Pioneered in France in the 1970’s, bancassurance took deep root in many markets in Western Europe and as a distribution channel reached maturity in terms of market share over a decade ago. In recent times, bancassurance has flourished in China, although there are challenges ahead. Stafford Thomas explains
Data from industry body InsuranceEurope shows bancassurance’s average market share across the big-five bancassurance countries – France, Italy, Portugal, Spain and Austria – rising only marginally between 2004 and 2010, from 67% to 70% respectively.
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Today bancassurance’s big growth opportunity is primarily in developing regions and particularly in China, where bancassurance is well entrenched.
Bancassurance was introduced in China in the late-1990s and, as in Europe, has flourished in the life sector. It has achieved only limited success in the general insurance sector. For example, of CNY477bn ($76bn) in general insurance premium income generated in China in 2011, about three quarters was through tied and independent agents, according to the China Insurance Regulatory Commission (CIRC).
Growth in life insurance sales through China’s banks has been rapid. According to the China Banking Regulatory Commission (CBRC), by 2005 life premium income sold through banks stood at CNY90bn ($14bn), a quarter of the life insurance industry’s total. In 2011 the bank channel’s total sales stood at CNY440bn, 45% of total industry sales.
While this is an impressive penetration level, bank channel life insurance activity in China during 2011 was down significantly on the peak reached in 2010 when, according to Swiss Re, it accounted for 64% of total life premium sales. Some large banks in China also experienced declines in life insurance sales of between 20% and 30% in 2011 by premium value, notes KPMG in a study.
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By GlobalDataKPMG ascribes the decline in sales through banks in 2011 to a number of reasons. Of these, the CBRC’s Regulation 90 which came into force in November 2010 was the most significant. The regulation placed a limit of three insurance partners for each bank branch, whereas previously there had been as many as 30. Regulation 90 also impacted sales negatively by effectively banning insurance sales staff from selling insurance products in bank branches. This placed the full burden of sales on bank staff, many of whom had limited sales experience.
Under Regulation 90 bank staff selling insurance products to customers at bank branches must also be licensed through the CIRC as insurance agents. If they sell investment- linked insurance products, they must have at least one year of insurance sales experience and a minimum of 40 hours of specialised training.
The other negative factors negatively impacting bank channel sales identified by KMPG were:
– Liquidity constraints in the banking sector resulted in banks being less keen on deposit replacement insurance products
– Yields on insurance products were less attractive than those on other wealth management products
As another reason for lower bank sales in 2011, KPMG points to concerns over inflation. This created higher customer expectations and hampered the sale of participating and long-term life products.
For life insurers the bank sales channel appears set to get increasingly difficult to harness. This is not only a result of Regulation 90 but also because of the advent of bank-owned insurance companies. Over the past two years a number of major banks have established their own insurance units. The banks include China Construction Bank, China Merchants Bank, AgriculturalBank of China and Industrial and Commercial Bank of China.
Banking group HSBC predicts bankowned insurers will enjoy a compound annual growth rate (CAGR) in life premium income of 26% over the next ten years while insurers’ CAGR in premium income through the bank channel will be far-lower at about 9.5%. HSBC predicts bank-owned insurers will grow their market share from 6% in 2011 to 30% within 10 years.
Not all insurers are taking the challenge lying down.
Setting the pace, China’s second-largest life insurer Ping An acquired a 52.4% stake in Shenzhen Development Bank in two deals, one in 2010 and the other in 2011. In August 2012, Ping An announced its intention to increase its stake in the bank, recently renamed Ping An Bank, to 61% at a cost of CNY29bn.
For foreign insurers in China already battling to retain their small market shares, banks entering the insurance market directly is not good news. Banks are a key distribution channel for foreign insurers in China.
In a recent survey of foreign insurers, PricewaterhouseCoopers found 13 out of 18 life insurers scored the entry of banks as a major threat at levels of seven or higher on a scale of zero to ten.
Many foreign insurers also expressed concern that under Regulation 90’s limit of three insurers per bank branch they could find their access to the bank channel seriously curtailed.
