More than one approach                           Alternative insurance                           distribution models in   ...
Contents2    Foreword3    Trends in Asia Pacific insurance distribution4    Alternative distribution channels in Asia Paci...
Foreword     Insurance companies are making unprecedented entry into the capital markets, and to be competitive     insure...
Trends in Asia Pacificinsurance distributionAs Asia Pacific insurance markets are offering       Knowledgeable insurers ar...
Alternative distributionchannels in Asia Pacific                               Worksite marketing                         ...
Figure 1. Asia’s middle class growth outpacing other regionsMiddle class, % of world income              East Asia and    ...
Figure 2. China and India driving middle                for the sales and product-servicing within the                    ...
Figure 3. Households with access to financial servicesFraction of households, %          <20%          20-40%          40-...
Telemarketing                                         payments. The partnership gives the insurers                        ...
Virtual marketing                                      product and the customer is provided with theAs insurers attempt to...
Kiosk and Internet-based distribution channels can     significant customer bases, reach, and established                 ...
bancassurance accounted for only 3.3 percent         Wealth Management/Financial Advisors  of written life insurance premi...
By 2013, Asia Pacific will likely overtake North                   Takaful                                 America with re...
• As with the wider Islamic financial services       The small size of the market relative to the  industry, takaful conti...
Innovations inmarketing channels                                  Creation of innovative channels to                      ...
of its insurance products.29 Understanding theneeds of Generation Y is important because theymake up a large proportion of...
Conclusion           The Asia Pacific region has dynamic and varied         model and bancassurance, while the Generation ...
AppendixTable 1. Distribution channel development by country                            Agency       Bancassurance      Te...
EditorsEditors                       MalaysiaDavid Pulido                  Allan LowTel: +81 3 6213 1818          Tel: +60...
Key contactsInsurance Leaders               Korea                                Sung Ki JunGlobal/Regional               ...
Financial Services Industry Leaders   Koreain Asia Pacific                       Yun Ho Kim                               ...
Deloitte refers to one or more of Deloitte Touche Tohmatsu, a Swiss Verein, and its network of member firms, each of which...
ADC Life Insurance
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ADC Life Insurance

  1. 1. More than one approach Alternative insurance distribution models in Asia PacificGlobal Financial Services Industry
  2. 2. Contents2 Foreword3 Trends in Asia Pacific insurance distribution4 Alternative distribution channels in Asia Pacific14 Innovations in marketing channels16 Conclusion17 Appendix18 Editors19 Key contacts More than one approach Alternative insurance distribution models in Asia Pacific 1
  3. 3. Foreword Insurance companies are making unprecedented entry into the capital markets, and to be competitive insurers will need to revisit their business models to ensure they have the necessary products. Some companies may choose to offer services beyond traditional insurance products by integrating financial services into their organisations, while others may continue to focus on vertical integration with a wider coverage across multiple geographic regions. With either strategy, it will be critical for insurers to enhance their client interface and create an institutionalised approach that will help accelerate growth. One of the key levers to growth is distribution, and to excel at it, insurers will need to adopt a new mindset that sees distribution not as a cost centre, but as a profit centre and lynchpin of success. By developing distribution-centric strategies that coordinate channels, insurers can use distribution to drive differentiation and growth. Distribution plays a large role in an insurance company’s operations, and it accounts for most of carriers’ non-claim/benefit costs. Insurance firms typically use a variety of channels to reach consumers, including agents, brokers, direct phone and Internet sales, banks, and increasingly, worksite and employer-based programs. Companies in many countries have largely shifted to online and direct channels, yet in many other countries, face to face advice delivered by independent producers remains a vital component in that mix, especially when it comes to meeting complex consumer needs with increasingly sophisticated products. This report examines emerging insurance distribution channels in the Asia Pacific region and highlights that a ‘one size fits all’ model is not the best approach. Rather, a multi-pronged approach that factors in country specifics, penetration rates, and cultural characteristics appears to be the most successful model. With economic growth and creation of wealth in Asia continuing to outpace other regions, insurers need to be well positioned with multi-channel strategies and products to capitalise on these opportunities. David C. Pulido Managing Director, Asia Pacific Deputy Leader Global Financial Services Industry Deloitte Touche Tohmatsu2
  4. 4. Trends in Asia Pacificinsurance distributionAs Asia Pacific insurance markets are offering Knowledgeable insurers are also driving growth inmore opportunities for expansion, growth the Asia Pacific insurance market by customisingstrategies for both multinationals and domestic products and distribution channels that highlightinsurers are becoming increasingly prominent. the unique local characteristics of each countryCurrently, the majority of Asia Pacific insurance in the region. Rather than take a ‘one size fitsbusinesses are targeting high single-digit, and all’ approach, western multinationals, Asianpossibly double-digit, growth. Traditionally, multinationals, and large local institutions arenew business revenue growth has come from looking to the region’s diverse socio-economicconsumer investment-oriented products (product and cultural characteristics as avenues by which todriven growth strategy). Agents are and will find the greatest growth opportunities.continue to remain the dominant channel for Insurance companies in Asia often look tomost companies and most markets across Asia, other more developed markets for new ideas inespecially in countries like China and India where capturing new consumers. Several innovations ingeography and infrastructure pose distribution these markets include the use of social networkingchallenges. However, forward thinking insurers for customers and employees, advanced analyticsare leveraging distribution channels (distribution and predictive modelling to identify consumersdriven growth strategy) as one way to capture the and help build agent forces, and lastly, moreopportunities that exist in the fast growing Asia targeted marketing focusing on a very specificPacific markets. group of consumers such as female drivers. WhileFor some, this new growth has focused on these trends are beginning to come to life in thetargeting affluent customers, while others other parts of the world, insurance companies inare finding new business opportunities in Asia Pacific are looking at different ways to growthe microinsurance segments. Other areas market share.of business growth are being found in cross-selling with robust banking companies throughbancassurance, placing greater emphasis ontakaful insurance and other Islamic financeproducts that observe the rules and regulations of Forward thinking insurers areIslamic law, and using telemarketing and virtualmarketing as tools to introduce insurance productsto consumers. leveraging distribution channels as one way to capture the opportunities that exist in the fast growing Asia Pacific markets More than one approach Alternative insurance distribution models in Asia Pacific 3
  5. 5. Alternative distributionchannels in Asia Pacific Worksite marketing • Cost and convenience: Flexible underwriting Worksite or workplace marketing is the and pricing guidelines are other factors distribution of financial products at the necessary to sell insurance products successfully workplace, paid for by employees, but facilitated through worksite marketing. Employees will and endorsed by the employer. The success of buy policies at the workplace only if it provides worksite marketing depends on the education them better value propositions than what they and understanding of producers and customers, could find in the open market. Moreover, other as well as employer cooperation and the features such as the convenience of payroll cost effectiveness of products and enrolment deductions, timing, and relaxed underwriting processes. Worksite marketing is a complex, restrictions play an important role in the multi-stage process, therefore, it is not currently decision-making process. prevalent in developing countries. • Employers cooperation: Strong employer cooperation is a must for the success of worksite marketing. Employees appreciate the time and effort saved by having their employerIn order for worksite screen potential insurance advisors and providers. Therefore, employer endorsementmarketing to be an effective has considerable influence on employee participation rate.distribution channel, a well- In order for worksite marketing to be an effective distribution channel, a well-developed, well-developed, well-regulated, and regulated, and well-educated insurance sector needs to be present. Worksite marketing exists in insurance companies in Malaysia, Thailand, Japan,well-educated insurance sector Singapore and Australia, as well as some in India (Tata AIG, HDFC Standard Life, ICICI Lombard,needs to be present Kotak, and Reliance). Australia’s AMP Financial Services indicated that broadening distribution to include the workplace channel is one of its key short-term priorities for 2010.1 Countries such as Singapore, Hong Kong, and Taiwan are likely to Its success depends on several factors: be markets in which this channel may experience growth. • Education: Insurers need to educate employers and employees about the products and services In the future, expanding workforces in developing available, as well as the benefits of worksite countries should not be ignored. According to a enrolment. Moreover, insurers have to educate World Bank report, in the year 2000 developing brokers and agents on the products offered countries accounted for 54 percent of the global through worksite marketing and how to sell middle class, with Chinese nationals representing them successfully. Brokers need clearly defined approximately 13 percent of this group. By 2030, products and features, along with support developing countries are expected to be home to material from insurance providers, to assist 91 percent of the global middle class, with citizens in the process of educating employers and from China and India accounting for 44 percent.2 employees. Given the rapidly emerging middle class workforce1 AMP Investor Report 1H 09, in China and India and the sheer size of the AMP Limited potential market, worksite distribution should be2 “Global Growth and Distribution: Are China considered by insurers as an alternative channel. and India Reshaping the World?", World Bank, November 20074
  6. 6. Figure 1. Asia’s middle class growth outpacing other regionsMiddle class, % of world income East Asia and 2 3x the Pacific 6.4 Eastern Europe and 1.3 Central Asia 1.9 Latin America and 2.7 the Caribbean 2.2 Middle East and 0.6 North Africa 0.7 0.1 South Asia 13x 1.3 0.3 Sub-Sahara Africa 0.4 0 1 2 3 4 5 6 7 8 % Year 2000 Year 2030Source: World Bank, 2007; Deutsche Bank Research, August 2009 More than one approach Alternative insurance distribution models in Asia Pacific 5
  7. 7. Figure 2. China and India driving middle for the sales and product-servicing within the class growth boundaries of the products that the insurance % of global middle class company is allowed to sell, and receives commissions agreed upon with the partner in 100 100 6 accordance with regulations. 6 13 Traditionally, microinsurance is distributed through 80 microfinance institutions. However, insurers are 80 38 developing alternative approaches to reach a wider customer base. In some cases, the insurer 60 60 works with a non-governmental organisation (NGO) to identify and appoint microagents. The microagents are generally women who come 40 87 40 from self-help groups. This model has proven to be successful in India. Insurers are also turning 56 20 to retailers that sell goods and services to lower- 20 income households since retailers provide a more extensive distribution network, as compared to 0 dedicated financial services providers, and can 0 distribute products at a lower cost. Retailers also Year 2000 Year 2030 enjoy trust among lower-income households, which is essential for selling financial products Rest of the World China India such as insurance. Other channels that can be leveraged to sell Source: World Bank, November 2007 microinsurance products include workers’ unions and cooperatives, dairy boards, regional rural banks, TV/direct sales, cell phones, burial societies, Microinsurance and worksite marketing. Microinsurance relies Microinsurance is insurance characterised by low somewhat on NGO presence and microfinance premium and low caps or low coverage limits, institutions, therefore, this distribution channel sold as part of atypical risk-pooling and marketing is going to be prevalent in developing countries arrangements. It is designed for low-income where there is a large rural and poor population. people and businesses not served by traditional Indonesia, Thailand, Vietnam, China and the social or commercial insurance schemes. Philippines have emerging microinsurance Microinsurance operates primarily through three distribution channels, with several of the world’s different business models: partner-agent model, major insurance companies currently assessing provider-driven model, and community-based/ market viability by operating pilot microinsurance mutual model. programs in these areas. In India, Bajaj Allianz The partner-agent model is widely used in covers more than 2 million people in rural areas India, where a microfinance institute partners through microinsurance.3 Malaysian insurers,3 India: A Microinsurance Revolution, Allianz, June 2009 with an insurance company to provide health such as Etiqa4 and Takaful Ikhlas,5 have already microinsurance. In this situation, the insurance introduced microtakaful schemes. Indications4 Etiqa launches microtakaful for cooperative members, company is responsible for decisions related to are that this distribution channel is an effective ICMIF, March 2009 product development, sales, and services. The means to meet the basic insurance needs of5 “Takaful Ikhlas extends insurers consult with the agent organisation while lower-income rural populations, and the need for protection to poor farmers”, designing the product, and maintain control microtakaful schemes to help alleviate poverty is Prosper, Summer 2007, ICMIF over the strategic operations that define the risk on the rise.66 “Takaful Insurers Urged To Keep Premium Rates Low transfer mechanism. The agent is responsible To Create Better Demand”, BERNAMA, 5 November 20096
  8. 8. Figure 3. Households with access to financial servicesFraction of households, % <20% 20-40% 40-60% 60-80% >80% No dataSource: Journal of Banking & Finance, November 2008; Deloitte analysisIn China and India, multiple types of Due to the very nature of microinsurancemicroinsurance are being marketed and sold to having low premiums, low coverage limits,farmers and members of rural and low-income and low margins, insurers should appreciatecommunities. These policies are tailor-made the financial risks and administrative costs ofand multi-level to fit the specific needs of the writing microinsurance. A key component ofcustomer, including crop, livestock, machinery, microinsurance is corporate social responsibility,7and property insurance, in which an individual and there are many leading insurance companies,farmer pays a small sum for extensive insurance such as Bajaj Allianz,8 offering or participatingcoverage. However, there is also group, or in microinsurance programs where profitability’village’ coverage, in which an entire village can is not the only driver. Despite the challengesbe covered by a single custom made plan, which of developing a profitable product at such lowusually involves monthly membership fees. The margins, by developing products specific to thevillage is allotted an umbrella amount of coverage needs of low-income customers it is possible forfor all the inhabitants to use. Basic life insurance insurers to sustain profitability while achievingpolicies are also sold. In India, mobile offices are social responsibility objectives.being utilised. For example, Alegion InsuranceBroking Ltd has been using vans as retail shops 7 Protecting The Poor: A Microinsuranceto sell insurance products cost effectively in small Compendium, Internationaltowns and villages. Labour Organization, 2006 8 “India: A Microinsurance Revolution”, Allianz, 16 June 2009, http://knowledge. microfinance/microinsurance/ miocroinsurance_life_gupta_ bajaj_allianz.html More than one approach Alternative insurance distribution models in Asia Pacific 7
  9. 9. Telemarketing payments. The partnership gives the insurers Telemarketing is the process of selling, promoting, access to the telecom companies’ distribution or soliciting a product or service over the networks, while the telecom companies gain telephone. In the insurance industry, telemarketing detailed information on customers and an is a widely used direct marketing channel. In some opportunity to increase customer loyalty. 9 parts of the world telemarketing has been used in Both life and non-life insurance products are the insurance industry for decades, but it is now sold through the telemarketing channel. In some emerging as a prominent alternative distribution countries, such as Australia and South Korea, channel in many developing Asian countries. telemarketing is more prevalent in selling non-life There are several advantages of telemarketing insurance products. In South Korea, telemarketing over other direct marketing channels. The most is the main channel of distribution for personal significant is that it involves human interaction, lines products. This channel is popular in some which facilitates two-way communication areas, however, telemarketing is challenging in and gives immediate feedback. Moreover, a that it lacks the face to face interaction that more telemarketing agent can handle a large number of easily facilitates the selling of complex insurance customers in a day, which makes it a cost effective products. For this reason, telemarketing tends to and productive marketing medium. be used more as a medium of lead generation in the sales process.10 Telemarketing is ripe for emergence as an alternative distribution channel in countries with Although telemarketing has seen success in high telephone usage. Along with rapid economic some markets in Asia Pacific, insurers should growth, tele-density in China has increased appreciate the challenges of a telemarketing rapidly and insurers view telemarketing as a cost based strategy, which include difficult market efficient direct marketing channel. However, penetration, varying regulatory platforms across regulations in China limit the products that can the region, and competition from dominant be sold in this manner, and the regions in which market leaders. Nonetheless, for several insurers in they are sold. Telemarketing has also emerged in Asia, telemarketing represents a large component Indonesia, Vietnam and Thailand as insurers look of their new business and there is growing interest to innovative ways to insure new customers. in this distribution channel. Innovative Filipino entrepreneurs have pursued a creative business model by persuading telecom companies to bundle sales of mobile phones with special life insurance policies that are easy to understand and have low monthly premium9 FSI Market Analysis - Philippines, Deloitte Touche Tohmatsu, 200910 Telemarketing and Call Centers in U.S., IBISWorld, 20088
  10. 10. Virtual marketing product and the customer is provided with theAs insurers attempt to increase brand awareness option to purchase complete insurance coverageand drive sales, virtual marketing activities such direct from the phone or send a text messageas electronic kiosk stands, mobile advertising, to request more information and special offers.and the Internet are emerging as alternative Customers can also request a call back for queriesdistribution channels. Kiosk marketing is a direct and premium channel that is increasingly used in Several insurers are partnering withreaching a wider customer base. In a typical kiosk telecommunications companies to utilisesale, a customer enters basic information (such as mobile phone sales as a distribution channelname, gender, type of policy, and amount to be for insurance. In Japan, Aioi Insurance andinsured) and the system generates a quote. The KDDI Corporation, Japans second largestcustomer has the option to approve the terms and telecommunications company, announced theymake a payment. will establish a joint venture non-life insuranceThe virtual nature of kiosks makes them ideal for company. Through the joint venture, Aioi aims toselling complementary policies to existing services. expand its distribution channels to capitalise onExamples of insurance solutions offered through the 30 million KDDI mobile phone subscribers,kiosks include: and KDDI plans to expand its subscriber base by offering insurance as part of its mobile phone• Travel insurance terminals placed at airports, services.12 seaports, and bus stations. The Internet is also emerging as a distribution• Motor insurance terminals placed at petrol channel with significant potential for growth. stations or service stations, enabling people to Australia and South Korea both have high renew their car insurance or get a new quote populations of Internet users and this channel while on the road. will become more important as other Asia• Health insurance terminals placed in hospitals. Pacific countries increase telecommunication infrastructure and Internet usage. The Internet has• Kiosks in shopping malls offering multiple life/ made substantial inroads in Australia as a viable non-life insurance products. insurance distribution channel, mainly because of• Banks selling insurance products through ATMs. Generation X and Y’s expectation to fulfill theirKiosks are helpful to reach customers who are needs online. Nonetheless, analysts suggest thatnot connected to financial services like banks. the Internet is unlikely to become the primaryThis number is very high in many developing insurance distribution channel because of thecountries, such as India, where flight insurance is complexities of insurance products. However, theoften sold in vending machines at airports. The Internet is a recommended channel to distributekiosk distribution channel is also likely to work simple or easy to understand products.13 In Southin countries with technologically-knowledgeable Korea, online car insurance operators are winning 11 Virtual Marketing, Deloittepopulations, such as Korea and Japan. more and more market share from traditional Development LLC, 2009 non-life insurers as a prolonged economic 12 “Japans No.2 telecomIn addition to kiosks, mobile marketing has proven slowdown prompts drivers to prefer web-based provider in non-life jointto be of value in increasing brand awareness as it insurers with cheaper premiums. In 2008, the venture”, Asia Insuranceallows an instant response. Compared to offline online auto insurance market grew by 10 percent. Review eWeekly, 5 February 2010advertising, it provides a quantifiable measure of South Korean auto insurers, such as Samsung Firethe success of the campaign. Mobile advertising 13 Life Insurance - Distribution & Marine Insurance, are focusing on expanding channels across the globe,campaigns are used for both life and non-life their presence in this rapidly growing online Investment and Financialinsurance products.11 Generally, a text message market.14 Services Association/is sent to a customer informing them about the Deloitte Future Leaders Award paper, 2007 14 “Insurers go online in S.Korea; pressure on AXA, Ergo”, Reuters, 24 Sep 2009 More than one approach Alternative insurance distribution models in Asia Pacific 9
  11. 11. Kiosk and Internet-based distribution channels can significant customer bases, reach, and established be used to distribute simple products such as car trust among consumers in order to cross-sell insurance, however, customers are often hesitant tailored insurance product offerings. to purchase products such as life insurance online In countries with high or growing Muslim due to the higher financial commitment and populations, such as Malaysia, Indonesia, and product complexities. Many consumers, prior to Thailand, banks are teaming up with insurance completing the purchase, still prefer to discuss the companies to provide an increasingly wide array of product and its suitability with a financial advisor Islamic finance and takaful products. or sales agent. Insurers may be able to overcome customers’ concerns by employing a strategy to In countries with large rural populations and make financial advisors available through online agricultural economies, banks have helped access on a 24/7 basis. to increase insurance penetration, providing a trustworthy and cost efficient link to rural Given the rapid increase of Internet users and consumers, and an existing infrastructure and mobile phone subscribers in Asia Pacific, virtual community presence. marketing will likely become a significant channel. In addition, these channels are important to Examples from specific countries include: insurers as sources of knowledge for consumers. • In Indonesia several insurance companies, such More and more people are using the Internet to as Asuransi AIA and Prudential, are selling research and learn about product options before products in collaboration with banks. As of purchasing insurance. 2008, 19 life insurance and 7 non-life insurance companies had partnered with banks, selling a total of 131 different products through 27 Bancassurance banks.15 Bancassurance, selling insurance products through a bank, is a distribution channel that is • Singapore’s extremely robust banking sector prevalent in almost all countries in Asia Pacific. has allowed major local banks to aggressively However, because banking systems vary due to increase the amount of insurance they cross-sell different regulations and cultural norms that may to their banking customers. As of September be country specific, bancassurance is capable of 2009, bancassurance accounted for 23 percent taking different forms. In developed countries of the share of new insurance premiums.16 with relatively mature banking and insurance • In Japan, the bancassurance channel was industries, such as Australia, Japan, New Zealand, introduced in April 2001 with some restrictions South Korea, Taiwan, and Singapore, insurance on the types of products sold. As of 2006, companies are taking advantage of banks’ Bancassurance will continue to grow as a distribution channel in Asia Pacific in the15 The Report Indonesia 2008, medium and long term Oxford Business Group16 “Life insurance industry sees good increase in third quarter sales”, Industry Performance 2009, Life Insurance Association Singapore10
  12. 12. bancassurance accounted for only 3.3 percent Wealth Management/Financial Advisors of written life insurance premiums.17 Complete The importance of financial advisors (independent deregulation occurred in December 2007, as well those tied to agencies and banks) to which allowed insurers to sell all life insurance insurance industries in various countries is products through the bank channel. A Celent growing. Japan, South Korea, Hong Kong, and report indicates that by 2012 bancassurance will Singapore view trained financial advisors as enable banks to capture between 20 percent an important distribution channel, especially and 25 percent of new business in life products, since insurance is increasingly being viewed between 5 percent and 15 percent in personal as an important component of an individual’s non-life products, and approximately 80 percent investment strategy. in annuities.18 Australia and New Zealand are both markets inInsurers need to be aware of the risks in which the wealth management/financial advisorstructuring a majority of their distribution through channel is considered developed. Over the lastbanks because ultimately they do not control 20 years in Australia, significant governmentthe access to the customer. In addition, the regulation has required that an employer makesbank may terminate the insurance distribution contributions into an employee’s superannuationagreement resulting in the loss of a bancassurance fund, based on a proportion (currently 9 percent)distribution channel for the insurer. A strategy of of the employees salary. As such, many peoplepartnering with multiple banks will broaden the need investment advice and seek financialdistribution and eliminate the risk of losing an planners. Insurers are partnering with wealthentire channel. managers to develop innovative products that allow retirees to invest prudently in order toAnother challenge for insurers is the lack of direct achieve income levels that are sufficient tocontrol of sales personnel, which presents critical address the future uncertainties associated withproblems such as production results, product life expectancy, health care, market downturn,strategy and mix, and staff motivation. Banks and inflation.19 At the end of 2009, ANZ Bankinghave many products to sell and insurance may not Group purchased the remaining stake in its jointalways be a priority. venture with ING Australia to strengthen itsDespite these challenges, partnering with position in insurance and wealth management.banks offers insurers a ready customer base, (ING and ANZ merged their insurance and wealthbrand awareness, and established credibility. businesses through a joint venture in 2002).Bancassurance will continue to grow as a Through the takeover, ANZ will become Australia’sdistribution channel in Asia Pacific in the medium third biggest life insurer and fifth largest retail fundand long term. manager, with total funds under management of A$45 billion and 1,700 aligned financial advisors.20 17 Seimei Hoken ni kansuru Zenkoku Jittai Chosa, Japan Institute of Life Insurance, September 2009 18 Bancassurance in Japan: Lessons from Europe and the US, Celent, 2008 19 Insurance in Australia, Australian Trade Commission, September 2009 20 “ANZ buys rest of ING wealth management joint venture for $1.9bn”, The Australian, 25 September 2009 More than one approach Alternative insurance distribution models in Asia Pacific 11
  13. 13. By 2013, Asia Pacific will likely overtake North Takaful America with respect to high net worth individual Takaful is an Islamic insurance concept which (HNWI) assets, mainly driven by China and India.21 is founded on Islamic muamalat (banking As income levels increase in the region, along transactions), observing the rules and regulations with the demand for more customised solutions, of Islamic law. The takaful industry is growing wealth management services catering to HNWIs at a faster rate than the conventional insurance are expected to feature more specialised insurance segment globally by 35 percent, and it is products. This channel can offer significant increasing in popularity in countries with a potential as the mass affluent populations of the sizeable Muslim population such as Malaysia and Asian economies grow. This customer segment Indonesia.22 This fast growing industry offers tends to fall below the target thresholds of private attractive and affordable products to consumers banks, however, the segment desires special while being religiously and culturally appropriate. treatment, quality advice and a degree of service Malaysia is by far the largest market for takaful above that of the normal agent. This segment insurance in the region, and has one of the has potential to grow significantly over the next most stable and established takaful industries in 10 to 20 years and insurers are already creating the world. Indonesia, Thailand and Brunei have ‘elite’ sales teams to target these customers. considerably less by way of yearly contributions, Banks already have strategies in place to provide but the market is expected to grow steadily as preferential treatment to HNWIs. Insurers will soon awareness of products and benefits increases. The implement similar strategies and utilise wealth 2004 tsunami in Thailand spurred industry growth management/financial advisors to sell insurance as the heavily Muslim populated area in the south products to HNWI customers. was underinsured and suffered business and infrastructure losses. Figure 4. Number of households with net Takaful insurance distribution channels face many worth greater than US$1 million challenges, including: In thousands • Many Muslim customers remain sceptical of the 18,000 insurance industry, particularly of family takaful 411 409 product offerings. Educating consumers and 16,000 providing information about products is key 463 14,000 1,053 to addressing under-penetration and creating 980 demand for takaful products. 1,156 12,000 1,187 • Takaful operators are required to invest only in 10,000 Sharia-compliant (in accordance with Islamic law) instruments, which lack fixed income 8,000 22 equivalents. The result can be an unbalanced 245 10,677 6,000 433 investment portfolio, which is sometimes 598 601 over-concentrated in more volatile equity 4,000 929 investments, illiquid real estate, and low-return 2,000 3,596 cash deposits. 0 Year 2007 Year 2017 Japan Australia Taiwan21 “The worlds rich part with $7.9 trillion in assets”, Hong Kong South Korea Finance Asia, 26 June 2009 Singapore China India22 “Takaful: New Heights Beckon”, Islamic Finance Source: Barclays Wealth, 2008; Economist Intelligence Unit, 2010 Asia, June/July 200912
  14. 14. • As with the wider Islamic financial services The small size of the market relative to the industry, takaful continues to suffer from a total insurance market in countries which have shortage of human resources with the requisite takaful products suggests that takaful is in the expertise. This issue is considered more early stages of development and has significant important in the Gulf Cooperation Council, but potential to grow. Although bancatakaful is an Southeast Asian operators also acknowledge its important distribution channel, currently takaful is continued importance. most successfully sold through agents and brokers face to face as it presents the best opportunity to• Lack of infrastructure in rural areas for educate consumers.23 bancatakaful. The takaful industry is still in its early stages• Difficulty of agents reaching rural populations. of development. The key opportunities exist• In Malaysia, regulatory restrictions on foreign in articulating the value proposition of takaful investments have also limited opportunities for products to both Muslim and non-Muslim diversifications. investors. This will require further development of the workforce and further education of• Low barriers to entry due to minimum capital consumers. In addition, bundling of takaful requirements and aggressive pricing by products with health and medical cover, saving operators have increased competition in the for retirement, education planning and overall takaful industry. wealth management objectives will assist inIn Malaysia, barriers for entry to the market are growing the market further. Harmonisation of thelower than for conventional insurance, and tax Sharia interpretation of takaful products will helpincentives are also offered. Both Malaysia and to broaden the appeal and eliminate some of theThailand regulators do not require the use of a barriers to acceptance.specific takaful model, only that the regulatorybody in charge of takaful be satisfied that thebusiness is Sharia-compliant. Non-life and family(life) takaful are fairly equal in terms of saleswhereas life insurance dominates the non-takafulinsurance market. 23 sigma No 5/2008, Swiss Re More than one approach Alternative insurance distribution models in Asia Pacific 13
  15. 15. Innovations inmarketing channels Creation of innovative channels to distribute insurance products is vital to an insurers growth and competitive advantage because distribution is a critical driver of new business Marketing of insurance products continues to Direct Response TV (DRTV) is used to create become more sophisticated and innovative, immediate consumer response to a companys especially in the Asia Pacific region where a products and to provide a convenient channel for combination of distribution channels often prevails potential customers to obtain more information and the market is flexible enough to support more on insurance plans, as well as to buy the plans exploratory methods of distribution. India’s shop- through telephone orders. DRTV has been assurance trend, where insurance is sold through a successful distribution channel in the Asia supermarkets and retail chains, is expected to Pacific region. Korean insurers have been selling become an emerging channel due to its ability insurance products (labelled Homesurance) to reach a wider customer base. For example, via infomercials directly to consumers since Future Generali has introduced mallassurance to September 2003. CIGNA has launched successful sell insurance through shopping malls, which is DRTV campaigns for its products in South Korea, modelled on its successful mallassurance operation New Zealand, and Taiwan where it has seen in the Philippines with the SM Group.24 Similarly, extremely enthusiastic responses. CIGNA’s growth in South Korea, ING sells insurance via Tesco’s strategy for the near future includes expanding very successful hypermarkets allowing customers the DRTV distribution channel to all countries to sort out their personal insurance needs while where it has operations in Asia Pacific.2724 “Your DTH vendor will sell doing the weekly shopping.25 insurance, too”, DNA India, Several insurance companies in the United States 21 March 2009 Japan’s unique business model of ‘insurance and the United Kingdom have already started25 2007 Annual Review, shops’ located on busy streets and in shopping using social media, mainly to target Generation ING Group malls is an innovative model that allows the Y, as a distribution channel for less complex26 “About consumer to shop for insurance in much the same products. Although the social media platforms thehokenshop” http://www. way as other commodities, and it is becoming a are mainly used for marketing and customer about/, Life Plaza Holdings, popular way to distribute insurance products. As enquiries, content also includes agent locators, 2010 an example, Life Plaza Holdings has 143 insurance quote engines, and product information. In the27 International Drivers of shops across Japan and has 40,000 visitors per United States, for example, GEICO has already Growth, CIGNA year.26 been exploring the use of social networking sites International, November to support the marketing of motorcycle policies,28 2009 and New York Life is looking at social networking28 “GEICO Goes Cruising for Motorcyclists In Cyberspace; to target Generation Y customers. New York Life Networking Site Created believes that social media and the Internet will to Hook Insurance play an increasingly critical role in the distribution Customers”, The Washington Post, 2 July 200714
  16. 16. of its insurance products.29 Understanding theneeds of Generation Y is important because theymake up a large proportion of potential customersin Asia, accounting for almost 50 percent ofChina’s workforce30 and 40 percent of Malaysia’spopulation.31 In India, half of the 1.15 billionpopulation is under 25 years old and Generation Yis entering the workforce.32 Insurance companiesin India, such as Bajaj Allianz, have alreadyimplemented social media platforms.33Mallassurance seems to have the greatestpotential of these innovative marketing channelsbecause it offers convenience, reach, and personaladvice. In most large Asian cities, it is commonfor people to visit a mall at least once a week.Financial advisors are available for customers toengage on a face to face basis for consultationand finalising the contract.Top performing companies in today’s globaleconomy continually develop and introduce newproducts and services. Creation of innovativechannels to distribute insurance products is vitalto an insurer’s growth and competitive advantagebecause distribution is a critical driver of newbusiness. 29 “Insurers Proceed on Social Media, With Caution”, Insurance & Technology, 12 October 2009 30 “Reckoning with Chinese Gen Y”, BusinessWeek, 25 January 2010 31 “Gen Y - technically savvy”, The Star, 24 October 2009 32 The World Factbook - India, CIA, 2009 33 “Bajaj Allianz unveils its new brand campaign - Jiyo Befikar”, India Prwire, 24 June 2009 More than one approach Alternative insurance distribution models in Asia Pacific 15
  17. 17. Conclusion The Asia Pacific region has dynamic and varied model and bancassurance, while the Generation insurance markets. The countries referenced in X and Y populations in South Korea may be this report are experiencing significant shifts in much more receptive to text message, Internet population demographics, standards of living, and direct TV marketing, and kiosks. Similarly, income, and education levels. Consequently, the religious considerations may dictate insurance insurance industries do not follow a standardised distribution channels in countries with sizeable model for effective distribution channels. Muslim populations (i.e. Malaysia and Indonesia) Although the agency model has been and will in a way that they do not in other countries remain a major distribution channel in Asia Pacific, (i.e. India). What is common, however, is the insurers should combine channels in order to meet necessity of innovative and flexible approaches to the needs of a socio-economically and religiously implementing distribution channels in all of these diverse region. countries. Several countries profiled in this report are still considered developing nations, and thus,The mix of distribution income disparities are often severely pronounced. Combined with a fledgling regulatory framework, indications are that insurance products will not bechannels is matched by the consumed in the same way or at the same rate across the entire population of these emergingdiversity of the cultural, economies, or in ways similar to their more developed neighbours. This is in sharp contrast to more mature insurance industries in places suchinfrastructural, and regulatory as Japan, Singapore, Taiwan, and Australia where insurance penetration rates are much higher,environments. It is evident that and a well-regulated and developed industry has laid the groundwork for certain distributiona one size fits all model is not channels that may not be the most effective in other countries. This is not to say that certain distribution channels are simply off the table forthe best approach. specific countries or that one channel is the only answer for others. Selling the same products through the same channels is not necessarily a recipe for capturing market share, and it is prudent to diversify product offerings distributed The mix of distribution channels is matched by through various channels. the diversity of the cultural, infrastructural, and Despite agents being the dominant channel in regulatory environments. It is evident that a the Asia Pacific market, opportunities exist for ‘one size fits all’ model is not the best approach. alternative channels. Going forward, insurance Rather, a multi-pronged approach that factors in companies should decide where they can compete country specifics, penetration rates, and cultural most effectively, what their target market is, and characteristics appears to be the most successful where they will develop their distribution channels model. Conversely, market segmentation and and capabilities. Adapting distribution channels the unique needs of customer groups appear to to the unique characteristics of Asia Pacific be dictating the distribution channel used in a demographics, culture, and regulatory systems, specific country. For example, the older population innovating around product particulars and channel of Hong Kong may do better with the tied agency specifics, and combining approaches are all likely to be successful strategies.16
  18. 18. AppendixTable 1. Distribution channel development by country Agency Bancassurance Telemarketing Virtual* Worksite Micro Wealth Takaful marketing mgmt Australia Mature Mature Mature Mature Growing - Mature - China Mature Growing Emerging Emerging Emerging Emerging Emerging - Hong Kong Mature Mature Mature Growing Emerging - Mature - India Mature Growing Growing Emerging Emerging Growing Emerging - Indonesia Mature Growing Emerging Emerging Emerging Emerging Emerging Growing Japan Mature Mature Mature Mature Mature - Mature - Malaysia Mature Growing Emerging Emerging Emerging Emerging Emerging Growing New Zealand Mature Mature Mature Growing Growing - Growing - Philippines Mature Emerging Emerging Emerging Emerging Emerging Emerging - Singapore Mature Mature Growing Growing Emerging - Growing Emerging South Korea Mature Mature Mature Mature Emerging - Mature - Taiwan Mature Mature Growing Mature Emerging Emerging Growing - Thailand Mature Growing Emerging Emerging Emerging Emerging Emerging Emerging Vietnam Mature Growing Emerging Emerging Emerging Emerging Emerging -* Includes electronic kiosks, mobile phones, and InternetSource: Deloitte analysis More than one approach Alternative insurance distribution models in Asia Pacific 17
  19. 19. EditorsEditors MalaysiaDavid Pulido Allan LowTel: +81 3 6213 1818 Tel: +60 3 7723 allow@deloitte.comKaren Grieve New ZealandTel: +81 3 6213 1162 Charles Tel: +64 4 470 3866Holger Kern +65 6232 Philippines Diane YapContributors Tel: +63 2 581 9053Peter Firth dyap@deloitte.comTel: +1 212 436 Singapore Mohit MehrotraStephanie Gladstone Tel: +65 6232 7216Tel: +1 212 436 5172 momehrotra@deloitte.comsgladstone@deloitte.comTerry Mezger TaiwanTel: +852 2238 7264 John Tel: +886 2 2545 9988 Ext.1277 VicaryTel: +60 3 7723 6572 Niti Jungnitnirundr Tel: +66 2 676 5700 Ext.5074 njungnitnirundr@deloitte.comEditorial BoardAustralia USElaine Collins Joe GuastellaTel: +61 2 9322 7533 Tel: +1 212 618 jguastella@deloitte.comChinaDuncan SpoonerTel: +852 2238 K. MohanTel: +91 44 6688 5000ckmohan@deloitte.comKoreaJung In LeeTel: +82 2 6676 1312junginlee@deloitte.com18
  20. 20. Key contactsInsurance Leaders Korea Sung Ki JunGlobal/Regional Tel: +82 2 6676 1127Joe Guastella sjun@deloitte.comGlobal Insurance LeaderTel: +1 212 618 4287 Margaret KekHitoshi Akimoto Tel: +60 3 7723 6505Asia Pacific Co-Leader mkek@deloitte.comTel: +81 3 4218 New Zealand Greg HaddonTerry Mezger Tel: +64 9 303 0911Asia Pacific Co-Leader +852 2238 Philippines Diane YapAsia Pacific Tel: +63 2 581 9053Australia dyap@deloitte.comCaroline BennetTel: +61 3 9671 6572 Kenny Young Tel: +65 6530 5544Stuart Alexander kenyoung@deloitte.comTel: +61 2 9322 Taiwan John ChenChina Tel: +886 2 2545 9988 Ext.1277Terry Mezger +852 2238 Thailand Niti JungnitnirundrIndia Tel: +66 2 676 5700 Ext.5074Mani Bharadwaj njungnitnirundr@deloitte.comTel: +91 22 6619 Vietnam Hung TruongIndonesia Tel: +84 4 3852 4123Riniek Winarsih htruong@deloitte.comTel: +62 21 231 2879 Ext.3882rwinarsih@deloitte.comJapanHitoshi AkimotoTel: +81 3 4218 4858hakimoto@deloitte.comKumiko AsoTel: +81 3 6213 More than one approach Alternative insurance distribution models in Asia Pacific 19
  21. 21. Financial Services Industry Leaders Koreain Asia Pacific Yun Ho Kim Tel: +82 2 6676 1104Regional yunhokim@deloitte.comPhilip GoethAsia Pacific Leader MalaysiaTel: +86 10 8520 7116 Andrew Tel: +60 3 7723 6568David Pulido andrewlai@deloitte.comAsia Pacific Deputy LeaderTel: +81 3 6213 1818 New Rodger Murphy Tel: +64 9 303 0758Karen Bowman Asia LeaderTel: +65 6530 5574 Avis B. Manlapaz Tel: +63 2 581 9068Country/Location amanlapaz@deloitte.comAustraliaWarren Green SingaporeTel: +61 2 9322 5454 Prakash Tel: +65 6530 5585 pradesai@deloitte.comChinaPeng Cheng Wang TaiwanTel: +86 10 8520 7123 Ray Tel: +886 2 2545 9988 Ext.3029Dora Liu +86 21 6141 Thailand Suttharug PanyaIndia Tel: +66 2 676 5700 Ext.5247Sachin Sondhi spanya@deloitte.comTel: +91 22 6619 8600sacsondhi@deloitte.comIndonesiaBasar AlhueniusTel: +62 21 231 2879 Ext.3212balhuenius@deloitte.comJapanYukio OnoTel: +81 3 6213 GotoTel: +81 3 6213
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