Consultants Say China’s Bancassurance Market Needs Better Partnership Development

Improvements in product innovation together with the development of exclusive and better integrated bank-insurer partnerships are sustaining the long-term growth of the bancassurance sector in China, according to market consultants.

According to the report "Bancassurance in China: Reaching the Next Level," by Boston Consulting Group and Swiss Re [85010], banks are already the dominant sales channel for life insurance in China and are driving the country's rapid growth in premium volume.

The report said China's regulators are working on bancassurance reform in order to promote better integration of banks and insurers, as wholly exclusive bancassurance partnerships have not yet appeared in China.

In November, the China Banking Regulatory Commission published rules allowing for equity participation of banks in insurance companies.

Beijing-based Eric Schuh, director of business development for Swiss Re in China, told BestWeek Asia/Pacific that such deregulation "is an opportunity, not a threat" in the development of the Chinese bancassurance market.

Both Boston Consulting and Swiss Re believe this initiative of regulatory change will "guide China's market in the direction of mature bancassurance markets like Europe and the United States."

However, the consultants said the current Chinese bancassurance market structure, with banks selling multiple insurance brands, has "reached its peak," while the "breadth and sophistication" of currently available products and the overall quality of customer service "lag far behind" bancassurance activities in many other countries.

Schuh said there are a lot of "white spaces" in the current product and service offerings in China, compared with more advanced bancassurance markets, which is a sign of the "significant upward potential."

Market Problems

Before the new policy was introduced in November, China's banking and insurance regulators had already allowed banks to sell multiple brands of insurance, but the consultants said this situation has resulted in banks often selling relatively "unsophisticated" savings-type products in an "untargeted" way, which a structure they called "many-to-many."

Another problem that has blocked insurers from developing better-tailored products and services for the bank channel is that there is little incentive for insurers to train banking staffs in product details and advanced sales techniques to sell their competitors' products, said the report.

The report said insurers already pay generous commissions to banks for "shelf space," damaging their own profitability and ability to invest in product innovation. In the long run, the many-to-many model is "not sustainable," the report said.

Holger Michaelis, a partner of Boston Consulting based in Beijing, said in a statement that although banks are earning "attractive" fee revenues on bancassurance already, they are so far "only scratching the surface" of bancassurance potential.

In giving banks more leverage over the insurers whose products they sell, Schuh said the many-to-many model fails to incentivize product, marketing, or service innovation among insurers, which does not create significant value for insurers.

"The Lack of product diversity and sales know-how resulting from the current system is starting to impact demand for insurance products sold through banks," noted the report.

Although overall insurance penetration in China is still low, the consultants expect both domestic life and nonlife premiums to "continue to grow annually by double digits" with support from broader macro trends.

The growth of bancassurers will be weakened or taken over by other insurance distributors, such as agents and brokers, if they are unable to take a larger market share by "upgrading product lines, increasing customer service and brand loyalty through money and time management investments," said Schuh.

Priorities

To remain competitive, Schuh said bancassurers' first priority is to develop "more exclusive and better integrated partnerships" in four different models, including exclusive distribution partnerships, joint ventures, financial holding companies and integrated lines of business.

Through a partnership, banks can "dramatically" increase cross-selling potential and fee revenue, earning attractive margins from a whole new range of products, while insurers can "solidify" their brand reputation and customer loyalty when most consumers are still uncommitted with a relatively low insurance penetration and limited competitor offerings, said the report.

A partnership can also allow insurers quick access to widespread bank branch networks, especially in provinces where insurance penetration is low relative to the banking infrastructure in China. Meanwhile, joining forces with a local bank may help insurers "speed up" the licensing process in new areas, according to the consultants.

The report suggested banks and insurers focus on 10 building blocks in order to develop an effective bancassurance model, enabling bancassurers to better meet their customers' needs, as well as capturing the "opportunity-rich" financial services market in China.

Those initiatives involve developing products jointly; streamlining products; adopting a generalist sales model; creating meaningful sales targets and incentives; bundling products for life events; rigorous training; upgrading information technology systems; defining organizational roles; bolstering customer service and post-sales support; and ensuring capital and risk management, said the report.

(By Rebecca Ng, Hong Kong news editor: Rebecca.Ng@ambest.com)