There is no doubt that China is a tough market. Foreign life insurers’ market share has remained in single-digit over the years. Here is a list on how to improve the odds of success.
China is a notoriously tough market for foreign insurers. Based on premium income in January to June this year, the market share of foreign life insurers remains at only 5%. The gap between the top domestic and foreign life insurers are tremendous.
It is a big challenge for foreign insurers. Compared to domestic insurers, there are huge gaps in branding and brand recognition as foreign insurers “mean almost nothing” to the average consumer, said Mr Adrian Liu, Towers Watson’s General Manager of China Life Insurance Business.
The much talked about technical difference in the past is also less of a factor now. The gap has narrowed tremendously over the years. To succeed in China, scale and understanding of the market are the differentiating factors, he said.
And the situation is not expected to change any time soon. Market share of foreign insurers will not change dramatically in the short term, said MetLife China CEO George Tan. “But it will gradually increase with government support and regulatory reforms, such as deregulation of operation and investment areas,” he said.
So what should prospective or existing foreign life insurers do?
1) Select local partners wisely
The best example: ICBC-AXA. Not among the leading JV players as AXA-Minmetals, ICBC’s entrance as a partner has propelled ICBC-AXA firmly to the top position through its strong customer base and vast service network.
A partner’s reach certainly plays an important role. With a strong bank partner, an insurer can grow much quicker than a non-bank related one, tapping its customer base and bank branches, said Mr Liu.
Mr Andrew Scott, General Manager of Ping An Health Insurance – a JV between Ping An and Discovery, the largest health insurer in South Africa – likewise said: “It is the best of both worlds. Ping An Health taps on Ping An’s branding, recognition, and distribution networks, combined with the specialist health insurance skills and expertise of
Discovery.”
Similarly, MetLife, which has more than 140 years of experience, has its partner, Shanghai Alliance Investment, which is a state-owned investment company with expertise in financial investments, said Mr Tan.
While a partner in the banking or financial services industry has its merits, Mr Guy Mills, CEO, Manulife-Sinochem Life Insurance, said having a partner in a different industry has worked well for them. With two partners in the same industry, there may potentially be a higher chance of a clash in cultures, as they may want to go about things in a fixed way. And insurance may only be a small part of a bank’s or large financial institution’s business to merit much focus, he said.
“For Manulife-Sinochem, as the two partners are in totally unrelated industries. The JV can be managed independently without being bogged down by management or cultural issues,” said Mr Mills.
2) Define your success
In any case, premium income is not a good gauge for how well an insurer is doing, say industry players.
“You have to define your success measurement,” said Mr John Cai, CEO, AIA China. Five years ago, AIA redefined its success measurement from market share and premium, to value of new business (VONB).
“A five-year plan to triple VONB established in 2010 was achieved in four years (2013). For the six months ended 31 May 2014, VONB hit US$120 million, up 58% y-o-y,” said
Mr Cai. “Based on market share in terms of VONB, we have grown from 1% four years ago, to about 1.7% now.”
Agreeing, Mr Mills said there needs to be a balance between earnings growth with top line and revenue. If one is overly aggressive in chasing market share, the resulting product mix will eventually prove to be unprofitable.
3) Find your niche
To stand out in China, one has to find its niche, whether it be in terms of geography, services or distribution, said Mr Liu. Too many insurers have a “me too” mentality with ambitions to just expand throughout China, without the right strategy or plans, he said.
See “Carve your niche” on page 62 to read about Ping An Health and Groupama-AVIC on being clear on where their focus is on and staying clear of the pack.
4) Selective in geographic reach
One of the sticking points some may point to is that foreign insurers face a bigger hurdle in getting licensed to expand geographically. But JV insurers with limited resources should not be looking at reaching all corners of a vast country as well. In fact, it pays to be highly selective.
“AIA has five branches in tier-1 cities. These are the richest areas of China accounting for one-third of the market.
China’s market is huge, the key is to be selective and provide value,” said Mr Cai. He expects licensing to be more even over time, but said that growth does not have to be through geographic expansion.
And the difficulty in expanding geographically should not be used as an excuse if performance is not up to mark.
“Manulife-Sinochem has been established in China for 18 years. We have expanded over the years and are at where we want to be. I don’t see the limitation as a problem,” said Mr Mills.
5) Change the foreign vs domestic mindset
While a great deal has been made about foreign insurers’ low market share in China, and much has been said about foreign versus domestic insurers, Mr Mills reminded: “The market is tough for everyone!”
There are more than 60 domestic and JV insurers. There is a lot of competition and pressure as some will chase top-line growth.
It is quite hard to make money if one chases top-line growth, coupled with high distribution costs through channels such as bancassurance. But the conditions apply to both domestic and foreign insurers as well. The key is to stay disciplined, stay focussed, and work according to a strategic plan, concluded Mr Mills.