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.
A Sizeable Foreign Presence
Unlike the markets discussed in earlier chapters - China, India, and Japan - the Asian Tigers have been much more open to foreign entrants. Hong Kong has never been closed to foreign ownership of life companies. Except for a brief period in the 1980s and 1990s when it underwent a brief closed-door policy, Singapore has always been, by and large, an open market. Taiwan and South Korea opened their doors to foreign life insurers in 1987 and 1986 respectively. Patient Choice Health Insurance
Although the South Korean market opened to foreigners in 1986, overseas companies have only recently begun to take advantage of the deregulation trend to boost their market share of first-year premium from 9 percent in 2001 to 24 percent in 2006. They did so through the bancassurance channel, variable (investment-linked) products, and a more professional sales force. Despite only having been introduced in 2003, bancassurance accounted for half of all 2006 first-year premium in South Korea, or US$2.3 billion. Foreign insurers sold 55 percent of that amount.
At the same time, foreign players also capitalized on the opportunity opened by the deregulation of variable products. In 2006, foreign players collectively held nearly 30 percent of the market for investment-linked products, up from 2 percent in 2001. Indeed, these products account for 26 percent of foreign companies' premiums, compared to 15 percent for local companies. Finally, foreign players were also able to capture share by targeting high-net-worth and affluent markets through a professional sales force.
It is important to note that there is also a third group of players in South Korea - small, domestic insurers - who accounted for 24 percent of first-year premium in 2006. Between 2001 and 2006, these players gained share in every single market category other than retirement. Without the baggage of a legacy sales force these players were more able to capture new sales channels. Companies such as Kumho and Dongbu acquired 75-85 percent of 2006 first-year premium through bancassurance. Meanwhile, Mirae Asset Group and Dongyang, who pursued tied-agency, brokerage, and bancassurance channels derived about 20 percent of their first-year premium through brokerage sales in 2006.
In Taiwan, foreign players accounted for 38 percent of 2007 gross premium. In interviews, 64 percent of insurance agents indicated that their customers prefer buying from a foreign firm due to its perceived higher trustworthiness.
The majority of agents themselves, prefer working for a foreign company although the larger domestic firms - Cathay Life and Shin Kong - were also highly regarded. Patient Choice Health Insurance
The four firms most often cited favorably were AIG, ING, Cathay Life and Shin Kong - a down-the-middle split between local and foreign companies. The 2008 financial crisis will likely change this dynamic though, with the sale of ING's Taiwan business to Fubon as well as the uncertainty over the future ownership of AIG's subsidiary Nanshan.
Hong Kong is probably the most extreme case in Asia in that it has no truly homegrown life insurance players - all of the major players are multinational firms. While over the years there have been a few local upstarts, once they grew to a certain size they were sold to a large foreign player eager to get a piece of the action in this vibrant market - Protective Life was sold to MassMutual in 2000; Pacific Century Insurance, another local start-up, was sold to Fortis in 2007.
Of the top five life insurers in Singapore, three are foreign-owned. It is possible that the foreign players could have gained more market share from Singaporean local companies were it not for occasional interventions by the government to protect local insurers, which included a closed-door policy in the 1980s and 1990s.
Next post, we'll talk individually about the different countries and the market snapshots. At mean time, you can check out Patient Choice Health Insurance for more details.
