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macky
Success In Insurance Business
When viewed from 10,000 meters, the pace of change in life insurance in Asia can appear almost glacial. Most of the large players have been dominant for a very long time, and the market-share rankings in most countries barely shift from year to year. However, there are many forces that are about to change the industry fundamentally. In fact, life insurance in Asia is reaching an inflection point, where the industry; in the next 5-10 years, will likely witness some very dramatic changes that will make it look very different from the one in 2008.
Key Success Factors
Asia is entering a new phase of development following a period of extraordinary growth. While the overall growth drivers in Asia remain very strong for the next 5-10 years, competition is increasing significantly, margins are beginning to erode, and local and foreign players alike will have to build superior skills in distribution, product innovation, operations, and investment management to be able to sustain current levels of value creation. We see five key success factors to win in Asia over the next decade:
- Building a sustainable agent force
- Creating value in bancassurance and alternative channels
- Upgrading the business model to combat intensifying competition
- Capturing the pan-Asian opportunity
- Sustaining margin pressure
Building a Sustainable Agent Force
Over the last decade, most of the enormous value in life insurance in Asia has been created through the agent channel. Bancassurance only started to take off in the early 2000s and, in most markets, has much slimmer margins. However, the model of the past - building vast but low-qualified agent forces with a "landgrab mentality" - is unlikely to lead to success in the next decade. In fact, we believe that some of the massive agency sales forces that have provided the core growth engine of life insurance distribution in Asia are likely to reach their maximum size and will slowly begin to erode. This is already happening in Japan and South Korea, as the housewives sales forces gradually scale down in number and influence.
While the pace of this development will differ from country to country, the sizes of the agency forces will not grow indefinitely at the current growth rates. At some point, even in a country as large as China, we anticipate the growth of the agency forces will "max out" and move into the next phase, which will be characterized by consolidation, upgrade of capabilities, and management of quality. In many countries, reform of these sales forces is already underway and the process will accelerate as, for example, most of the unproductive and part-time sales agents leave the business. Over the next several years, the nature of the competition will change from size to quality, and this will pose serious challenges to many insurers who will not be able to manage the transition. Success In Insurance Business
It is well known that the massive sales forces of large Asian insurers suffer from problems such as low productivity, high agent turnover (up to 80 percent annually in countries like China and India), and, in extreme cases, mis-selling. On the other hand, there is no doubt that these sales forces are also tremendous assets for those who have been able to build them, since their distribution power is unmatched. In the past, these sales forces have carried insurance companies through upturns and downturns, and the loyalty and strong bonds between the agents and these incumbents are legendary. Nevertheless, the traditional sales model, relying on a large number of low-quality sales agents, is staffing to show cracks due to three interlinked factors.
First, there is an emerging segment of mass affluent consumers in Asia that are demanding a better level of service, which includes better understanding of products and customer needs, as well as more professional advice. These mass affluent customers are typically not well-served by the agency forces of the incumbents, since the education levels and sophistication of the agents are quite different from those of their customers.
Second, the growing complexity of products, particularly in the investment-linked area, is creating difficulties for the traditional sales forces. For example, the push tactics of the mass sales force can create mis-selling practices as agents understate the risks of the investments. While there are signs that insurers are finding ways to control mis-selling, their agents are not the most natural investment advice-providers. Success In Insurance Business
Third, a lot of these agency forces are aging. While the relationships the sales forces have with their customers remain strong, aging sales forces are quite difficult to motivate and manage. For example, many agents are almost semi-retired, living off their existing customer portfolios. For these agents, and their managers, who have spent the last two decades pursuing the same mass market with a push-driven business model, one can imagine how difficult it is to inject more professional skills. Compared to some of the latecomers - in particular foreign players - with their younger and more professional sales forces, it is easy to see why, in many markets, the incumbents are losing momentum.
Indeed, across Asia most of the incumbents are losing market share. Life Insurance Corporation (LIC) of India's gross written premium (GWP) market share in India plummeted from nearly 100 percent in 2000 to 82 percent in 2006. This trend is even more pronounced in the larger cities where competition is fiercer. For example, in China, China Life's GWP market share in Shanghai dropped from 29 percent to 22 percent between 2000 and 2007. Furthermore, measuring by gross premium masks the effect somewhat. These incumbents may still have a large market share overall, but in terms of new business, they are losing momentum rapidly.
For example, by GWP, the market share of South Korea's Big 3 dropped from 76 to 57 percent between 2002 and 2007, but by first-year premiums (FYP), their share dropped even further - from 77 percent to 44 percent. Next post, we'll talk about restructuring of the sales force. At mean time, you can check out Success In Insurance Business.
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Success In Insurance Business
