Asia-Pacific Insurers Find Path to Success Through Bancassurance

A walk on the streets of Hong Kong or any of China's cities can show why bancassurance has become so pervasive in the Asia-Pacific region: It is always easier to spot a bank than a grocery shop in these cities.

Over the past decade, the ubiquitous presence of banking branches in most of the region's countries has driven the popularity of bancassurance as a major distribution channel.

For instance, Hong Kong, a city of 7 million people, has 1,223 bank branches with a penetration rate of 18 branches per 100,000 people, compared with 17 branches in New York and 11 branches in Singapore, according to Hong Kong Association of Banks.

China's vast banking networks and high savings deposit rates makes it not difficult for many insurers to see the potential of bancassurance to reach the country's low insurance-penetrated population. China has 8,877 banking institutions and 189,921 banking outlets, according to the China Banking Regulatory Commission. Since 2002, when the deregulation of bancassurance policy allowed banks to form multiple partnerships with insurance companies, many insurers have actively built their market share through bancassurance as a second major channel along with tied agents.

Diverse Strategies

Bancassurance has advanced into life insurance markets rapidly across Asia, buoyed by deregulation in countries like China, India, Japan and South Korea as rules for bank sales of insurance products were relaxed. Emerging markets like India and China have seen robust development of bancassurance for life insurance. New insurance players are keen to ally with local and multinational banks to quickly penetrate into diverse populations across urban and rural areas.

On the local level, bancassurance business in Asia-Pacific countries has evolved in different ways and at different speeds. Unlike other distribution channels, its development is far from uniform across a region where business conditions vary substantially among markets, said Xavier Guilmineau, Asia chief executive officer at Cardif, French insurer BNP Paribas Assurance's [86317] life unit.

Bancassurance models need to be tailor-made for local requirements even as while consistency in strategic execution is critical, said Guilmineau. In Asia, the three common business models are the distribution partnership, joint venture and wholly owned subsidiary.

Guilmineau said the success of each model lies in how well the integration can be made between insurers and banks under local circumstances. This is mainly determined by the two entities' collaboration in business strategy, execution and operational development in light of changing market conditions.

In looking for a banking partner, insurers have to consider a set of "predefined criteria," which include the bank's vision, credibility, geographical alignment, number of distribution points and customers, market segments, channels and products, in additional to basic financial analysis, said Rod Shay, Asia regional general manager for bancassurance at Germany-based insurer Allianz S.E. [85014].

"Today, the partnering of banks and insurers is less of a courtship and more of an auction. A process that identifies the best financial terms for the banks as well as the most ideal partner is followed and so perhaps you are competing with 10 other insurers in a blind bidding for the privilege of partnering the bank," said Shay.

Bancassurance development across the region is widely affected by legislative differences, consumer behavior, history and culture, the financial environment, product complexity and banking infrastructures. Even with all the local differences, bancassurance has seen a significant rise in most markets.

"This calls for a high level of flexibility," said Shay. "Every market is different in terms of regulations, compliance, laws and customer preferences. You need to adapt to these, but fundamentally the concept, approach and skill remain the same."

The number of bancassurance partners vary greatly across the region. In Taiwan, Allianz has about 30 partners. In Malaysia, Allianz has only one, because the regulator, Maybank, allows only one.

Since the start of bancassurance business in Malaysia in 1996, Allianz has "pursued a multi-distribution strategy that suits us and has proved to be very effective in Asia," said Shay. The German insurer has formed partnerships with about 90 banks across the region, including a global alliance with HSBC.

In Asia, it is unlikely to find a common business model for operating bancassurance. "There are partnership models, defining the overall relationship and structure between bank and insurer, as well as detailed business models defining who sells what to whom," explained Shay.

A commission-based distribution agreement is most common for bancassurance remuneration in the region. Local regulation basically determines "how commission are paid and what additional payments are approved," said Shay.

Bancassurance can be a challenge because it combines two business cultures: banking and insurance. "It takes time and commitment from both sides," said Shay. Last year, the bancassurance channel contributed 58% of new life insurance premium income for Allianz in Asia.

"The growing bancassurance contribution to new business in part correlates with the rising numbers of partnerships, but it also depends on our ability to increase the contributions from existing partners," said Shay. For business improvement, Allianz initiated a bancassurance academy for training for banking and insurance staffs. Its first academy was launched in China in 2007.

Banks are popular in the Asia-Pacific region, where some big names have gained customer trust through relationships built up for several generations. "Bank customers usually trust their bank advisers and this principle underpins the strategic value of this channel," said Shay.

Jason Yeh, associate professor at Chinese University of Hong Kong's finance department, said banks typically enjoy the trust of customers in Asia, and this puts banks in a strong position for cross-selling insurance products. Asian customers are less sophisticated in their knowledge of financial products, compared with westerners who usually bring their own judgment to bear, added Yeh.

Most customers in the region tend to have greater confidence buying financial products through their banks. The convenience of banking branches also encourages people going to banks more frequently to seek advice on financial products, said Yeh.

Integrated Approach

In the Asia-Pacific region, most bancassurance partnerships initially formed through a distribution agreement between insurer and bank. But now there is a growing number of integrated approaches with a long-term aim to tap into a wider spectrum of financial services and wealth management markets and high-net-worth customers.

In Taiwan, financial groups already with substantial banking operations have adopted this integrated financial services approach to build a presence in insurance to gain market share for their comprehensive financial business.

Last October, Fubon Financial Holding [86888], which owns subsidiaries in banking, security, insurance and asset management, acquired ING Life Insurance for US$600 million to become the second largest publicly listed financial company and life insurer in Taiwan.

In February, China Life Insurance Co. Ltd. of Taiwan [84193], a life insurance unit of Chinatrust Financial Holding, acquired U.K.-based Prudential plc's [85925] agency distribution business and agency force in Taiwan. The acquisition significantly enhanced the insurance foothold of Chinatrust Financial, a leading private wealth manager in Taiwan.

The sale of insurance products through bancassurance tends to be simple and the policies usually have a natural affinity with core banking products. Life insurance products are more popular because of their savings nature, with which a bank's front-line staff will be more familiar and comfortable for cross-selling.

"Bank staffs have to sell primarily an array of banking products so we have to keep the products simple," said Shay.

Banks play a crucial role in offering marketing insight on customer preference. "Equally, we may design a product that we think is good for their customers and approach the bank with the concept," added Shay.

For product development, Guilmineau of Cardif said a long-term relationship with the bank is crucial to delivering consistent and stable services to customers. In this regard, an exclusive bancassurance partnership is an effective way to develop niche markets.

"You can't copy and paste the product strategy," said Guilmineau, adding that product development has to be customized for market needs. The downside of having too many bancassurance providers is that you may find it hard to offer tailor-made services and to master product stability. Even with a pool of providers, Guilmineau said you have to consider a leader to advise and guide you on building market.

In developed markets, complex bancassurance products are designed to tap into the banks' wide customer base ranging from individuals to small-to-medium enterprises. These products are sometimes integrated with other banking products such as credit card and mortgage.

The increasing sophistication of banking customers also drives the need for product diversification. In Hong Kong, some insurance companies have their financial advisers stationed in the banking branches for better personalized services and advice.

This trend for product diversification came with the one-stop shopping concept for integrated financial services on savings, mortgages, investment and insurance. Banks are capable to capturing household savings and insurers have the underwriting expertise.

For nonlife insurance products, distribution through bancassurance channel remains limited in Asia because of product complexity and regulation constraint.

Only in a few developed markets like Hong Kong, leading banking groups such as HSBC and Heng Sang Bank, which have a long history of selling insurance products through their wholly owned insurance subsidiaries, are able to establish substantial market share for nonlife distribution. Hong Kong's bancassurance channel accounts for 16% of nonlife insurance sales, according to a Swiss Re report.

(By Iris Lai, Hong Kong bureau manager: [email protected])