Asia-Pacific Insurers Find Bancassurance Success
By Iris Lai
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 such as 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 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, 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.
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 and people go to banks more frequently to seek financial products advice, said Yeh.