Insurance Competitor Analysis
A hallmark of the Southeast Asian market is the proliferation of foreign players. In all five markets, foreign players have more than 50 percent of market share, with a handful of leading multinationals - namely AIG, Prudential (UK), and Manulife - enjoying entrenched positions. However, there are signs that domestic insurers in Southeast Asia are growing in sophistication and ambition. In all of these markets, there are one or two prominent domestic insurers - these include Thai Life in Thailand, Bao Viet in Vietnam, Bermasa Bumiputera in Indonesia, and Great Eastern in Malaysia.
For foreign players seeking first-time entry into these markets, the golden period of "first-mover advantage" has gone. While foreign market share had increased over the past five years, the number of foreign insurers has held steady and in some cases declined. For example, there were 22 foreign insurers in Indonesia in 2001. By 2007, there were only 16. Similarly, in the Philippines, the figure dropped from 20 to 11.
Foreign players who are well established in the region, namely AIG and Prudential (UK), often enjoy a market-leading position. AIG, for example, raked in a gross premium of US$3.6 billion from these five Southeast Asian markets for 2006, equivalent to 5.4 percent of the company's global GWP and 33 percent of its business in Asia. It is the market leader in two of the five countries, and ranks within the top five in all five markets.
For these players, Southeast Asia currently contributes more profits than the giant markets of China or India combined. The China market, for example, is significantly larger, but AIG - the top foreign player - only collected US$1.2 billion in premium, in 2007. In the same year, AIG collected premium amounting to US$2.3 billion in Thailand alone, where it has a whopping 39 percent market share. This dominance in the Southeast Asian markets has a lot to do with the multinationals' leverage of international expertise, a favorable regulatory environment towards foreigners, and their early entry with regard to market development. Insurance Competitor Analysis
In these markets, insurance is often one of the first financial products bought by customers - a McKinsey consumer survey found life insurance consistently ranked within the top five most popular financial products held in the region. Traditional savings accounts always top the list with a penetration rate of over 90 percent, while debit cards are the other consistent product across the region. However, consumers are less knowledgeable on the risk/return profiles of different investment products. Foreign insurers have been able to take advantage of the developmental stage of these markets, and have created products that are designed to fit the needs of emerging-middle-class customers. For example, we had mentioned earlier Prudential (UK)'s combined protection and investment product, PRUVantage.
Indonesia provides a good example of the dominance of MNCs - two of the top four life insurers are multinationals, AIA and Prudential (UK). Foreign players outperformed the market by aggressively positioning themselves in the growth sector - investment-linked products. While foreign insurers have a significant proportion of their business in investment linked sales, the three largest domestics have virtually none.
There are still some restrictions on foreign ownership in the Southeast Asian countries, albeit less than those in China and India. Vietnam allows for 100 percent foreign ownership of insurance companies; foreign ownership in Indonesia is only limited to 80 percent, and in Thailand and Malaysia, the limit is currently 49 percent.
Changing regulatory environments and consumer needs are moving these countries towards greater market involvement by local players. In the Philippines, for example, foreign players are allowed to own 100 percent of an insurance company, but asset restrictions favor local players.
Channel Upgrades to Reach More Customer Segments
As in other parts of Asia, agency distribution is still dominant in Southeast Asia, but bancassurance has been a big driver of recent growth. In Vietnam, Prudential (UK) made rapid progress by building a national network of 70 branches and customer service centers in 47 cities and towns through agreements with Vietnam Commercial Bank and Agribank. In Malaysia, first-year premium sold through banks went from 21 percent of the market in 2002 to 45 percent in 2005.
And the proliferation of bancassurance is allowing newer players to access the market through alternative channels. In both Malaysia and Thailand, local banks are becoming active in the insurance industry by partnering with foreign insurers in bancassurance deals. This includes Siam Commercial Bank in Thailand and Maybank in Malaysia, who partnered with New York Life and Fortis respectively. Insurance Competitor Analysis
The growth of bancassurance is also driven by more demanding customers who associate banks with higher trustworthiness and better advice. And what makes the trend for better distribution even more pronounced in Southeast Asia is the increasing need for customer segmentation. Urban customers are becoming more sophisticated and seeking improved service. Meanwhile, rural segments require cost-effective channels - such as bancassurance and other alternative channels - that are more capable of reaching these underserved regions.
Unlike the more established markets in Asia, where the local incumbents have the legacy agency channels, in Southeast Asia, it is the multinationals that are faced with the urgent need to revamp their sales forces. But they have been quicker to react than incumbents in other Asian markets - insurers are stepping up their efforts to improve their existing channels and innovate in direct channels. In Malaysia, there has been a movement to introduce more quality into the sales force. Great Eastern launched the Life Planning Advisor program, while Allianz developed the Allianz Achievers Academy (AAA).
Meanwhile, innovative distribution strategies are also at work. Thailand has been in the vanguard of call center sales. Thai Life, Thai Cardif, Allianz, ACE, ING, and Prudential (UK) are some of the players developing telemarketing as an alternative channel. Of these companies, Prudential (UK) in particular relies heavily on call centers as a distribution channel - it accounted for 85 percent of their total sales in 2007. In contrast, in Prudential (UK)'s other markets, only 4 percent of sales were derived from direct channels.
Alternatively, insurers in the Philippines have exploited the wide usage of text messaging among young Filipinos in their sales and marketing drives. Filipinos sent an average of 2,300 text messages per person in 2003, far more than in neighboring Southeast Asian countries and other regions, notably Europe and North America.
The Future: Reaching Scale
Looking forward, all multinational incumbents, local players, and foreign insurers seeking entry will need to focus on scale in Southeast Asia. Whereas a 5 percent market share in China or India is large enough to be attractive,
it is not so for the smaller Southeast Asian markets. As the Philippines example illustrated, foreign players who did not reach adequate scale chose to exit rather than increase their investments. In this environment, the ability to leverage footprint across the region theoretically helps regional players to benefit from economies of scale. Many are now engaged in projects to upgrade and consolidate their operations in an attempt to reap more synergies; whether they will succeed only time will tell.
Meanwhile, with a single-country focus, local incumbents need to step up their competitiveness in alternative methods to make up for less scale. Players are leveraging their more extensive channel networks or local knowledge in certain products. For bank players, the natural strategy is to leverage their banking networks, while in Indonesia and Malaysia, takaful products could also provide a future growth engine.
For potential new players, there is an ongoing debate as to whether there is still room to enter into these markets. A lack of ability to reach scale may be an impediment. On the one hand, given the growth trajectory, there should be ample room for more competitors. Markets with strong fundamentals such as Indonesia and Vietnam should offer interesting opportunities. On the other hand, the increasing competitiveness and smaller scale of these markets renders them less attractive, especially vis-a-vis the long-term growth opportunities in China and India. Many companies eyeing the Southeast Asian markets are also deterred by the entrenched positions of the large multinationals that went before them, such as A/G, Prudential (UK), and Manulife.
In all, Southeast Asia looks set to remain a market in which multinationals will maintain a heavy presence alongside a few local heavyweights. Threatening newcomers will be few, but given the early development stage of these markets, there will be room for some new entrants. We predict that among the entrants there will be a mix of MNCs and a few, select Asian players. Competition is intensifying and domestic companies have recently turned up the heat on their large MNC rivals.
Southeast Asia may not be the largest market in Asia, but for players committed to a pan-Asian footprint, it deserves a close look. Furthermore, its openness to foreign players makes this region an interesting play. For those with the right strategy, these markets can be extremely profitable and added together, can be a meaningful part of an overall Asian portfolio. To find out more, you can check out Insurance Competitor Analysis.