Bancassurance developments in Asia
No. 7/2002
Bancassurance developments in Asia - shifting into a higher gear
Bancassurance penetration is expected to tangibly increase in Asia over the next 5 years, potentially accounting for 13% of life insurance premiums and 6% of non-life insurance premiums. That is the conclusion of Swiss Re’s new sigma study which also notes that around one third of these premiums represent new business opportunities rather than the substitution of existing channels.
Life and non-life insurance products are primarily distributed by career insurance agents in Asia, while bancassurance – the distribution of insurance products by banks – remains relatively underdeveloped except in certain markets.
Emerging drivers are giving bancassurance new impetus
However, major drivers are emerging that will add momentum to the development of bancassurance in Asia. The emerging drivers include:
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The squeeze on Asian banks’ profit margins
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Broad-based financial deregulation throughout the region
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Balance sheet pressure of Asian insurers
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Foreign insurers acting as a catalyst to development
- Increasing sophistication of Asian consumers
Asian banks are eager to leverage on bancassurance opportunities
Asian banks have been suffering a declining return on equity over the past decade. Adding to their woes is the Asian financial crisis, which has eroded the balance sheets of many banks and left them with a heavy burden of non-performing loans, even after substantial debt liquidation efforts. Increasing competition and the continued integration of regional financial markets have also resulted in a narrowing of interest rate spreads, thus threatening banks’ profitability. This environment has led banks to seek more stable, less volatile fee-based income, as well as to try and add value to their existing operations. Bancassurance offers opportunities for banks to broaden their fee and commission-based income and cross-sell financial products to their existing clientele.
Insurers eye the banks’ customer bases
As Asian banks are attempting to shore up their finances, Asian insurers are seeking to tap into the banks’ huge customer base. Economic growth has supported the expansion of a middle-income class in Asia. As their primary financial needs are mostly met by banks, it is natural for insurers to turn to banks to gain access to this profitable segment of the market.
In addition, some insurers, weakened by the financial crisis and growing market competition, would like to secure capital injections through closer affiliation with banks. Finally, bancassurance is viewed as a viable way for insurers to diversify from traditional channels while at the same time lowering distribution costs.
Broad-based financial deregulation gives bancassurance new impetus
Another key factor driving the development of bancassurance in Asia is the relaxation of stringent regulations. The advance of financial market integration and globalisation are demanding new realism on the part of regulators in supervising cross-sector activities. Markets where bancassurance was previously prohibited, including Japan, South Korea and the Philippines, are taking a more accommodating stance towards bank distribution of insurance products.
The proliferation of bancassurance will have far-reaching implications for Asia’s insurance markets
For the Asian insurance markets, the proliferation of bancassurance implies that:
multi-channel distribution will grow in popularity although insurance agents will retain a strong presence in the near to medium term
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distribution will be further separated from the development of insurance products
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the ability to tap into the large customer base of banks will become an increasingly important competitive parameter
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product innovation will likely benefit from the development of bancassurance
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“greenfield” start-up operations will be easier without the need to recruit a large number of insurance agents
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financial institutions will leverage bancassurance to compete for household financial assets
- the widespread adoption of bancassurance could accelerate the process of market polarisation in Asia.
Bancassurance is emerging as an important distribution channel throughout Asia. This is due not only to structural changes in the financial markets and insurance industry, but also the influence of foreign insurers experienced in bancassurance entering in region. The development of bancassurance promises to benefits an Asian customer base that is already receptive to alternative distribution channels.
This publication can be downloaded in English, German, French, Spanish and Italian.
Download "Bancassurance developments in Asia-shifting into a higher gear"
Download "Allfinanzentwicklung in Asien - das Tempo nimmt zu"
Download "Développement de la bancassurance en Asie - Une activité en plein essor"
Download "El desarollo de la bancaseguros en Asia - acelerando la marcha"
Download "Slancio rinnovato per lo sviluppo della bancassurance in Asia"
For further questions and copies of Chinese or Japanese versions, please contact sigma@swissre.com.
