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.
This should create an interesting opportunity for life insurers to create a second generation bancassurance model - with much closer relationships between insurer and bank, selling more complex, higher margin products that allow life companies to generate a lot more value in this channel. Job In Bancassurance
Banks across Asia are discovering the retail and wealth-management opportunity. While in markets such as China, corporate lending has been the key profit driver for banks, the retail and wealth-management businesses are catching up fast. We predict that in China the retail and wealth-management business will grow from 29 percent of financial services profits, in 2007, to 59 percent by 2015. To capture this opportunity, banks are building client advisory and sales skills in their often vast branch networks. The pace of this development varies by market - and it will, of course, take time in markets such as China and India with their huge institutions and relatively weak starting positions.
But eventually this development will enable banks to advise their customers much more holistically on financial products - including more sophisticated insurance products. From a life insurance perspective, the key to unlock this potential will be to build much more integrated business models with the banks. Experience in Europe has shown that bancassurance is really successful when products are bundled based on customer preferences, life insurance is integrated into the banks' incentive systems, processes are tightly integrated, and the insurer delivers value-added support in the form of tailored marketing materials, training, and customer relationship management.
We are seeing some initial signs of banks and life insurance companies moving in this direction. For example, Prudential (UK) and Standard Chartered have built a much more integrated business model in Hong Kong.
We believe we will see a lot more of this in the next decade - including more joint ventures between banks and foreign insurers who have built the relevant skills in other markets and can leverage them in Asia. This will change the nature of the bancassurance opportunity and create a win-win situation - for those players who manage to find the right banking partners and build and apply the required skills in the local market context.
Compared to bancassurance all the alternative channels are still miniscule in size. But they are growing fast - and if the mature markets in Europe and North America are any indication these channels will continue to capture market share. While for most players this is still a niche opportunity, we believe that this is an area worth exploring. We already see retailers selling life insurance products in countries like Japan and South Korea - and increasingly India. Brokers and independent agents are also on the rise. They usually have a higher credibility with customers given their independence from single producers and can capitalize on the increasing affluence and sophistication of customers across Asia who are demanding higher quality advice. Job In Bancassurance
As described previously on South Korea, the Mirae Asset Group approach of using investment centers to sell financial products is one example of this. In China, CNInsure is an independent agent company listed on the NASDAQ. And even the direct channel - that is, selling life insurance through call centers and the Internet is building some scale. In China, Ping An and MetLife have been pioneers in this field with encouraging results. Although still at an early stage, the prospect of building a nationwide call center network with tens of thousands of sales representatives is very real and can be extremely compelling if done properly.
Experience from Western markets shows that the prize in these channels goes to players that build a specific business and support system and tailor products to these channels' needs. Some of the multinationals in Asia should be able to leverage their experience but we also see some of the leading local companies, such as Ping An in China, conquering this space.
Upgrading the Business Model to Combat Intensifying Competition
Growth has been the key value driver in life insurance in Asia in the past decade and is likely to remain so - but the basis of competition is changing. In the past, insurers achieved high growth using a "landgrab model" - being one of the first into many regions and segments. However, this model is beginning to run out of steam. There is hardly any uncovered territory in Asia and competition from local and foreign companies is increasingly fierce.
Maintaining rapid value creation going forward, therefore, requires players to be able to outcompete the competition through superior business models. These require higher quality skills along the value chain, not just in distribution but also in product innovation, IT and operations, and investment and risk management. And it will also require them to significantly strengthen their management bench. To find out more, you can check out Job In Bancassurance.
