Having received the World Finance Insurance Company of the Year – Hong Kong award for the second year running, HSBC Insurance has demonstrated its success in Asia. It is a measure of how fast the company has grown that, as of the first half of this year, the insurance arm contributed 17 percent to HSBC Group’s pre-tax earnings.
Senior executives believe it is time for HSBC Insurance to push out more aggressively from Asia, where most of its growth has been derived in recent years. According to David Fried, they are exploring more opportunities worldwide, crucially targeting other high growth, emerging markets in Latin America and the Middle East, and aims ultimately to establish HSBC Insurance as the world’s leading bancassurer.
Asia: Profitability and growth
HSBC Insurance has achieved remarkable growth in recent years. Behind this growth has been a strategic focus on Asia, where it has established itself as one of the leading insurers through a hugely successful bancassurance model and a series of canny acquisitions and strong strategic partnerships.
Underlining its success in Asia was a set of interim financial results which Mr Fried described as “robust”.
In Asia, HSBC Insurance grew its footprint from three to nine manufacturing sites during 2006 to 2009. The company reported that it remained the number one bancassurer in Hong Kong with a 26.7 percent market share in individual life new business, successfully defending its leading market position by rolling out new initiatives such as RMB insurance.
Meanwhile in mainland China, HSBC Life Insurance has grown rapidly within its first year of operation and ranked third in bancassurance business among 18 foreign or joint venture insurance companies in Shanghai in new business by annualised premium earnings (up to July 2010). HSBC Insurance’s 26 percent-owned Canara HSBC Oriental Bank of Commerce Life Insurance in India is one of the country’s fastest growing life insurers with access to over 60 million customers and over 5,500 branches.
Another highlight has been HSBC Insurance’s 50 percent-owned Hana HSBC Life Insurance in South Korea, which leapt from 21st to seventh in market share for initial premiums by leveraging local bank Hana Financial’s network of over 1,000 branches. And lastly, in Vietnam, HSBC Insurance increased its equity interest in insurer BaoViet from 10 to 18 percent, as it sets its sights on the country’s huge untapped market potential. “Our footprint around Asia Pacific has been growing rapidly and reinforces our strong standing”, says Fried.
World leader in bancassurance
HSBC Insurance believes its success in Asia Pacific can act as a springboard to become a leading global insurer.
“Asia is at the heart of our profitability and growth. It now accounts for more than 50 percent of our profits before tax. However, as wealth moves away from developed regions, such as Europe and North America into emerging markets, we want to be positioned to benefit from growth opportunities not just in Asia, but the Middle East and Latin America as well,” says Fried.
“Our bancassurance model in Hong Kong has proven enormously successful and it is our belief that we can export that success to other markets. In the coming years, our target is to turn HSBC Insurance into the world’s leading bancassurer.”
Buying policies from banks
Globally, many top new policy sales tables are led by banks. Banks can ride on their channels including bank branches, ATMs, internet banking and phone banking to promote travel insurance, whole life, annuity and single premium life insurance plans to their target customers.
Underpinning the insurer’s expansion are HSBC Group’s significant global distribution capabilities, brand equity and sizable and loyal global customer base of around 100 million people. “These are customers we already maintain long-term relationships with as a financial services partner. We know them, deal with them regularly and have earned their trust. This places us in a great position to serve them through a needs-based wealth management approach, identifying the right financial solutions to suit their individual life circumstances”.
Since the HSBC brand already carries a certain amount of security and assurance among its retail and commercial banking customers, Mr Fried says he plans to deepen this relationship by driving growth in HSBC Insurance’s life, pensions and investments business. In the intermediate term, the insurer aims to increase its penetration into the Group’s banking customer base to 20 percent.
At the same time, Mr Fried believes the insurer should not lose sight of “what we are good at”, referring to HSBC Insurance’s prudent underwriting policies and procedures, and cautious asset and liability management. HSBC Insurance is believed to be among the most advanced practitioners of risk-based capital assessments, particularly among peers in Asia.
The world is ageing
HSBC Insurance’s focus on life, pensions and investments dovetails with its view on the challenges presented by an aging population, which is increasingly viewed as a global problem, affecting not just the West but also emerging markets and newly industrialised economies. According to a UN report, the number of people aged 60 years or above in the world will exceed the number of younger people for the first time in history in 2050.
HSBC Insurance conducted a survey last year to gauge global preparedness for retirement, involving 15,000 respondents across 15 countries, making it the largest study of its kind in the world. The results showed only 13 percent of respondents felt fully prepared for their retirement and 86 percent did not know what income they would receive in retirement. Only 27 percent felt they fully understood their long-term finances, while 43 percent had undertaken some planning for later life, but still remained unclear about what their retirement income would look like.
According to Fried, financial institutions have an important role to play in continuing to educate and inform consumers about the need for retirement planning. HSBC, he says, is seeking a leadership role in this area. Through the findings of the survey, HSBC Insurance aims to develop a better understanding of HSBC Group’s 100 million customers worldwide and continue to produce innovative financial solutions to meet their individual needs.
Bancassurance is here to stay
As for the future of the insurance industry, Fried believes the bancassurance model has established itself globally as an important distribution channel for insurance products and is here to stay due to a number of advantages.
“HSBC provides the convenience of a one-stop integrated financial services platform. We have great presence through our physical branch networks, and it interacts with customers more often, which corresponds to a greater chance of successfully engaging customers. Banks also tend to have more efficient, better developed channels for service delivery and, in general, tend to be held in higher regard by consumers”, says Fried.
“The emergence of the bancassurer is obvious. The key values needed to run a successful insurance business are prudent investment and asset liability matching. There is also increased consumer confidence in the insurance industry.
In Asia Pacific, there’s no massive surrender of policies. In some countries though, some market players may have a very high risk appetite but the introduction of risk-based capital assessments will help them to better understand their risk exposure and thus improve the financial health of the industry.”
In addition, banks increasingly view bancassurance as a strategically important area of growth that can serve as not just an alternative but significant income stream in its own right, if it is managed prudently through risk-based capital assessments. This is evidenced by the increasing number of banks that have begun pursuing an active bancassurance strategy, actively selling insurance products to their customers on a standalone basis. For HSBC Insurance and the industry as whole, the future certainly looks exciting.
