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Bancassurers in China Must Take Bold Action to End Market Impasse and Spur Sustainable Growth, Says New White Paper by Boston Consulting Group and Swiss Re

Current Market Structure in Which Banks Sell Multiple Insurance Brands has reached its peak; Banks and Insurers Should Seek Greater Integration, Exclusivity in Partnerships, Paper Says

BEIJING, December 10, 2009 — Insurers and banks in China must break away from the current industry structure and collaborate more closely if they hope to lift the country's bancassurance industry to a higher level of performance and achieve both profitable and sustainable growth in the future, according to a White Paper released today by The Boston Consulting Group (BCG) and the reinsurance company Swiss Re. 

The new White Paper, Bancassurance in China: Reaching the Next Level, takes a comprehensive look at the industry's landscape, focusing on the challenges that insurers and banks currently grapple with. The paper explores how the market needs to change in order to thrive in the future, and outlines specific steps that insurers and banks can take to reach their collective goals.

According to the paper, China's bancassurance market has been growing at breathtaking speed. At the same time, it appears to be locked in a paradox. Although banks are already the dominant sales channel for life insurance in China — and are propelling the country's rapid growth in premium volume — the breadth and sophistication of currently available products, as well the overall quality of customer service, still lag behind bancassurance activities in many other countries.

Eric Schuh, Director of Business Development for Swiss Re in China says, "There are a lot of white spaces in the current product and service offering in China compared to more advanced bancassurance markets. This is a sign of the significant upward potential."

Several factors have contributed to the present situation, the paper says. First, banks obviously have considerable marketing power in the financial services arena. They are also permitted to sell multiple brands of insurance — although until recently they were not allowed to own insurers outright. The resulting model is one in which banks often sell relatively unsophisticated savings-type products — offerings that carry a variety of brand names — in an untargeted way. The paper calls this structure "many-to-many".

There is, however, a growing recognition that the present market structure is not sustainable. Chinese regulators are already working on bancassurance reform in order to promote better integration of banks and insurers. Indeed, the China Banking Regulatory Commission published rules allowing for equity participation of banks in insurance companies in November of this year. BCG and Swiss Re believe that this initiative will guide China's market in the direction of mature bancassurance markets such as Europe and the United States.  More specifically, BCG and Swiss Re expect a period of heavy investment in product development, marketing, customer service, and platform synergy, the paper says. The insurers and banks that are leading this push are hoping to build significant competitive advantage in the market. The prerequisite for success, however, will be the forming of exclusive partnerships — of various natures — so that investments in capital and know-how can be protected and generate positive results. 

These partnerships can take four basic forms: exclusive distribution partnerships; joint ventures; financial holding companies; and integrated lines of business. The paper stresses, however, that exclusive partnerships are sustainable only if they benefit both sides. While many insurers in China have learned that the bank platform offers them quick access to a large customer base, Chinese banks must realize — far more than they already have — that increasing their share of wallet and building customer loyalty depends on the growth of their total financial-services offering.

Holger Michaelis, a BCG partner based in Beijing, says, "Banks are earning attractive fee revenues on bancassurance already. But in fact they so far are only scratching the surface of the full bancassurance potential." Insurance will remain a fast-growing sector in China's economy for years to come, but bancassurance premiums will grow at a corresponding pace only if penetration is not held back by a fee-driven, sub-par product and service offering, the paper asserts.

Sharp execution of these partnerships — whose scope can vary from regional to national and from single- to multi-product — is critical, the paper says. In particular, partners will need to focus on initiatives that form the 10 building blocks of a successful bancassurance model:

• Develop products jointly
• Streamline the product offering
• Adopt a generalist sales model
• Create meaningful sales targets and incentives
• Bundle products for life events
• Train rigorously
• Upgrade IT systems
• Define organizational roles
• Bolster customer service and post-sale support
• Ensure capital and risk management

According to the paper, banks that develop exclusive and integrated partnerships with insurers will be able to better meet their customers’ current and future needs, increase cross-selling and fee revenues, and perhaps add a potentially attractive margin from the life insurance business itself. For insurers, building such relationships will allow them not only to maintain the premium growth seen so far, but also to showcase and solidify their brands while customer consciousness and loyalty is still underdeveloped, while the geographic reach of most bancassurers is still limited, and while most competitor product offerings are still rudimentary.

Companies that both make the right strategic choices and that excel in swift implementation of a more advanced and customer centric bancassurance model will find themselves wielding considerable power in China’s opportunity-rich financial services market.

 About The Boston Consulting Group

The Boston Consulting Group (BCG) is a global management consulting firm and the world’s leading advisor on business strategy. We partner with clients in all sectors and regions to identify their highest-value opportunities, address their most critical challenges, and transform their businesses. Our customized approach combines deep insight into the dynamics of companies and markets with close collaboration at all levels of the client organization. This ensures that our clients achieve sustainable competitive advantage, build more capable organizations, and secure lasting results. Founded in 1963, BCG is a private company with 68 offices in 39 countries. For more information, please visit ：www.bcg.com.

 About Swiss Reinsurance Company Ltd

Swiss Re is a leading and highly diversified global reinsurer.  The company operates through offices in more than 20 countries. Founded in Zurich, Switzerland, in 1863, Swiss Re offers financial services products that enable risk-taking essential to enterprise and progress. The company’s traditional reinsurance products and related services for property and casualty, as well as the life and health business are complemented by insurance-based corporate finance solutions and supplementary services for comprehensive risk management. Swiss Re is rated “A+” by Standard & Poor’s, “A1” by Moody’s and “A” by A.M. Best.

Swiss Re has been associated with Asia since 1913 and has been present in China since 1995, opening its branch in Beijing in 2003 to offer a full range of reinsurance products and services.  Swiss Re’s Asian headquarters are in Hong Kong, and has about 1,000 employees in the region. For more information, please visit www.swissre.com.

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