulife - enjoying entrenched positions. However, there are signs that domestic insurers in Southeast Asia are growing in sophistication and ambition. In all of these markets, there are one or two prominent domestic insurers - these include Thai Life in Thailand, Bao Viet in Vietnam, Bermasa Bumiputera in Indonesia, and Great Eastern in Malaysia. 

For foreign players seeking first-time entry into these markets, the golden period of "first-mover advantage" has gone. While foreign market share had increased over the past five years, the number of foreign insurers has held steady and in some cases declined. For example, there were 22 foreign insurers in Indonesia in 2001. By 2007, there were only 16. Similarly, in the Philippines, the figure dropped from 20 to 11.

Indonesia Insurance Association - Indonesia Insurance Snapshots

Indonesia Insurance Association

The life insurance market in Indonesia enjoyed a strong annual growth rate of over 30 percent during 2002-07. This growth was evident across all product lines, but most noticeably in investment-linked products, which alone accounted for 42 percent of gross premium growth. The proportion of investment-linked premiums in total gross premium increased from 9 percent in 2002 to 31 percent in 2007.

Indonesia is a relatively consolidated market dominated by foreign players. In 2006, the top seven players accounted for about 58 percent of the market in gross premium; four of the top seven AIG, Prudential (UK), Manulife, and Allianz - were multinational insurers.

Vietnam Insurance Association - Vietnam Insurance Snapshots

Vietnam Insurance Association

"What keeps me going are my clients. All my clients became my friends; and that's what makes me stronger." Lili Lim, an insurance agent in Jakarta, has been in the Indonesia insurance business for over 10 years, experiencing market-specific ups and downs such as the 1997 Asian financial crisis and the 1998 Indonesian government political crisis along the way.

The first couple of months of the financial crisis, Lili recalled, were indeed difficult, as many policyholders lapsed on their US dollar-pegged insurance contracts. However, some Indonesians also cashed in their US dollar accounts and signed new contracts. The economy, and the insurance business, eventually picked up and that incident is but a memory to Lili. Since the financial crisis, the Indonesian industry has moved away from US dollar contracts to local currency policies.

Insurance Market In Singapore - Singapore Insurance Snapshots

Insurance Market In Singapore

In many ways Singapore is similar to Hong Kong in the life insurance market. It too hosts a significant regional financial center and growth in its domestic market is driven by an expansion of wealth management and bancassurance.

The differences lie in the extent to which the government views Singapore insurance as an important national industry and actively supports it, compared to the more laissez-faire stance taken by Hong Kong regulators. For example, the insurance cooperative NTUC Income has strong ties with the government. In the 1980s, the government tried to adopt a closed-door policy in order to prevent "unhealthy" competition, favoring local players over foreign ones. However, the plan backfired; the policy only reduced the competitiveness of the market and benefitted the foreign insurers who were grandfathered in and able to leverage their know-how from other markets to beat the local players. Meanwhile, industry growth was stunted, as there was little motivation for players to develop new products and channels. Foreign-owned insurers ended up holding more than half the market share in both the life and general insurance business. 

Hong Kong Insurance Association - Hong Kong Insurance Snapshots

Hong Kong Insurance Association

With a stable political and socioeconomic environment, the Hong Kong Special Administrative Region has always been one of the most profitable markets in Asia. In the years 2002 to 2007, life insurance premium grew at a moderate 19 percent. Hong Kong remains secure in its role as a major financial center as well as a favored location for the regional headquarters of multinational insurance companies. Arguably, it also has the most sophisticated consumers and insurance agents in the region. All this stems from a long history of foreign life insurance companies operating in Hong Kong, who continue to dominate the market.

Hong Kong has proved not only to be a highly regarded center for regional operation but has also become a talent pool extending its influence all over Asia, and most prominently in China. Many top Hong Kong executives have been headhunted to run insurance businesses in China.

National Health Insurance In Taiwan - Taiwan Insurance Snapshots

National Health Insurance In Taiwan

On the surface the Taiwan market looks uninteresting: Taiwan is mired in a relatively low level of economic growth, especially compared to neighboring markets, and there has been a degree of negative sentiment around for years. In addition, the economy has been susceptible to swings in the local political environment. But this has also been a very high growth market over the past few years. Going forward, the factors that drove high growth rate remain intact: the island still enjoys a high savings rate, it has a large number of wealthy potential customers and a significant pool of untapped assets sitting in bank deposits. However, like many other Asian investors, it should be noted that investors in Taiwan have a reputation for seeking short-term gains and a high propensity for quickly switching their investment portfolios.

From 2002 to 2007 the Taiwan life insurance market grew at a compound annual growth rate of 18 percent, despite slow GDP growth during this period that averaged 4 percent. Regulatory changes in the Taiwanese banking industry have fuelled change in the Taiwan life insurance landscape. The period following the Asian financial crisis of 1997 produced financial reform in the shape of the Financial Holding Company (FHC) Act of 2001. The FHC Act allowed financial institutions to consolidate all their companies by forming a holding company that could include subsidiaries from all financial service sectors, including insurance. 

Medical Insurance In South Korea - Insurance Market Snapshots

Medical Insurance In South Korea

The South Korean market is highly saturated and competitive, dominated by large local incumbents. Nevertheless, the South Korean market saw 10 percent compound annual growth between 2002 and 2007, despite an almost fully saturated market, with household penetration of 90 percent and life insurance premium equivalent to 8.8 percent of GDP - third only to Taiwan and Hong Kong in Asia.

One of the major demand trends in this market is the growth of investment and retirement products driven by the aging population. A 2007 McKinsey survey shows that most people in South Korea feel they are not sufficiently prepared for retirement and that existing products do not meet their needs. Meanwhile, the impending introduction of the Capital Market Consolidation Act (CMCA), which comes into force in 2009, has spurred considerable excitement and made consumers more comfortable about buying investment products.

Patient Choice Health Insurance - Competitive Health Insurance Market

Patient Choice Health Insurance

Compared to today's fast-growing markets in the rest of Asia, these Tiger markets are quite mature, with a relatively stable competitive landscape. For example, the rankings of players have not changed much in recent years. In each of these markets, the top three players have maintained a 40-60 percent share of the market over the past few years. The overall numbers do not tell the whole story though - we will see that there are many underlying changes in these markets that are creating pressure on the incumbents. This is particularly significant in South Korea, where the incumbents have been rapidly losing market share to both smaller foreign players and local attackers.

Nonetheless, compared with the rest of Asia, these markets present a very different proposition to would-be entrants. Newcomers must take a very long-term view, because it is unlikely that a newcomer can organically grow a meaningful market position in these markets over a short period. The dominant channel is still the tied-agency force, which the existing players have built up over many years. Entrants will have to consider alternative business models, such as innovation in alternative channels, or establishing a highly specialized agency force. Some of these innovations have already taken place, especially in South Korea, and across the markets, the opening up of bancassurance has led to new players capturing market share through leveraging the branch distribution network.

Insurance Market In Asia - Maturing Markets Going Strong

Insurance Market In Asia

President Wu Chia-lu looked across the table at the young man sitting opposite him. "Are you sure you want to do this?" he asked. The head on the other side nodded in agreement. Wu continued, "I want you to go home first, and think about this carefully for a few days. If you still haven't changed your mind, then you can come to work. Law graduates from National Taipei University like you usually don't want to join our insurance industry." The year was 1964, and Frank Cheng was applying for a job at Shin Kong Life Insurance, a small subsidiary of the large Shin Kong conglomerate that made its fortune in garments and textile.

Frank ended up joining Shin Kong, and witnessed the growth of the tiny company into the second-largest insurance company in Taiwan with over US$30 billion in assets and over 12,000 flail-time sales agents by 2008. He ended his career as the President of Shin Kong Financial Holdings, and devoted his professional life to building the life insurance company. During his memorial service, Wu (who became the vice-chairman of the Shin Kong Financial Holding Company) fondly remembered all the ups and downs that Frank led the company through, which in many ways reflected the economic ups and downs of Taiwan. Compared to the 1960s, when attracting people to work in the industry was difficult, the challenges faced by Shin Kong today are quite different. Competing in a much more mature market, Shin Kong has expanded beyond domestic life insurance, starting overseas operations in China, and investing over 35 percent of its assets overseas.

Japan Life Insurance Market Share - Rewards for Innovative Players with Perseverance

Japan Life Insurance Market Share

Throughout Japan's life insurance history, innovations in products or channels have bumped the market upwards. Foreign players came to dominate the variable annuities and medical insurance submarkets, which have been the fastest-growing sectors in recent years. In 2006, AFLAC, ALICO, and AXA were the top three players in the healthcare sector by number of policies, while The Hartford, Metlife, and ING led the market for variable annuities.

We have already seen how SONY and Prudential (US) cracked the stagnant life insurance market by meeting Japanese consumers' demands for consultative selling. Even after the break-up of their partnership in 1987, each side of the joint venture continued to grow using a financial advisory model. The number of SONY Life Planners exceeded 3,700 in 2007, and by 2006, SONY logged in a US$5.4 billion in premium income while Prudential (US) reaped US$3.6 billion. Prudential (US) also acquired Aoba Life in 2005.

Innovative Insurance Ideas - Increasing Scope for Innovative Sales Models

Innovative Insurance Ideas

Bancassurance has proved to be the most successful of the new channels for sales of life insurance. Partial deregulation in 2002, allowing banks to sell annuities, a few asset-formation products, and some P&C insurance, proved that large banks have incredible selling power through their branch channels. In 2006, banks accounted for 44 percent of annuity premium income sold by private insurers. As in most other Asian countries, the trustworthy reputations of banks and their established branch coverages have made them successful in cross-selling insurance products to their customer base. 

With complete bancassurance deregulation in December 2007, this channel has become even more important for life insurers, and its evolution is likely to reshape the power structure of Japan's life insurance industry. The power of the banking channel can be seen through the development of mutual-fund sales. From 1998, when mutual-fund sales through banks were deregulated, to 2005, approximately 43 percent of publicly offered, mutual-fund sales came through banks.

More Than Insurance Jobs - Emerging Sizeable Opportunities in Certain Product Submarkets

More Than Insurance Jobs

The Japanese life insurance market is not known for rapid change - but there are some new opportunities, albeit emerging at a distinctive (that is to say, slow) Japanese pace. Given the size of the Japan market, these niche opportunities are quite significant - after all, the Japanese life market is expected to still be double China's market by 2012.

The Retirement Opportunity 

Japan has the single largest retirement market in Asia by far. In Japan, 21 percent of the population is over 65, as opposed to the rest of Asia where, on average, only 7 percent of the population is of retirement age. The proportion of people aged 65 or older is expected to further increase to 28.4 percent of the overall Japanese population by 2020.

Market Line Insurance - Decline In Overall Market

Market Line Insurance

In October 2006, the in-force value of private individual life insurance policies in Japan hit an 18-year low, falling below US$10 trillion for the first time since March, 1990. This was primarily the result of a severe downturn in the traditional life insurance market, including whole life, term life, and endowments. Because this segment had accounted for over 50 percent of gross premium from non-Japan Post insurance, its decline created a significant drop in the total market size. Factors driving this downward spiral include a shrinking addressable population, market saturation, and shifting customer demand towards such alternative products as mutual funds.

Shrinking Addressable Market

Japan's 2012 population is projected to be 127.2 million, approximately 0.6 million less than in 2007. While this does not sound like a big difference, the population comprising life insurers' primary addressable market, that is those between ages of 15 and 64, is projected to be only 80.3 million in 2012, a drop of 3.5 million or 4.3 percent from 2007. At the same time, the population of all those over the age of 65 is expected to increase by four million people. With a shrinking population and a demographic trend that is not in favor of life insurance, the traditional life insurers' addressable market is steadily declining. 

Life Insurance Association Japan - Japanese Insurance

Life Insurance Association Japan

Some call him the "Bad Boy of Sumo" for his youth and unreserved fighting, but none can deny that Asashoryu Akinori is the 68th Grand Champion of sumo. Born in 1980, he started wrestling at the age of 15. In 1999, he entered Meitoku Gijuku High School to study sumo wrestling and became a disciple of Takasago-beya (then-Wakamatsu-beya). In January 2001, the youth entered the top division of sumo for the first time and in 2002, he became the fastest wrestler to reach the rank of ozeki (the second highest rank in sumo) since the current system was introduced in 1958.

Asashoryu Akinori is one of the greatest contemporary grand champions of the quintessentially Japanese sport of sumo wrestling. Known simply as Asashoryu, he is joined by another formidable master of this sport known as Hakuho. Indeed, the two of them are credited with bringing about a revival of this ancient sport. The surprising fact is that neither of these men is Japanese; both men are Mongolians. The irony is that while foreign sumo wrestlers seem keen to accept the discipline and lifestyle of this demanding sport, young Japanese are hesitant to enter the ring and the older Japanese wrestlers are finding it increasingly difficult to compete with the younger, stronger Mongolians. Thus what appears to be a uniquely Japanese endeavor is now dominated by two foreigners.

Setting Up An Insurance Agency - The Difficulties Involved

Setting Up An Insurance Agency

Talent Shortages

Both local and foreign companies often have difficulty finding sufficient talent to fuel their growth ambitions in China and India. This challenge of finding suitable recruits is even more acute in the life insurance industry, which is relatively new and lacks an established talent base. This has given rise to considerable poaching of talent and turnover rates are significantly higher than in other parts of the world. The problem is not likely to disappear in the near future.

Although China and India are obviously populous nations with large pools of talent in absolute terms, the demand for these candidates far exceeds the supply. This is even more acute for foreign players, who generally require higher standards for employment. According to a McKinsey survey, less than 10 percent of Chinese job candidates, on average, would qualify for employment with a foreign company. 

Challenges Of Insurance Industry - Challenges To Insurance Growth In China And India

Challenges Of Insurance Industry

The sustained growth of China and India's life insurance market presents exciting opportunities in size and scope. But newly emerging market segments and intensifying competition make traditional approaches insufficient to capture their full potential. Players who can innovate and identify differentiated models for different customer segments are most likely to succeed. We see the following key challenges that life insurers in China and India will have to deal with in the next decade:
  • Regulatory restrictions for entrants
  • Operational challenges
  • Increasing complexity in managing the product portfolio
  • The need for distribution excellence

History Of Insurance In India - Rediscovering Private Insurance

History Of Insurance In India

The year 2000 was a watershed for India. After 50 years of state monopoly, the market was reopened to private insurers. With that reopening, the Indian life insurance market ballooned from US$9 billion in gross premiums in 2000 to US$52 billion in 2007. It is rapidly catching up with the rest of the large Asian markets, and we would expect it to become Asia's third-largest insurance market by 2012, and feature in the top 10 globally. 

Market penetration remains modest by international standards at 4 percent of GDP but it is already higher than levels that prevail in China, while GWP per capita of US$46 is at par with China and significantly greater than Vietnam, the Philippines, or Indonesia. With a forecasted real GDP growth of around 8 percent, India is offering similar long-term growth potential to China. 

China Insurance Statistics - Emerging Giant

China Insurance Statistics

China is without doubt the most important growth story in the life insurance world - as it is in so many other industries. A mid-sized market today - smaller than the Italian market - it will likely become one of the largest insurance markets globally in the next several years. With annual growth rates projected at around 19 percent, the Chinese life insurance market will be larger than Germany's by 2010, and by 2015, it will have overtaken the United Kingdom as the third-largest market in the world, after the United States and Japan. Of course, this will not be straight-line growth, and there will be volatility along the way, but we are convinced that the growth of the life insurance market is broad-based and founded on solid fundamentals.

The high national savings rate, and the enormous pace at which the economic development of China is producing households that for the first time have the means to invest in savings and protection products, will continue to fuel growth for a long time. 

Growth Of Insurance In India And China - Market Trends Common to China and India

Growth Of Insurance In India And China

Many local and international players are attracted by China's and India's market prospects - we are seeing three main trends that describe the environment they will have to operate in:
  • High growth potential in both markets
  • Competition is intensifying rapidly
  • Regulatory obstacles remain
High Growth Potential In Both Markets

Both China and India, despite their phenomenal growth over the last decade or so, retain significant growth potential. Penetration remains relatively low; the demographic trends are favorable; and these nations are in the middle of an incredible, sustained economic boom.

Health Insurance In China And India - Size Does Matter

Health Insurance In China And India

On March 26, 2008, Beijing hailed the opening of its third airport terminal. Designed by the British firm Foster + Partners, the sleek, modem terminal is 3 km (1.8 miles) long, and 17 percent larger than all of London Heathrow's terminals combined, including Terminal 5, which opened the same week. Built at breakneck speed in four years by an army of 50,000 workers, Beijing's Terminal 3 is an architectural masterpiece to marvel at, with a lofty ceiling, full-height glass windows, and a roof formed in the shape of a dragon.

It was not so long ago that travellers to China resigned themselves to backward terminals, squat toilets, passenger lines from counter to curb, and lounges blanketed by curtains of cigarette smoke. Fifteen years ago, Beijing's airport was a subsized airport located in paddy fields northeast of the capital. Serving 100 flights a day, the terminal was dark, dingy, cramped, and smoky. 

What Types Of Insurance Are There - Product Mix For Needs of Asian Consumers

What Types Of Insurance Are There

With the growing penetration of life insurance and the increasing wealth levels in Asia, it is natural that life products have been evolving. As one would expect, the product trends vary according to the maturity of the markets. While 10 years ago most insurers were selling basic protection and long-term savings products, the rapid wealth accumulation and increasing sophistication of consumers and booming equity markets have led to massive demand for investment-linked products in recent years (also known as unit-linked products). 

As such, insurers have been quite successful in penetrating the wealth-management market, which is probably the single largest market opportunity across Asia. For even more mature markets, such as Japan, with aging populations, retirement and health are likely to emerge as significant growth segments. Finally, niche areas such as Islamic insurance (takaful) are relevant for pockets of consumers whose needs are not met by the traditional insurance offerings.