Bancassurance: Just getting started? Lee Wood July 28, 2014

Transcription

1 Bancassurance: Just getting started? Lee Wood July 28, 2014

2 Today s agenda What was bancassurance orginally envision to achieve? What have we achieved in Taiwan? Is it just getting started? What are the next steps? 2

3 What did we want to achieve? Wikipedia: Note the key words/assumptions imply an "ideal" model: Partnership Bancassurance, is the partnership or relationship between a bank and an insurance company whereby the insurance company uses the bank sales channel in order to sell insurance products... to the bank's client base.. The banks are the agent of the insurance companies to sell them more and more policies. Bancassurance is an efficient distribution [channel] with higher productivity and lower costs than traditional distribution channel. Efficient Distribution (higher productivity and lower costs) Insurance (seems to assume that it might banks might be able to sell it at a better value given its efficiency) 3

4 Reality maybe slightly different... Banks are often focused on driving wealth management revenue Reduced interest income Changing investment market dynamics Slowing growth / changing volatility Insurers are often focused on growing out of negative spread challenges Growth at even low margins lowers the overall portfolio "credit" rate 4

5 ... and this is NOT unique to Taiwan While in Europe there may be more robust bancassurance (primarily France and Italy) heavy emphasis on retirement products endowment; Belgium is one of the few that seem to actually distribute more wide range of savings AND protection products Taiwan and most of Asia almost exclusively deposit replacement or rate driven investment products Japan is similar enhanced yield variable annuities (started with DB only) and competition quickly drove to strong focus on annuity products with more guarantees (primarily because of bank regulation requiring product mature by age 90) Exceptions: Indonesia has a pretty strong percentage of protection products utilizing front-end load investment linked products and Bank sales in the US are still relatively very small Creidt card telemarketing are more similar and much more protection based 5

6 So YES, banks are just getting started... They are selling huge volumes (50-60% market share) to primarily wealth management customers ofter challenging even their investment trust sales Source: A Study of Taiwanese Bancassurance Regulatory Reforms and Prospects -- Lessons from Japan, Chun-Hsiung Cho, September

7 ... but is it sustainable or just flavor of the month Question 1: Do banks sell products for the benefit of the customer or for their own revenue stream? Proxy for question 1: Which is better to sell Front End loaded products or Back End Loaded products? Answer 1: It depends what does the CUSTOMER NEED? The problem with the "flavor of the month" for a CEO is sustainability... Large volume swings tied to market events and changes in bank strategy Particularly as insurance is just one of many "investment" or deposit options not good old fashioned POOLABLE morbidity or mortality risk 7

8 Is it even INSURANCE McKinsey Report, Growth under uncertainty Existing bancassurance model is unsustainable. The current model focuses on rudimentary, low-margin products and fails to capture demand for protection and long-term savings products, especially from mass affluent and above segments. Also, misleading sales practices in the bancassurance channel have drawn public scrutiny and tarnished the industry s image. The way forward for insurers in bancassurance is challenging. Insurers lack bargaining power with banks, which control access to customers and can choose which products they want to sell. As a result, insurers profitability in bancassurance has been declining. Low-margin products dominate the channel while bank commission rates on single premium participating products increased from 3.2 percent in 2005 to about 5.5 percent in In addition, regulatory changes have forced insurers sales staff out of bank branches, which further reduces bancassurance product sales capacity and capability. It is now even more challenging for insurers to distribute high-margin but complicated products in the channel. 8

9 And who are they selling to? Sean Rowley, ReMark was credit with saying Most bank customers fall within the low to middle income bracket, but bancassurance in its current form is not catering for these customers. Source: Asia Insurance Review, June 2014, p.94 9

10 If banks lose their ability to capture customer attention, bancassurance will fade away In my experience in the insurance world (where products can be quickly copied), relationship power rests with the one who owns distribution who has the greatest ability to influence the customer So what is happening with bank distribution power? Banks continue to focus on attracting an retaining the high margin customers away from transactional banking Massive trend to distance themselves from low margin low balance (middle class) customers Bank fees, reduced branches, branch hours Good for bank efficiency measures, but lower their ability to reach as many customers ex credit cards And the financial crisis didn't help their reputation 10

11 This is the new image of banks But the biggest challenge to their distribution power, in my opinion, is the coming DIGITAL DISRUPTION 11

12 Bank digital disruption is happening quickly Full-service banks, as a group, could lose about 35 percent of their market share by 2020 to digitally oriented disruptors Cutting distribution costs to unprecedented levels Source: Accenture. Banking 2020 As the Storm Abates, North American Banks Must Chart a New Course to Capture Emerging Opportunities. 12

13 Where consumers believe their primary bank providers should be investing Mobile banking has increased nearly 50% since Digital Traditional Source: Accenture 2013 US Retail Banking Survey 13

14 This is NOT just a bank problem Customer have dramatically increased their desire for on-line information Expectations are changing rapidly customers already expect most functions to be supported on-line (including mobile) Q: How would you prefer to interact with your insurance provider(s) for each of the following actions? 14

15 Social Insurance Insurers are using SOCIAL NETWORK data to enhance ANALYTIC capabilities LEVERAGE DATA ON SOCIAL NETWORKS Transform an address into a COMPLETE DIGITAL IDENTITYfor each customer using information available OVER 100 SOCIAL NETWORKS such as Twitter, Facebook and linkedln Impact on UNDERWRITING: some US life insurers waive medical exams for some prospective customers partly because marketing and social data suggest they have healthy lifestyles (sport practitioner, non smoker, slim, ) Impact on CLAIMS: new tools based on social links used to improve fraud detection IMPROVE ANALYTICS Kaggle: platform for ANALYTICS OUTSOURCING via predictive modeling competitions. - presentation of datasets and problems by insurers - competition by voluntary data scientists teams to produce the best solutions INTERNAL ANALYTICS TEAMS: strong reinforcement by some US and European insurers (with hires of data scientists) to uncover new insights hiding in data (to improve loss forecasts, devise more accurate pricing, better detect fraud, ) 15

16 Pop Quiz: Which company issued 6 million policies in 2012? And was expected to issue another 7 million in 2013? 16

17 So does bancassurance stand a chance? Yes, while Digital will take market share, I believe and the numbers indicate, that there will still be a desire for face to face channel But 17

18 ... but we really need to go back to the more idealistic view of bancassurance to achieve this Flipping back to the idealistic Wikipedia definition would help us find a way Partnership Must really be a partnership not just one side. Need full access to large customer base to build on core value (e.g. advantage banks with larger customer bases) Requires long term commitment Increase capital efficiency through levelized commissions Local financial holding companies should be more readily able to exploit this opportunity Most importantly banks must commit expand their ability to deliver a broader range of product e.g. REAL INSURANCE this transition needs to happen quickly, but we can find a middle ground First: continue to make competitive and yet manageable SAVINGS products Second: make it easier to distribute REAL (morbidity and mortality) INSURANCE products 18

19 Examples of partnerships are growing Partnerships are clearly emerging Pru UK and E-Sun and SCB Cardif and TCB Aviva and First Financial Allianz and HSBC AIA and Citi Financial Holding Companies (are really high potential great partnerships) 19

20 Increase Distribution Efficiency (low cost / high volume) For sales, this can be further enhanced by working together to improve customer analytics to include better propensity to buy models: Rich people still need INSURANCE if only for liquidity and legacy planning Develop digital toolboxes for customers and include space/prompts for maintaining customer's own "needs" profile e.g. Facebook Profile or Linked In Profiles are constantly reminding you to update something or provide additional information For service, we must simplify the overall customer experience in understanding, buying and managing their insurance Digitally, few have developed intergrated paper, on-line and mobile processes that are customer focused that would make it both Easier to do business and Provide more efficient, fast, user-friendly integrated illustration, underwriting, application, policy delivery, policy service and claims (e.g. ipad and mobile solutions are already emerging but fast enough?) Regulations such as data privacy, requiring face to face signatures (vs. SKYPE) and limits on paramed services (vs. US model) must be addressed if bancassurance will really be able to take off in delivering real PROTECTION insurance 20

21 And we absolutely need to move back to REAL INSURANCE... Ideally, we can work to sell more pure protection, products, but this is still hard (even for Agency) Requires significant sales support: IC s to teach bankers how to sell protection it is a new skill set Leverage "hybrid" service styles using a range of services From face to face to fully on-line/mobile Continue to deliver "hybrid" products that provide both PROTECTION plus SOME MONEY BACK will continue to be popular as the education process evolves ROP will hold on for some time Interest sensitive and par products will continue Regular premium retirement savings and long-term care plans leveraging insurance s historical background of supporting disciplined or forced savings 21

22 ... particularly into new insurance products that society needs and banks are better fit to distribute New areas (will need regulatory changes) Pensions: Can they lead on the new voluntary savings pension business e.g. the pension products in Hong Kong and Singapore Reverse mortgage or Equity Release with lessoned learned from other parts of the world Pure Deferred Annuity = Tontine (assume we can deliver a fair product) * Many of these ideas will face understandable regulatory concern with fairness and controls and which the industry must demonstrate it can properly managed. But both are just option type products a little more sophisticated yes, but available with the right disclosure Need to enhance customer choice especially when it will save them money or allow them the best possible solution 22

23 Pure Deferred Annuity (Tontine) An investment vehicle that combines features of an deferred annuity and a lottery Investors pool their money Members who reach the endowment age after the deferred period receive investment income as long as they are alive As member die before or during the annuity period begins, they forfeit their account value to the surviving members who benefit from the mortality gains Unless the fund is divided earlier, the entire fund goes to the last survivor Would provide a rational choice for individuals who may not have adequate savings to meet their long-term care or retirement cost needs Freedom to enjoy the money they have without fear of running out too soon! 23

24 Tontine example Imagine 1, year old retirees Each contriubes NTD1,000,000 to an annuity "fund" that pays 1% guaranteed fixed interest (lower risk government bond) The pool is split equally among the surving members Year 1 everyone survives, then the annuity pays a divident of NTD 10,000 to each annuitant =((1,000 * 1,000,000 * 1%) / 1,000 participants) By the end of Year 10 (age 75) only 800 are still alive then each person will receive 12,000 By end of 30 years (age 95) only 100 people may have survived. Each of them would now be receiving NTD100,000 (income when they may have spent down much of their other savings Not for everyone, but for those who need it is still a great product And, most specific to my point, a product well suited for bank distribution! 24

25 Regulatory oversight is critical While this product does have a painted history, it may be time to revive the thought now There are lots of different design features that can make the payout benefit more fair, and steady. Most retirees would prefer to level benefits throughout their lives, rather than benefits that increase sharply at the end of life. While not currently sold, it is not actually restricted In most US states The key is clear regulation to assure Clear customer disclosure (including potential sign off from potential heirs) Clear guidelines on mortality profit limits, commissions, reserving, investment choices, etc. Must be managed on a FIDUCIARY BASIS 25

26 Allianz/HSBC is an example of a shift to a strong partnership model focused on customer needs I like to think they will and they are already starting with companies like Alliainz's exclusive partnership with HSBC The bank s strategy is to build long-term relationships and reward customers through value-for-money products and high-quality service. Customer needs focused prdoucts: We [HSBC] have undertaken a full review of all our products in RBWM [Retail Banking and Wealth Management], and are standardising our offering across all categories. Products are assessed on grounds of fairness and transparency before being approved. In addition, Needs based sales process: In 2013, we [HSBC] took a major step to align our staff s remuneration with customer interests by introducing a new incentive program for our Wealth Management relationship managers. The programme removed all formulaic links to sales volumes an focused on assessing how well we are meeting our customers needs. 26

27 So what is the final answer? Is bancassurance just getting started? Flavor of the month will not stop tomorrow and many will have difficulty expanding from their traditional bank sales models But some are already starting to make the adjustments and in my opinion over time customer will gravitate to where they get the best perceived value I'll give you my actuarial answer, "Maybe. It depends on your assumptions." 27