Wednesday, January 4, 2012

General Insurance Company In Malaysia - Emerging Foreign Multinationals

General Insurance Company In Malaysia

Almost every international insurance company has looked at opportunities in Asia and by now, most have some sort of presence. By the beginning of 2008, of the top 30, listed, non-Asian insurers in the world, 25 had established some form of life insurance operation in one or more Asian countries. Allstate, Great-West, Power, Loews, and Lincoln National are the only five insurers out of the top 30 not to have any Asian presence.

However, up till now, there are only a handful of MNCs that have established a significant presence across multiple Asian countries. Most of the newer MNC players have only ramped up their presence in the region over the last five years and have achieved no more than small market shares in a very limited number of Asian markets. The operating environment for these MNCs is very different from that found by their more established peers who arrived in Asia 10-20 years earlier. Today, competition is far more intense and the opportunity to be a first mover no longer exists. Newcomers need to arrive in the region with considerable capital and patience because breaking even will take at least 6-8 years when the strategy is to build captive agent distribution. And they need to devote substantial management attention in fact, for many it seems disproportionate attention - to markets that show little immediate prospect of contributing in a meaningful way to profits at the group level.
This raises a number of difficult, and possibly unanswerable, questions. How should they think about Asia as a market, given their currently small position and the challenges in establishing a meaningful franchise? Which market should they place their bets on - the mature or the more developing - each with their very different risk-return profiles? How long will it take before the Asian business becomes a meaningful part of the total group value and returns some cash to start contributing significantly to the bottom line of the group? Should they "test the waters" or lay down a substantial investment? How will they set about building relationships in the region and should they attempt to go it alone or seek partners? Are there suitable acquisitions that can be viable shortcuts? How and where to build a regional headquarters to manage the Asian portfolio? Lastly, are the markets in China and India "too difficult to enter" or "too large to ignore?" 

Is it too late to enter Asia? Have we already missed the boat? These questions are often asked by those foreign insurers who are not yet in the region or who have only a small presence in the market. The answer depends on the time frame. If one adopts a long-term horizon, the answer clearly is no.
There is no doubt that there are still going to be substantial changes in the market dynamics in virtually all of these Asian countries, and the market landscape in 10 years time will look very different from the one that can be seen today. Many Asian markets, in particular China and India, are still at an early stage of their development curve. Penetration is still low and the growth story of the last 5-10 years could easily continue for another couple of decades. With this perspective, entering Asia now is still plausible, despite the market being much more competitive than before.
Even in the most mature market in Asia, Japan, there are plenty of examples of new players entering the market at the right time, with the right product, and taking market share despite a highly competitive and dosed market. These examples include AFLAC'S cancer insurance in the 1980s and The Hartford's variable annuities in the early 2000s. These players entered in a specific niche, and had a high level of commitment to their entry efforts. These results are highly encouraging, and demonstrate the point that, even in Japan, there are plenty of success stories.
Choosing an appropriate partner is often a critical part of the strategy. The regulations in China and India dictate that foreign companies need to have a local joint venture partner. In other countries this is not a necessity but could be a powerful entry model. The key success factors for joint ventures are the same as elsewhere: there needs to be a good understanding of each partner's intentions; concrete areas of added value or contribution between the partners; and the development of a shared culture within the joint venture. In circumstances where the partnership is created out of regulatory necessity only, it is critical to have an understanding of what happens when regulatory limitations are lifted.
Not surprisingly, there are many examples of joint-venture failures. One American insurer's joint-venture foray in South Korea proves a good example. Due to differences and miscommunications between the MNC and the local partner, this joint venture led ultimately to financial problems as well as lawsuits for the parent companies. The company made a US$60 million loss in 2001 and in the same year sold its stake to a domestic competitor. A more recent example can be found in India. In 2005, Australia's AMP exited the Indian market by selling its stake to Reliance Capital, citing a strategic decision to focus on its wealth-management business in Australia and New Zealand. Its local joint-venture partner, Chennai-based " Sanmar Group, sold its stake to Reliance as well.
Apart from joint ventures, acquisitions could be part of the entry strategy. Generally, there are not that many available targets in Asia, but there have been success cases. In its early years in Asia, AIG acquired Nanshan in Taiwan while Prudential (UK) bought Chinfon as it entered the same market. More recently MassMutual bought Protective Life in Hong Kong, while Aviva partnered with Woori, a South Korean financial group, to buy LIG Life in South Korea. Manulife, AIG, and AXA all acquired existing firms when entering the Japan market. A few of these acquisitions worked especially well - in most of these cases the MNC buyers actively changed the operating model of the acquired business. 

For example, Manulife's premium income grew sixfold within four years after its acquisition by using its variable annuity expertise from the US market and building a strong channel relationship with the Tokyo-Mitsubishi bank. At the same time, as with all acquisitions, there are many more cases where the acquisition failed as culture clashes took time to digest. For example, AXA's premiums declined by 25 percent within the first four years of buying Nippon Dantai in Japan.
Going forward, acquisitions are not likely to play a big role in MNC entry into the region, since there are not that many acquisition targets. There are many reasons for this. 

First. all the pan-Asian franchises are owned by large MNCs who have voiced no intention of scaling back their Asia operations (with the exception of AIG who will likely sell a part or all of its Asian operations after its bailout from the US government). 

Second, many local Asian insurers are family-owned (especially in Taiwan and South Korea), and they often see the insurance company as a family jewel in a larger, diversified group of businesses. 

Third, even if acquisition targets are available, they are usually not in the fastestgrowing markets since no one wants to trade away their growth story. Furthermore, prices for these scarce opportunities have been high and are likely to remain so. Therefore, while acquisitions will happen, this will remain an opportunistic strategy for MNCs seeking expansion in Asia. Nonetheless, events such as the 2008 financial crisis may create unique opportunities for aggressive acquirers to buy assets that would not normally be available during normal market conditions.

Asia will continue to be a highly attractive marketplace in the next decade. Notwithstanding the certain volatility that comes with these markets, growth prospects are very strong - in particular, compared to the Western markets in Europe and North America. Forty percent of global premium growth in the next five years will be generated in Asia. Also, margins continue to be very attractive and generally much higher than in more mature international markets. This offers plenty of opportunities for local companies and foreign players alike. 

At the same time, the life insurance industry in Asia is at an inflection point. Competition is getting much tougher, many new players have entered the arena, and the recipes for success are changing dramatically. We have outlined what it takes for life insurers to become, or remain, a winner in Asia in the next decade. We are convinced that in 10 years the competitive landscape will look quite different from now. We will see some familiar names in the list of top performers, but also some unknown or new ones. For sure, the prize of winning in Asia will only go to those who have a clear strategy of how to outperform competitors in the region, and the execution ability to implement that plan. For those who are prepared, the next decade in Asia will bring another enormous opportunity for growth and value creation. To learn more, you can check out General Insurance Company In Malaysia.

Tuesday, January 3, 2012

Large Insurance Companies In US - Well Established Foreign Multinationals

Large Insurance Companies In US

A handful of foreign multinationals such as AIG, Prudential (UK), ING, and Manulife, already have a sizeable share in a number of Asian markets and generate a significant proportion of their global profit from this region. However large their current market positions, these players still only occupy a small share of the overall Asian market, but their future growth potential remains very significant. Total market share of all foreign players across Asia is 25 percent in 2008, and we see this increasing to 30-35 percent within the next 10 years.
The leading multinational players share a number of characteristics. They all have big positions in the "first generation" of Asian markets that have been open to foreign companies (for example, Hong Kong, Singapore, and Taiwan), while some have been first movers in emerging markets such as Indonesia, the Philippines, and Thailand. They have built most of their operations organically, with only a handful of acquisitions over the years. All of them have built sizeable Asian management teams which are headquartered in Hong Kong.

Landgrabbing in China and India
The top priority for these multinational leaders is rapid expansion in the large, emerging, landgrab markets, meaning China and India, which promise the strongest potential for growth over the next decades. As matters stand, their current presence in these markets is very small compared to their overall Asia business, mainly because they have been constrained by regulations. However, significant deregulation has started, and, as such, the potential for growth is now mainly constrained by their execution capacity. Large Insurance Companies In US

For example, in India the market is currently open for joint ventures to operate freely, and in China licenses for previously restricted cities are being granted at an accelerated pace. Given the large scale of these countries, the multinationals need to place their bets in a few key geographies as well as move into the vastly underpenetrated hinterland. For instance, ICICI-Prudential, through a bancassurance tie-up with 10 regional rural banks, has access to about 10,000 rural and semi-rural bank branches in five Indian states.
The challenge cannot be overstated. A few decades ago, when the first multinationals entered Asia, they were often the only ones blazing the trail and played a large role in developing the industry. They were seen as the most desired employers by agents and staff, and their brand names carried significant premium to the local companies. Today, the competitive landscape is quite different. Due to the enormous growth prospects in Asia, many more multinationals are frantically entering these markets, even if they have had very little presence in Asia before. 

In China, there were 23 multinational life joint ventures as of December 2007, and many more are applying for their joint venture license today. In India, there were 18 joint ventures in operation in mid-2008, all competing ferociously across the country. For the few large multinational players who have been providing the main foreign presence in other parts of Asia for decades, the challenge they face in developing their presence in these countries is unprecedented in their history in Asia.
While the challenge is large, these large multinationals do have a significant advantage over their fellow foreign entrants: a strong Asia management bench and long experience of operating in the Asian market environment. Over the past decades, these MNCs have built up a management team that has been successfully operating across many Asian countries. Given their tested operating models and their experience in penetrating high-growth markets, they do have an advantage over less experienced peers, who are mostly betting on a few key hires, or sometimes, counting on their local joint-venture partners to develop their presence.

Capturing Share from Local Incumbents in Mature Markets Such as Japan and South Korea
Apart from landgrabbing in China and India, another growth opportunity for these MNCs is capturing share from the local incumbents in mature markets, especially in Japan and South Korea. In the past, MNCs have not been able to capture a large share of the domestic market in the life insurance business. However, these markets are now at an inflection point for the MNCs - while the local incumbents are fixing their large, legacy sales forces, new channels and products have opened up potential for other players to build market positions in these segments.
The strategy to capture share from the local incumbents is straightforward. Either these MNCs can outexecute the locals, or they need to develop niche segments. Both of these strategies can work. For example, in many markets the MNCs have an edge in recruiting, training, and infrastructure support since they are leveraging across Asia many of the best practices and tools they have developed. Furthermore, MNCs have been successful in building niche segments, such as The Hartford in variable annuities and AFLAC in medical insurance.
Protecting the Franchise in Established Geographies 

The challenge in the more established geographies for the leading MNCs such as Hong Kong, Singapore, and some Southeast Asian markets, such as Thailand, is quite different. In these geographies, the large, foreign MNCs have to defend what they have already built up. In fact, because they were often first movers they have now reached the stage where they need to revitalize their organizations in the face of renewed competition. It is a role reversal - some of these MNC insurers, once seen as attackers and first movers in Asia, are now local incumbents targeted by local upstarts. Large Insurance Companies In US

In recent years, some of these MNC leaders have lost share across some of their strongest markets in Asia to local attackers and other MNC entrants. The MNCs need to ensure that the sales forces in these established countries do not get complacent and live off their accumulated book of business - that they continue to upgrade and attack the market. Product innovation is also important to keep up with developments in the market - these leading MNCs must not lose the competitive edge that made them successful in the first place.

Maximizing Synergies Across Asia 

While it is not easy to capture synergies across Asia due to the differing landscapes, languages, and regulations, leading MNCs should use the advantage of their regional network by maximizing synergies across their operations. Historically, many of these companies have taken a very entrepreneurial approach and expanded quickly in each market, often as distinctive business units led by entrepreneurial managers. This business model worked well when the foreign entrant first established itself because it allowed a large degree of flexibility for country managers. But as the Asia headquarters of the leading MNCs built up, these MNCs have now developed into more complex-matrix organizations with myriad functional and geographic lines. In such organizations, some form of standardization and best practice sharing can yield important benefits.
Front-office synergies such as cross-regional training, proprietary selling tools and techniques, and common product development tools can give leading Asian MNCs an advantage over their less regional peers. Synergies across the back office are much harder to achieve, but when done properly, can yield substantial benefits. While not all processes can be operated centrally in the regional headquarters or back-office processing units, in critical areas such as underwriting, investment management, and risk management, building a strong central function can both lower cost and increase the quality of risk control in the various operating units. It is important to note though, that due to the huge differences between the various countries in Asia, capturing back-office synergies for the leading MNCs is only at an early stage. During this process, it is also common to hear lots of complaints from country managements on the inflexibility and bureaucracy from such an approach. At this stage, it is unproven to what extent these back-office synergies will give these MNCs a true cost and operational efficiency advantage over the local players.
Lastly, one of the most important advantages of these leading MNCs is their strong management team and their understanding of the opportunities in Asia. For example, leading MNCs in the region are much quicker to decide on mergers and acquisitions (M&A) opportunities, as well as capturing growing niches in certain markets compared to their less experienced peers. This strength in management is difficult to quantify - in fact, for some it may appear as a bloated regional management structure. However, when compared with other MNCs who have little local management presence in Asia, it is clear that the leading MNCs have built a much better starting position to capture the growth opportunities in these markets. To find out more, you can check out Large Insurance Companies In US.

Life Insurance Companies In Asia - Smaller Foreign And Local Players

Life Insurance Companies In Asia

Chasing the large incumbents are the smaller foreign and local players. Most of these players have a much shorter history than the incumbents, and they have accumulated only single-digit market shares over several years. The strategic imperatives for these players depend on whether they are in more mature or nascent markets.

In many of the Asian markets the landgrab phase is over, and, consequendy, smaller foreign and local players are likely to find it much more difficult to expand significantly beyond their current market position in a short period of time. Therefore, they need to choose whether to remain as fringe players with a similar model to the larger players or to find a niche they can dominate and potentially become much more profitable within that niche.
Across Asia, life insurance players are not very well differentiated. While the brands may differ in terms of history and recognition, the operating model and the target market are remarkably similar across all players. Most players today focus on the mass-market segment, and sell very similar products.
Smaller players can certainly survive in their current form for some time. Market growth is strong and there is still little pressure for consolidation. In fact, there seems to be relatively few scale benefits for the large players, and most of the smaller players have been able to enjoy healthy margins without experiencing the disadvantages arising their from their smaller size. With the largest players typically saddled with historical legacies and aging sales forces, there is little urgency for smaller players to change their business model radically. For these reasons, consolidation has not yet happened in these markets.
In fact, given their more nimble starting point, smaller players are better situated to capture the growth potential from these markets. The opportunity to create a differentiated branding and business model is large. Life Insurance Companies In Asia
In mature markets, such as Japan, South Korea, and Taiwan, where customers are becoming more sophisticated and the competitors are well established, the niche for smaller companies is likely to be in distribution for example, targeting high-touch, high-margin customers or innovating the operating model to deliver low-premium, low-margin products to the mass segment.
This is already evident in the more mature markets of South Korea and Japan where there is a growing proliferation of smaller, but highly successful, niche players. This includes ALICO's direct-channel strategy in Japan that mobilizes corporate agents to sell medical insurance, and ORIX Life's low-premium strategy, which uses the mail-order channel for low-margin policies. ALICO's market share jumped from 1 percent in 2000 to 4.8 percent in 2007.
Most of these strategies involve pursuing niche distribution channels and developing different business models. This means acquiring different types of staff for specialized sales channels or focusing on niche products. As explained previously, Mirae Asset Life in South Korea was the first insurer to combine an insurance sales force with a deep focus on premium, asset-management products. Part of the strategy was to develop mini-retail investment centers in convenient locations alongside a roaming sales force that would bring potential clients to these centers for sal meetings. By the end of 2006, Mirae had established 47 so called "Financial Plazas" in convenient, middle-class locations throughout South Korea. Already, around 11 percent of Mirae Asset Group's mutual fund sales are through Mirae Asset Life, as compared to the industry average of less than 3 percent.
Meanwhile, ING in South Korea provides an example of a player attacking the incumbents' housewife-dominated sales forces with agents who mostly male, younger, and better educated and thus able to target a different customer base. And in Japan, Sompo Life successfully markets basic life insurance products using non-face-to-face methods. Its core product is a one year, term-life insurance, which allows customers to review their insurance needs according to their life stage by adding riders for various types of cover, such as hospitalization, cancer, and income replacement insurance.
There are also the product specialists. For example, The Hartford, in Japan, concentrates solely on variable annuities and manages 22 percent of the total in-force sum assured, as of financial year 2006. Indeed it can be said that The Hartford created this market. Life Insurance Companies In Asia
In less mature markets, the strategy for the smaller players can be quite different. In these markets, such as India and China, but also some of the Southeast Asian markets such as Vietnam or Indonesia, there is much more room for smaller players to participate in the natural growth of the market. These markets are still in landgrab mode, where the penetration of insurance to gross domestic product (GDP) is still low (2 percent in China and 4.3 percent in India). For smaller players in these markets, the business model need not necessarily be different from the large incumbents; instead, the focus should be on execution excellence and the development of a stronger management bench. Choosing the right channel mix and geographic focus is also important, as it is not feasible to expand nationwide without the proper management resources and for some foreign players, the proper licenses.

Execution excellence is key for the smaller players to succeed in these markets. But this is no small thing to achieve. Many of the smaller players in markets such as China and India have grown at breathtaking rates.
They often struggle with a lack of management talent, poor operations, and a lack of control over highly entrepreneurial branch operations. For most of these smaller players, their ambitions should be outgrowing and outexecuting the large incumbents by a significant percentage. This is particularly true when they compete away from the more developed cities and drive deep into the hundreds of emerging second- and third-tier cities, where brand leadership is still wide open. But we believe few of the smaller companies will be able to achieve this - the operational challenges are enormous, even though they are at a smaller scale, and management talent is even harder to attract for these companies. Therefore, focus is a key success factor for these smaller attackers. Too often we have seen companies fail because they tried to do everything - every channel and every geography - at the same time, without the proper management bench, operations, and IT support in place.
Looking at the development of the past decade, there is no reason not to expect a handful of these smaller players to become large, dominant players over the next 10 years, especially in the rapidly growing markets. Leading players in China and India have built their current strong market position within the last 5-10 years. For example, ICICI-Prudential in India has grown its position only in the past few years. For some of today's smaller life insurers, dominance may come from a niche segment, either in terms of customers, distribution models, or products. But we also anticipate that many of the smaller players will struggle with their existing small and undifferentiated operating models. 

These players might be able to defend their current market share, and will even enjoy the natural growth of these markets for some years. They will probably still be quite profitable, and many will not see the urgency to change the way they operate and experiment with new initiatives. However, in the dynamic world of Asian life insurance, we see a lost opportunity for them to develop a stronger, more defensible niche and they will eventually come under a lot of pressure from larger and stronger players - they will be the first victims of a consolidation wave. To learn more, you can check out Life Insurance Companies In Asia.

Monday, January 2, 2012

Life Insurance Growth In India - Creating New Growth Horizons

Life Insurance Growth In India

Beyond improving the core, which inevitably takes years to complete (and is very much an ongoing effort), incumbent insurers in Asia need to rebuild momentum and develop new growth options. They can look at new channels or business models, other businesses in financial services, and other markets to expand into. The challenges involved in making this work are enormous and cannot be undertaken where there is risk of undermining the core business or removing the focus away from the required improvements stated above.
The Asian life insurance incumbents are still relying largely on their massive sales forces - which are simultaneously a strength and a weakness. Of course, the enormous selling power of these agent forces is a huge advantage that incumbents need to build on. At the same time, other channels, notably bancassurance, have grown much faster than the agent channel in general. The often lower qualifications of incumbents' agents, compared to some attackers in the market, tends to hinder them when they try to sell the faster growing products such as investment-linked or health insurance. Across the region, local incumbents have a much lower share in bancassurance and alternative channels than in the agent channel. This might be surprising at first glance, but can be explained by the difficulty in managing channel conflicts. The agent sales forces usually have substantial internal power in these organizations that allows them to push back at the development of competing channels.

Furthermore, incumbents have been much slower to react to emerging trends than the smaller attackers in the market. Nonetheless, incumbents should be able to turn this around. They should leverage their strong relationships in the financial services market and their strong brand power to become marker leaders in alternative distribution channels and bancassurance. By developing these channels parallel to their traditional sales forces, they also reduce the number of legacy issues they have to deal with and can set the aspiration of building best practice channel management capabilities. This might require them to hire the best talent and maybe even set up these new channels separate from the rest of the organization, to prevent channel conflicts. Life Insurance Growth In India
Local incumbents should also look at new growth opportunities in related financial services. This might seem like a stretch given the enormous challenges in the core life business, but there are some obvious synergies within the financial sector that are worthy of consideration by large incumbent insurers. These have already been recognized by a number of local insurance companies who have expanded domestically into banking, for example, Cathay Life in Taiwan acquired the United World Chinese Commercial Bank (now Cathay United Bank) in 2001 and Ping An in China bought 89 percent of Shenzhen Commercial Bank (later renamed Ping An Bank) in 2006. 

On the surface, expansion into banking may look obvious. Analysts tout obvious synergies such as securing control over a captive bancassurance market, cross-selling and sharing information on the customer base, and creating back-office synergies. In practice though, synergies arising from insurance-bank combinations are very difficult to achieve. For example, the Allianz-Dresdner merger in Germany took many years to realize the expected distribution benefits, and the insurer eventually chose to break off the bank. 

Other mergers such as Travelers-Citigroup and Winterthur-Credit Suisse also demerged a few years later after it was found that the costs and complexity of integration outweighed the benefits. Another area of natural expansion into other financial services is asset management. Again, there are some obvious benefits with 80 percent of life insurance in Asia flowing into savings products. We have described the challenges and opportunities already, but again this is an area where incumbents can leverage their size and brand to create new growth horizons. Life Insurance Growth In India
Meanwhile, some larger Asian life insurers are running out of expansion space in their domestic markets. This has led a number of companies to think about extending their reach into other Asian, and even global, markets. Many Taiwanese insurers, for example, have expanded into China, including Cathay Life, which formed a life insurance joint venture with China Eastern Airlines and Shin Kong, who has a joint venture with Hainan Airlines. Ping An dipped its toes into overseas markets by opening a branch office in Vietnam. The large Japanese insurers have also begun their journey towards a more international portfolio. 

Players like Nippon Life and Dai-ichi have already set up businesses in some Asian markers and have expressed their objective to raise revenues outside of Japan. For example, Dai-ichi, in July 2008, bought 24 percent of Ocean Life Insurance in Thailand, and in October 2008 completed its acquisition of its one-third stake in Tower Australia. So far, these have been relatively timid steps by the leading Asian incumbents, but they are likely to give rise to some much larger overseas steps as they become more comfortable with forays into these markets. Of course, not all of these will be successful moves - in fact the financial crisis in 2008 has made many acquisitions look very untimely - but from the vantage point of these incumbents, this could be a step that they can ill-afford not to take in the long term. To find out more, you can check out Life Insurance Growth In India.

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