BCG - The Boston Consulting Group

• Preface   
• Executive Summary   
• A Brief Introduction to China's Insurance Market   
• The Next Wave of Growth
• Successful Pathways to a Winning Bancassurance Model   
• A Call to Action

China's bancassurance market is growing at breathtaking speed. At the same time, it appears to be locked in a paradox. Banks are already the dominant sales channel for life insurance in China, and are propelling the country's rapid growth in premium volume. However, the breadth and sophistication of currently available products—as well the overall quality of customer service—lag far behind bancassurance activities in many other countries. The result is a rapidly developing, yet unusually underdeveloped market.

Several factors have contributed to the present situation. First, banks obviously have considerable marketing power in the financial services arena. They also are permitted to sell multiple brands of insurance—although they are not yet 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. We call this structure “many-to-many.”

Why, then, don't insurers develop better-tailored products and service for the bank channel? First, there is little incentive for insurers to train banking staffs in product detail and advanced sales techniques when this expertise will be used, at least in part, to sell their competitors' products. In addition, insurers already pay generous commissions to banks for “shelf space,” hurting their own profitability and ability to invest in innovation.

There is, however, a growing recognition that the present market structure is not sustainable. Indeed, Chinese regulators are already working on bancassurance reform in order to promote better integration of banks and insurers. We believe that this initiative will push China's market in the direction of more mature bancassurance markets. More specifically, we are likely to see a period of heavy investment in product development, marketing, customer service, and platform synergy. The insurers and banks that are leading this push will be in a position 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 of capital and know-how can be protected and generate positive results. 

Banks and insurers alike will need to think through the different options available to them—taking their specific capital resources and distribution networks into account—and adopt a strategy that is aligned with their long-term aspirations. Betting on the right strategic option now and ensuring best-in-class execution can result in extraordinary benefits.

Chris Kaye is a partner and managing director in the Hong Kong office of The Boston Consulting Group.

Frankie Leung is a partner and managing director in the Hong Kong office of The Boston Consulting Group.

Dr. Holger Michaelis is a partner and managing director in the Beijing office of The Boston Consulting Group.

Chee Kok Poh is a Director and head of Life & Health China of Swiss Re.

Eric Schuh is a Director and head of Business Development China of Swiss Re.

Robert Wiest is a Member of Executive Team and Managing Director for China of Swiss Re.