Joining an insurance company in the 1960s in Hong Kong was not an obvious choice. In fact, the industry was poorly understood, and only a few multinationals were active in the market at the time. Insurance agents had a difficult time explaining to customers what the product was about, and many viewed such agents with suspicion.
It was in such an environment that Dominic Leung joined AIA (a subsidiary of MG) as an IT analyst. He remembered that "AIA was essentially run by locals - besides a few expats from the US, most of the management team consisted of Hong Kong executives." Over the years, the industry blossomed as life insurance became one of the first financial products that most middle-class people purchased. As AIG expanded its presence across Asia, Dominic moved to Taiwan in 1989 to become the country head. There, MG was known by its Chinese name, Nanshan (a company AIA acquired some years before).
Over the years, many multinational insurers followed the lead of MG in entering Asia, including AXA, Manulife, Prudential (UK), and ING. By the mid-1990s, as more multinational companies aggressively entered the Asian markets, Dominic was headhunted away to be the CEO of Prudential (UK)'s greater China operations, overseeing the three markets of China, Hong Kong, and Taiwan.
In January 2004, Dominic made his latest career move (and he claims it will be his last) - he moved to Ping An, the fast-growing, second-largest life insurer in China, and became the chairman of its life insurance subsidiary (which contributes the vast majority of the value of the group). In 2006, Dominic took over responsibility for all of Ping An's insurance activities, including life, property and casualty, pensions, and health insurance.
During his tenure, Ping An grew to US$10.8 billion in life insurance premiums by 2007. It went public in 2004, and boasted a market capitalization of US$53.4 billion by June 2008. As he reflected on his career move in Ping An's internal newsletter in 2004, "I wanted to use my 30-plus years in the insurance industry to contribute to the development of the mainland China market. This is a once-in-a-lifetime, unique opportunity."
From the international finance center of Hong Kong to the fast-growing Taiwan market and then to the huge domestic economy of China - in many ways Dominic's career reflects the development of the Asian life insurance market. From a global life insurance perspective, opportunities in the industry developed quickly in the more accessible markets like Hong Kong, before growing rapidly in the next wave of developing markets such as Taiwan and South Korea, and finally reaching the massive markets of China and India. Average Whole Life Insurance Rates By Age
As can be seen from the various phases of development, the Asian life insurance market is no more a single market than any other financial market in Asia, spanning a region far too diverse to allow such a simplistic view of its complexity. Nobody, for example, is going to seriously suggest an intense commonality between say Japan and India, where in the former, per capita gross domestic product (GDP) stood at around US$36,000 in 2007, while India's was a little over US$1,000.
And there are many other differences, such as levels of market penetration and regulation of foreign players, not forgetting the rather more obvious differences in culture and outlook in a region that sweeps eastward from the borders of Europe and Africa to the shores of the Indian and Pacific Oceans.
Although generalization is always problematic, we have identified five pan-Asian themes, which are evident in most, if not all, of these markets.
These are important themes that provide a key to understanding the life insurance market in Asia, including continued rapid growth of the market, an emerging-middle-class of 110 million new households, the rise of multinational players, the changing face of distribution and the rapid growth of bancassurance, and a changing product mix due to the new needs of Asian consumers. Because the Australian market differs significantly in its characteristics to the rest of Asia, it is not included in the discussion currently.
Continued Rapid Growth
The big story of the last decade was about the growth of the life insurance market in the Asian region exceeding all other regions in the world, ex-Japan, accounted for 12 percent of global life premiums in 2007, but, perhaps more significantly, it accounted for almost 25 percent of the growth in the global market from 2002 to 2007, and is expected to deliver around 40 percent of life insurance premium growth over the next five years. Moreover, the profitability of Asian markets is higher than that of mature markets. Thus, from a value creation perspective, Asia looks even more attractive.
The majority of Asian markets outperformed the world average on surplus return in the period between 2001 and 2006 and they enjoyed higher profit margins than their US and European peers in 2006.
Double-digit growth is likely to be a hallmark of many Asian markets for the next decade. This is thanks to a growing but aging population, steadily increasing wealth levels, changing attitudes about personal finances, high savings rates, and an extension of geographic scope, mainly seen in the penetration into new markets outside the biggest urban areas.
The United Nations' Population Database shows that projected demographics are staggeringly in favor of Asia. The combined population of the countries under review is expected to grow from 3.2 billion in 2005 to 3.7 billion in 2020, adding another 500 million potential customers. In the same time frame, the United States population will grow by a mere 40 million and that of Europe will decline by almost 10 million. That means that Asia will have more than 15 times the total population growth of the US and Europe combined, or in absolute terms, Asia will grow by almost double the United States' current population.
This growth will be unevenly distributed; Indian, Malaysian, and Filipino populations will increase by 7-8 percent; the north Asian countries such as China, Taiwan, and South Korea growing by 2-4 percent; and Japan will experience a slight decrease in population.
At the same time, some of these countries, such as South Korea and Japan - like many in the Western world will see the emergence of a large aging population due to the baby-boom bulge. The proportion of the population over the age of 65 is expected to increase significantly until 2020.
As a result, the number of working adults supporting each retiree will decrease from 10 in 2005 to eight in 2020 and four by 2050, dramatically altering the shape of the age pyramid. This phenomenon is expected to drive growth in the retirement market, as aging Asians look to retirement planning. This, in turn, gives rise to a growing demand for life insurance products such as health insurance, annuities, and endowment policies. Average Whole Life Insurance Rates By Age
It is a well-known fact that economic growth in Asia is currently much higher than elsewhere in the world but it is worth reminding ourselves just how significant this trend is. The projected real gross domestic product (GDP) growth rate for these countries falls in the range of 5-9 percent per annum between 2007 and 2012. In contrast, the US economy is only expected to grow by less than 3 percent during the same period. In total, the 12 Asian countries accounted for 19 percent of world GDP growth between 2002 and 2007 and 40 percent of projected growth between 2007 and 2012.
With fast-growing GDP levels, the personal financial assets of the population will grow over proportionally. For example, personal financial assets in China and India grew at annual rates of 16 percent and 23 percent respectively during 2001-06, whereas the volume grew 5 percent in the US and 8 percent in the UK over the same period.
While the increase in personal financial assets will naturally drive growth for life insurance products, it can be argued that a changing attitude on investments and personal finances is accelerating this opportunity even beyond these absolute growth numbers.
Traditionally, Asians are more prone to leaving personal financial assets in deposits or cash. In 2002, Chinese consumers put 84 percent of their personal financial assets in cash or bank deposits, India 74 percent, and Thailand 72 percent. There has already been a considerable shift away from savings through bank deposits into investments.
Between 2002 and 2006, without exception, consumers from these Asian nations shifted their cash into investment products. By 2006, the Chinese put only 79 percent of their financial assets in cash, India 65 percent, and Thailand 58 percent. There is much more room for development - in mature markets such as the UK and the US, the cash holdings as a percentage of personal financial assets are at 22 percent and 13 percent respectively.
As Asians move from "savers" to "investors", a great deal more money will become available for investment in mutual funds, equities, and life insurance. Will the Asian consumer choose to invest this cash in life insurance rather than other investment products? In markets where life insurance ownership is very low, the answer is a resounding yes.
In markets such as China, India, Vietnam, and Indonesia, market penetration of life insurance is very low, currently at less than 5 percent of GDP. For many customers in these markets, life insurance is the first financial product that they purchase, with the life insurance agent often being the only source of financial know-how.
In the more highly penetrated markets, such as Taiwan and Hong Kong, life insurance faces more competition from other forms of financial products. Even so, it is still likely that growth will continue. We believe that it is likely that one day life insurance penetration in Asia will exceed levels seen in the West. The reasons for this assertion are threefold. Average Whole Life Insurance Rates By Age
First, premium density per capita, on an absolute scale, is still lower than that of some Western markets.
Second, despite a high premium level, a large proportion of this was savings products, and the level of protection as indicated by mortality sum assured is lower, relatively, than in more developed countries. For example, Singapore and Hong Kong's 2007 per capita mortality sum assured was about US$45,000 and US$49,000 respectively, whereas it was US$63,000 in the US in 2006. Therefore, despite the high level of ownership, there is still a lot of room to grow in traditional protection products.
Thirdly, Asian consumers have significantly higher savings rates than those in Western markets. Asians are notorious for their penchant for savings - the 2007 personal savings rates in China and India were 14 percent and 27 percent respectively, compared to - 1.0 percent for the UK and 4.4 percent for the US. These significantly higher savings rates translate into a higher level of personal financial assets at any given level of economic development. Given this level of personal savings, it is not inconceivable that Asia will one day surpass the Western markets in many of the penetration benchmarks we observe today.
Hence, growth is undeniably one of the greatest hallmarks of the Asian markets. Of course. growth will not be uniform across these countries. Major growth markets will include China, India, Indonesia, and Vietnam with forecast growth rates in the region of 15-25 percent. The four Asian Tigers will likely grow at a slower but still healthy pace, probably in the high single digits.
The exception is Japan, where there has been no growth between 2002 and 2007 and this is unlikely to change in the future. While Asian players take this growth for granted, these growth rates represent one of the most exciting opportunities for global insurers, as they contrast this growth scenario with their often lackluster home markets. In many boardrooms of global insurers today, Asia, rightfully so, is becoming a crucial part of the overall strategic plan.
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