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Life Insurance Growth In India - Creating New Growth Horizons

Life Insurance Growth In India

Beyond improving the core, which inevitably takes years to complete (and is very much an ongoing effort), incumbent insurers in Asia need to rebuild momentum and develop new growth options. They can look at new channels or business models, other businesses in financial services, and other markets to expand into. The challenges involved in making this work are enormous and cannot be undertaken where there is risk of undermining the core business or removing the focus away from the required improvements stated above.

The Asian life insurance incumbents are still relying largely on their massive sales forces - which are simultaneously a strength and a weakness. Of course, the enormous selling power of these agent forces is a huge advantage that incumbents need to build on. At the same time, other channels, notably bancassurance, have grown much faster than the agent channel in general. The often lower qualifications of incumbents' agents, compared to some attackers in the market, tends to hinder them when they try to sell the faster growing products such as investment-linked or health insurance. Across the region, local incumbents have a much lower share in bancassurance and alternative channels than in the agent channel. This might be surprising at first glance, but can be explained by the difficulty in managing channel conflicts. The agent sales forces usually have substantial internal power in these organizations that allows them to push back at the development of competing channels.

Furthermore, incumbents have been much slower to react to emerging trends than the smaller attackers in the market. Nonetheless, incumbents should be able to turn this around. They should leverage their strong relationships in the financial services market and their strong brand power to become marker leaders in alternative distribution channels and bancassurance. By developing these channels parallel to their traditional sales forces, they also reduce the number of legacy issues they have to deal with and can set the aspiration of building best practice channel management capabilities. This might require them to hire the best talent and maybe even set up these new channels separate from the rest of the organization, to prevent channel conflicts. Life Insurance Growth In India
Local incumbents should also look at new growth opportunities in related financial services. This might seem like a stretch given the enormous challenges in the core life business, but there are some obvious synergies within the financial sector that are worthy of consideration by large incumbent insurers. These have already been recognized by a number of local insurance companies who have expanded domestically into banking, for example, Cathay Life in Taiwan acquired the United World Chinese Commercial Bank (now Cathay United Bank) in 2001 and Ping An in China bought 89 percent of Shenzhen Commercial Bank (later renamed Ping An Bank) in 2006. 

On the surface, expansion into banking may look obvious. Analysts tout obvious synergies such as securing control over a captive bancassurance market, cross-selling and sharing information on the customer base, and creating back-office synergies. In practice though, synergies arising from insurance-bank combinations are very difficult to achieve. For example, the Allianz-Dresdner merger in Germany took many years to realize the expected distribution benefits, and the insurer eventually chose to break off the bank. 

Other mergers such as Travelers-Citigroup and Winterthur-Credit Suisse also demerged a few years later after it was found that the costs and complexity of integration outweighed the benefits. Another area of natural expansion into other financial services is asset management. Again, there are some obvious benefits with 80 percent of life insurance in Asia flowing into savings products. We have described the challenges and opportunities already, but again this is an area where incumbents can leverage their size and brand to create new growth horizons. Life Insurance Growth In India

Meanwhile, some larger Asian life insurers are running out of expansion space in their domestic markets. This has led a number of companies to think about extending their reach into other Asian, and even global, markets. Many Taiwanese insurers, for example, have expanded into China, including Cathay Life, which formed a life insurance joint venture with China Eastern Airlines and Shin Kong, who has a joint venture with Hainan Airlines. Ping An dipped its toes into overseas markets by opening a branch office in Vietnam. The large Japanese insurers have also begun their journey towards a more international portfolio. 

Players like Nippon Life and Dai-ichi have already set up businesses in some Asian markers and have expressed their objective to raise revenues outside of Japan. For example, Dai-ichi, in July 2008, bought 24 percent of Ocean Life Insurance in Thailand, and in October 2008 completed its acquisition of its one-third stake in Tower Australia. So far, these have been relatively timid steps by the leading Asian incumbents, but they are likely to give rise to some much larger overseas steps as they become more comfortable with forays into these markets. Of course, not all of these will be successful moves - in fact the financial crisis in 2008 has made many acquisitions look very untimely - but from the vantage point of these incumbents, this could be a step that they can ill-afford not to take in the long term. To find out more, you can check out Life Insurance Growth In India.