What would be the driver behind the next bancassurance wave? It could very well be advisers and agents. Eugene Tan, who has over 20 years of experience in insurance and banking and has led distribution strategy for insurance companies on agency, FA channel and bancassurance, shares his insight in this article.
The term “channel conflict” has been around ever since insurance companies expanded their distribution beyond the traditional agency channel.
For years, insurers recruited and trained agents to sell their policies and for many, that was a sustainable growth model. And for many large insurers, agency remains a core distribution but perhaps, more importantly, their key source of new business profits and value.
But growth begets more growth and with every management change, top-line growth becomes a coveted trophy for many.
We’ve seen bancassurance emerging as a channel over 20 years ago in Asia and that created a tremendous amount of concern for the incumbent tied agency force. The FA channel which came later brought its own sets of conflicts.
From banks selling insurance products complimentary to banking products in the early days of bancassurance to banks appointing a panel of insurers to provide choice, to hallmark up-front fees which has become a key factor in selecting ‘the exclusive insurer’, the industry has seen its fair share of success stories and of course the not so successful ones.
It will certainly be interesting to see the profitability of the deals with billion-dollar payments. It remains largely a top-line play while the other channels help drive margins.
Enter advisers and agents
Over the years, I’ve seen banks trying to get insurers to distribute their products via the insurers’ agency force. But I have not seen anyone able to make it work sustainably.
If this can be done well, I believe this will be the future model of bancassurance.
As traditional banks begin to flex more muscle from their war chests and expand their digital banking services to match and thwart the Neo and digital banks, the end goal remains; acquire more customers and grow profitability.
Branch networks will continue to be reviewed, rationalised and optimised but growing footprint via real estate is an expensive affair. So is the fixed costs of hiring, training and retaining more salaried salespeople.
The solution is, therefore, to leverage on a truly tried and tested distribution that has proved to be resilient and continues to reinvent itself despite many predictions of the channel being a sunset one.
Prudential built its name from “The Man from Pru” and its agency channel continues to be its dominant channel to this day. As is AIA, who continues to invest heavily in its agency channel and digitalising many aspects of the business to give their agency an edge.
Lessons from the past
In the 80s and 90s, American Express and Citibank expanded aggressively in Asia and took the markets by storm.
Despite having literally only a few branches and service centres, they took on the incumbents with hundreds of branches and grew substantial market share and became market leaders in many markets.
While they were probably more innovative in their products, they introduced new distribution capabilities and won big!
From employing hundreds of telemarketers to engaging teams of mobile salespeople, they changed the landscape and forced the incumbent large local and foreign banks to adapt and rethink their strategy.
Of course, execution is key. Banks and insurers will have to agree on who owns the customer, who has the right to cross-sell and up-sell to these customers, compensation and a myriad of other commercial terms.
From recent conversations with industry folks, that day may not be too far away...
Mr Eugene Tan now helps insurance companies understand local markets and optimise their existing distribution, as well as help advisers and agents navigate the ‘corporate jungle’ to achieve sustainable growth for their business.
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