Bancassurance - Growth

Analyst Prathima Rajan has written a couple blogs on bancassurance as a growing distribution channel in Asia-Pacific. Continuing her work in that vein, her recent research backs up her previous statements that while Asia-Pacific is agent-dominated in terms of both life and non-life distribution, bancassurance is quickly growing.

According to Rajan’s research, penetration of bancassurance in the life insurance market ranges from 10% in countries such as India, Japan and Thailand to as high as 50% to 70% of total insurance distribution in countries such as Taiwan and Malaysia.

Celent recognizes that life insurance products are most suited to be sold via bancassurance, but eventually bancassurance should grow in the P&C segment, noting that in the most mature markets, such as South Korea, property insurance sold via bancassurance already accounts for 5%.

The report provides region-specific information, including:

• Mainland China. Bancassurance accounted for 27% of insurance sales; the agent channel dominated (37%) in 2009. The insurance market in China is undergoing structural changes that are expected to boost the premium income of insurers using the banking channel.

• Hong Kong. Banks have become an important distribution channel for life, health and mandatory provident funds, supplying up to 40% of new business. HSBC and Hang Seng Bank together held 40% of the Mandatory Provident Fund (MPF) market.

• Taiwan. The "one-stop shop" has become a common approach for banks. Premium income for individual life insurance new business from bancassurance accounted for 68% in 2009. Banks contributed 88% to new individual annuities, 66% to new investment-linked business, and 51% to new life insurance business. Agents and brokers dominate the P&C market (67%), while the personal accident/ health Insurance is mostly undertaken by insurance companies (91%).

• Singapore. Insurance agents make up the main sales channel for life insurance. The market share, however, has declined from 66% in 2004 to 61% in 2009. Bancassurance accounted for 22% of the total weighted new business premium income.

• Malaysia. Bancassurance has grown from 45% in 2005 to 51% in 2008. The agency network had traditionally been the main distribution method, but it has gradually lost some ground to bancassurance. Agency network accounted for 47% of the market in 2004 but was down to 44% in 2008. Domestic insurers account for over 80% of bancassurance market.

• South Korea. Solicitors and internal employees make up the main sales channel for the life insurance industry. In 2008, the bank channel grew to 37%, second only to solicitors and employees of insurance companies at 54%. In India, tied agents dominate life insurance, more so with the state-owned Life Insurance Corporation of India (LIC). Individual agents generate more than 75% of new business premium. However, individual agents in private companies account for less than 50% of total sales, while more than 40% is attributed to the bank and direct selling channel. Banks and brokerage firms have 30% and 20% respectively of the P&C insurance market.

Celent says the relationship between bank and insurance partners is a vital part of a successful bancassurance strategy. As insurers actively look at partnering with several banks in the days to come, Celent sees banks and insurers venturing into multiple partnership agreements. The analyst firm is of the opinion that the many-to-many concept, where banks are partnering with multiple insurers, will not be sustainable in the long run. This will result in lack of focus and dilution in product specialization, making the channel less effective.

Insurance companies need to understand the importance of banks’ brands, and thereby help banking customers maintain long-term relationships rather than focus on short-term revenues via commissions or fees. Additionally, banks and insurers need to forge exclusive partnerships that are mutually beneficial, which in turn shifts the industry away from the current many-to-many model. It is of utmost importance to offer innovative products via bundling/packaging, white-labeling, etc., Celent says.