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Rise of Bancassurance An Asia experience

David Fried David Fried Group General Manager

Regional Head of InsuranceHongkong and Shanghai Banking Corporation

International Insurance SocietyInternational Insurance SocietyTaiwan, 13-16 July 2008Taiwan, 13-16 July 2008

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Contents

Global DriversGlobal Drivers

Aging population brings in opportunitiesAging population brings in opportunities

BancassuranceBancassurance

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Insurance markets in Asia are at different stages of development

Opportunities in Asia

China

India

Vietnam

Indonesia

Malaysia

Thailand

The Philippines

Macau

South Korea

Hong Kong

Taiwan

Singapore

Japan

Under penetrated Moderately developed Developed Saturated

Bancassurance is the fastest growing channel

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Asia opportunity – paradigm shift in insurance spend as GDP’s hit threshold

* Data series of penetration start from 1970 unless specified. Real per capita GDP in log scale.

Source: Swiss Re Economic Research and Consulting

0

2

4

6

8

10

12

0.1 1.0 10.0 100.0

Australia

Japan(1976)

Singapore Hong Kong (1990)

Taiwan (1978)

South Korea

Malaysia

Life premiums/GDP (%)

ThailandChina (1982)

India

Vietnam (1996)

Philippines

Indonesia

Real per capita GDP, US$ ‘000

Current penetration of

emerging markets

Potential

Why now?

5

0

1020

30

40

5060

70

SouthKorea

China Taiwan SouthAfrica

India HK Brazil Singa-pore

Mexico Russia

US

$bn

0%

5%

10%

15%

Emerging Markets comprise 10% of world premiums – skewed to Life

Top 10 Countries = 87% of Life Market

Top 10 Countries = 64% of GI Market

0.11

0.22Life

GI

US$0.33tn

0

10

20

30

SouthKorea

China Taiwan SouthAfrica

India HK Brazil Singa-pore

Russia Mexico

US

$bn

0%

5%

10%

15%

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Evolving customer needs:a Golden Opportunity for BanksOlder customers have different financial needs

Over 50’s possess 70% of all financial assets

These individuals and their assets need protection (insurance) and investing – no longer borrowing

Ageing is [accelerating] this shift as old borrowers de-leverage

Equally applicable in Developed and Emerging Markets

This “sea change” too big an opportunity to miss and should build on HSBC credit credentials

Financial needs Financial needs mapmap

Client time

Wealt

h

Youth Mature

High

Low

Insurance investment needs

Bank (Credit) Products

7Source: UN Population Ageing 2006

… but will have increased significantly in many countries by

2050

Why now?People are agingPercentage of total population aged 60 years or over in 2050

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Bancassurance - catching on globally..

France:France: the largest bancassurance market, 62% of new premiums in 2005 earned through bank networks (favourable legislation, taxation)*

USAUSA:: 1999 legislation allowed insurance sales through banks but the expected revolution hasn’t materialised (low awareness, low growth)*

UKUK:: with 20% total premiums collected, bancassurance lags in market penetration (dominance of IFA sales force)*

China:China: >30% of new business from bancassurance (heavily biased by SP products)*

Sth Korea:Sth Korea: since regulatory changes in 2003, bancassurance has exploded. New Business Apr 2006 through Jan 2007 accounted for 46%collected premiums (heavily biased by SP roducts)*

HKHK:: 38% bancassurance weighted penetration in 2007 (legislation, low interest rates, bank expertise)**

OthersOthers:: Vietnam circa 0.5% penetration in 2005,

Indonesia circa 20% in 2004 up from 5% in 1998

Malaysia circa 45% in 2005.*

•Watson Wyatt Data

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Bancassurance – a growing success in Asia

47% (unweighted premium)NilS. Korea

26%26% Singapore

37.5%1%Taiwan

48%6%Malaysia

4.61% (15.4% in private sector)NegligibleIndia

33.1%15.1% Hong Kong

33.9%Less than 10%China

New Life Insurance Premium New Life Insurance Premium

2005/062005/06

New Life Insurance Premium New Life Insurance Premium

19981998

New Premium from bancassurance as a percentage of total New Premium:

Source: various sources, Watson Wyatt and Swiss Re reports

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Meeting Stakeholders Needs

CustomersCustomers

BankBank InsurerInsurer

One-stop shop,

holistic solutions

A tool for deepening banking customer

relationships & driving NFI

A new distribution channel in addition to the traditional Agency & Direct

• A three-way all-win solution• Maximising business performance and

potential

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Integrated bancassurance defines where customers are

Global product (Credit Cards)

Personal banking

Commercial Banking

Global Banking and Markets

Private BankingGlobal

Institutions

Corporate

SME

HNWI

Mass Affluent

Mass Market

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Products align with different market segments

2. Co-incidental

3. Simple standalone /

packaged

4. Advanced standalone

5. Advisory

• Accidental Death

• Personal Accident

• Hospital Cash

• Mortgage Reducing Term (cross sales for Fire buildings and contents)

• Creditor on Credit Cards

• Motor (with car loans)

• Personal Accident

• Home Contents

• Travel

• Basic Term

• Whole life

• Endowments

• Complex riders

• Critical Illness

• Income Protection

• Unit Linked Life

• Annuities

• As per ‘Advanced Stand-alone’ but formal recommendations made

TRANSACTIONATRANSACTIONALL

NEEDS BASEDNEEDS BASED

ADVISORYADVISORY

Sales complexity increases

The selling model(s) chosen impacts product, distribution channel, staff selection and training, marketing, sales processes and support etc

1. Targeted outbound for

simple products

2. Co-incidental

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1 2 3 4 5 6 7Channel Brand Product U/W Claims Admin Invest

-ments

Client/insured

Distribution Manufacturing

Key is distribution…. Underwriting automatically follows

General Insurance 15% 65% 10% 10%

Life, Pensions& Investments (LPI)

45% 15% 10% 30%

Return on Equity (ROE)

>20% ~10% >30%

Insurers• Support and relationship building with banks • Understanding of banks and their needs• More internal support, blueprints, regional or

global academies within companies• Benchmarking against the competition

Banks• Develop expertise, understanding and models• Beauty parades, developing JVs and exclusive

relationships• Seeking value creation rather than just fee income• Starting to see the value in manufacturing – and

building their own

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Align tasks performed with channel functionality

Lead generation

Qualify sale

Diary management

booking

Close sale

Post sales service

Account management

Branches

Internet

Telephone

F2F (FPM’s)

Good OK Poor

A bancassurance model leverages ALL distribution channels for different stages of the sales cycle

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Different Bancassurance Models

IntegratedIntegrated

Broker’s Broker’s modelmodel

InsurerInsurerBankBank

InsurerInsurerBankBank

Non -Non -integratedintegrated

•Agents to place Agents to place at bank at bank branchesbranches

•Mine on bank’s Mine on bank’s client base - client base - telemarketingtelemarketing

•No agent at No agent at branchesbranches

•Bank’s RMs to Bank’s RMs to sellsell

BankBank InsurerInsurer

BankBank BrokerBroker

Partnership - Leads Partnership - Leads referral from bank referral from bank

on commercial on commercial business; brokers to business; brokers to recommend businessrecommend business

AgentsAgents

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Thank youQ & A