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Bancassurance: The Big Banc theory

Source: Asia Insurance Review | May 2015

We take a look at the recent big money bancassurance deals in Asia and the lush promises of the way forward for the industry to continue banking on banks. 
By Benjamin Ang
The most recent attention-grabbing headline in bancassurance is, of course, the partnership signed by Manulife Financial Asia and DBS bank for US$1.2 billion, plus ongoing variable payments. 
The 15-year exclusive regional deal from 1 Jan 2016 will allow the insurer to distribute its life and health insurance products through the bank’s more than 200 branches and sales force of over 2,000 in Singapore, Hong Kong, China and Indonesia. In those four markets, DBS has 6 million retail, wealth, and SME customer bases. 
Other note-worthy regional deals include AIA Group’s 15-year exclusive deal with Citibank in Asia signed in 2013 encompassing 11 markets in the Asia-Pacific region – Hong Kong, Singapore, Thailand, China, Indonesia, Philippines, Vietnam, Malaysia, Australia, India and Korea. 
While no financial details were disclosed, the fee to partner Citibank has been widely reported to be between $800 million and $1 billion, excluding variable payments. The partnership covers both retail and group life insurance product areas providing access to Citibank’s corporate clients and approximately 13 million existing retail cardholders and banking customers in the 11 markets.
Prudential had also struck an agreement in 2014 to extend the exclusive partnership with Standard Chartered bank for another 15 years. The arrangement which commenced on 1 July 2014 covers 11 markets and was reported to have cost US$1.25 billion in fees plus variable payments. The markets are Hong Kong, Singapore, Indonesia, Thailand, Malaysia, the Philippines, Vietnam, India, Taiwan, China and South Korea.
Not economically viable?
These are big numbers being bandied about. Economic viability has also been called into question. 
As recent as 2012, Allianz and HSBC had signed a 10-year exclusive agreement in Asia for “only” US$100.5 million in upfront cash consideration. The agreement was for Allianz to distribute its life insurance products through HSBC in China, Indonesia, Malaysia, Australia, Sri Lanka and Taiwan; and for products to be provided by strategic partners of Allianz in Brunei and the Philippines. HSBC’s Taiwan Branch was also transferred to Allianz Taiwan Life Insurance for a consideration of US$18 million. It must be highlighted though, that the lucrative markets of Singapore and Hong Kong were not included in the deal. 
For a Singapore-specific deal, one was struck between DBS and Aviva (then CGNU) back in 2001. The 10-year partnership in Singapore with respect to the bancassurance partnership was S$71 million (US$52.12 million). As part of the transaction, the insurer acquired 100% of The Insurance Corporation of Singapore (ICS), DBS’s life and general insurance subsidiary, for S$324 million. The total consideration was paid in cash, and DBS also received a dividend of S$51 million from ICS prior to completion. 
The following year in 2002, Aviva and DBS extended its partnership, signing a deal in Hong Kong for the acquisition of Dao Heng Assurance and DBS Kwong On Insurance, DBS’ life and general insurance subsidiaries in Hong Kong. The total consideration for the acquisitions and the 10-year bancassurance partnership, giving the insurer exclusive access to DBS’ one million customers in Hong Kong, was £31 million (US$45.52 million). 
Of course, these are not “apple-to-apple” comparisons due to the length of the deals, the different time periods, and the deals tied to the bancassurance agreements. But as a (very rough) reference point, the escalating fees paid for bancassurance deals is worth noting. 
A function of the market
Whether the fees are too high or low is subject to interpretation.
As Mr Rick Vargo, Managing Director of Bancassurance, DBS, told Asia Insurance Review earlier this year, the recent agreements between insurers and banks may have surprised many in terms of the access fees agreed on by the insurance companies for the right to market their products at the banks. But some of these agreements are for as long as 15-20 years, and that these fees and terms are a function of the market and in recognition of the value of the strong customer relationship held by many banks in Asia.
The bancassurance channel is better able to comply with the stricter regulations around consumer protections, he said. DBS, for example, has been using a balanced scorecard system to measure performance for all its front-line teams for a number of years before it was announced as a regulatory requirement in Singapore’s new FAIR guidelines to be implemented from 2015. And the nature of the banking industry is such that a tremendous amount of training and information for transparency are already provided to its sales and service staff. 
And a bank’s distribution reach is also highly sought after. Like what Mr Tidjane Thiam, outgoing Chief Executive of Prudential, had said, the game in Asia is distribution. It is a game and battle for distribution and the opportunity in the region can only be captured with distribution. 
In fact, before the announcement of AIA and Citibank’s partnership, one of the criticisms analysts often lobbed at Mr Mark Tucker, Group Chief Executive of AIA, was the lack of meaningful bancassurance partnerships in bigger Asian markets such as Singapore and Hong Kong. 
When the deal was announced, the importance of bancassurance to supplement the agency force can be noted from Mr Tucker’s comment, that if an insurer is limited to only one distribution channel, then an insurer would limit the ambition and scale of the company. 
The way forward
Without a doubt, the bancassurance channel’s influence and importance are clear. 
Take Singapore as an example. In 2009, weighted new business sales through bank distribution accounted for 22%, agency contributed 61%, licensed financial advisers contributed 12%, while other channels, which include direct sales, made up the remaining 5%.
Just five years later in 2014, while the market shares of licensed financial advisers and “others” remained fairly constant with 18% and 3%, respectively, bancassurance’s share grew to 36% while agency’s share dropped to 43%. 
So what is next in the evolution of bancassurance for the industry to continue banking on it?
1. Greater value needs to be unlocked
For instance, Aviva Singapore had reported that bancassurance sales in 2014 accounted for 66% of total sales but represented only 20% of value of new business (VNB). It is a situation not unique to the channel as staff or insurance specialists in banks tend to harvest the “low-hanging fruits” of savings-replacement products. 
However, change appears to be taking place. Traditionally, bancassurance in the region has been about volume and not value, said Mr Tucker. He added that AIA is trying to create a more protection-focussed world, supporting the financial protection need of customers with the support and partnership of Citibank. 
And banks are increasingly doing a better job in creating high-value leads. The use of big data and analytics given customers’ holistic relationships with banks that enable psychographic profiling and cross-metric observations, means that a customer can be engaged at the right time on the right financial needs, said Mr Vargo. 
For example, when there is a huge credit card spend, or a large sum of money coming in at the age of 55, which could indicate a change in a customer’s life stage, the right triggers will ensure that the right conversations can take place. 
2. Getting the basics right
Even as greater emphasis is placed on unlocking value from the channel with big data and analytics, it is important to get the basics right. And nothing is more fundamental than delivering on the promise at the point of claims.
While it is easy to brush this off as a “given”, if recent personal experience is anything to go by, do not be too sure. 
Late last year, an uncle with no dependents passed away and had an insurance policy bought through a bank. As I was helping to file the claim, I remembered all the conferences I have covered and all the CEOs I have interviewed who talked about integration of systems and bancassurance partnerships as marriages. I felt confident that it would be a straightforward process. Alas, the experience was far from ideal. 
Even trying to find out the claims process proved difficult! I had called the insurer, thinking that since it was underwritten by the insurer, it would speed up the process. To my surprise, I was asked to call the bank “as the policy was bought through the bank”. And when I called the bank, I was told that I needed to file the claim through the insurer. Long story short, I was bounced around and it took days, multiple phone calls, and repeating myself numerous times just to get my simple question of how to go about filing the claim answered! So much for integration.
This may be an isolated case, but it is one case too many. Can we blame any consumer in times of distress or mourning having to go through the experience like I had, walking away questioning the industry? 
We, as an industry, need to do better. Is your partnership up to the test? 
3. Professionalism
Regulations around bancassurance are still evolving. While most regulators are leaving it to market forces, there are also markets where regulators have mandated a cap on bancassurance volume from a single insurer or a minimum of three insurance providers.
There was a time when “preferred partnerships” and “open architecture platforms” were seen as the future of bancassurance. But in recent years, there seems to be a return to exclusivity. The stricter regulatory environment is making it more challenging to have multiple partners offering multiple products. 
If the industry wants the channel to be left to market forces and avoid hard-hitting regulation, there needs to be a voluntary move towards self-discipline and needs-based selling.
Just last month, my mother-in-law who was at a bank looking for fixed deposits, was sold an endowment plan. A retiree with no income, she was sold a plan that committed her for 10 years with premiums exceeding her budget. That makes two negative examples from one journalist. 
If we are not careful, the industry and the bancassurance channel could be made to pay the price, such as those that were enforced as a result of early days of agency sales and mis-selling. Trust once broken will take years to repair and reverse the stigma. The reputation of bancassurance can even be enhanced. (See “Micro-bancassurance – Profitably social” on page 47.)
Can the training of client-facing sales staff or insurance specialists be improved? Can the compensation system be fine-tuned? Singapore Airlines’ cabin crew undergo an intensive four-month training programme and three simulated flights before being allowed to pour a cup of tea in a live environment. How much training do we, as an industry, give to “financial experts” who give advice to the livelihood and financial security of families? 
Avoiding catastrophe
There is much room for the continued growth of bancassurance. 
In the pursuit of growth, however, Mr Thiam’s warning should be heeded. Every insurance catastrophe in the history of the industry has been triggered by over emphasis on market share. If there is one business where it should not be run by looking at market share, it is insurance. 
The key is value, not volume.


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