Distribution, not products, key for insurers

IFAs to respond to growing demand for professional advice, says Axa CEO.
The competitive advantage for life insurers is to be found in distribution arrangements rather than traditional product innovation, according to Mark Wilson, chief executive at Axa China Region in Hong Kong.

Speaking at the annual LOMA/LIMRA "Strategic Issues" Conference in Hong Kong, Wilson says new products no longer provided the differentiation or advantage that they once did.

"There are two ways to grow market share in Hong Kong," he says, "organically or through acquisition. Different products are simply not a long-term strategy because I havenÆt seen one good product that canÆt be copied in a very short-space of time. The key competitive advantage is distribution. That alone decides how insurers get a share of the customerÆs pocket."

Axa has seen insurance premiums almost double in recent years, although its share of Hong KongÆs rapidly growing insurance market has fallen due to the emergence of bancassurance and the growth of both HSBC Life and Hang Seng LifeÆs business.

Axa now employs a "multi-distribution" strategy, which sees it adding new distribution channels to its traditional force of tied agents.

Other insurers are beginning to follow suit. Manulife, described by its current general manager, Michael Huddart, as the "ultimate agency force insurer until two years ago", has also begun utilising new distribution channels.

However Huddart says product differentiation remains a key aspect of ManulifeÆs strategy, with the insurer launching up to two new products a quarter.

"For us, product innovation is essential," he said. "WeÆve made big efforts with the MPF and out wealth management business, and itÆs paying off."

However new products mean those selling them must be increasingly trained, and Wilson says avoid channel conflict is crucial. Axa currently distributes specialist products in addition to its core range through certain channels.

In terms of distribution, insurance executives say independent financial advisers could soon start becoming a real force in the distribution of life insurance.

While IFAs are yet to make a real impact in terms of proportion of new business, volumes of business coming through the IFA channel have been growing in recent months due to the rapid growth of the industry as a whole.

Candy Yuen, chief executive of Metropolitan Life Insurance, says growing consumer pressure for independent advice could "trigger a paradigm shift towards the IFA sector".

"Consumers are demanding ever-increasing professionalism, and along with the rapid improvements in technology, the evolution of distribution could be both unexpected and surprising," she says.

Alternative distribution channels, such as IFAs and direct selling, currently make up only about 10% of new sales, with bancassurance growing from a standing start a few years ago to now contribute 40% of new sales. Tied-agents still dominate, contributing more than 50% of new business.

ManulifeÆs Huddart agrees that a move from "product selling" to a "needs-based" approach could see IFAs benefit. Growth, however, could be checked by the absence of tax advantages in Hong Kong, which were key to the growth of the IFA channel in both Britain and Australia.

"The way I see it, agency is still the future," he says. "Brokers and IFAs do have advantages though û not least their independence and the fact they can sell products from multiple distributors."

Hong Kong has one of the highest savings and deposits rates in the world, with an estimated HK$3.3 trillion currently sitting in bank deposits, equivalent to more than $60,000 per capita.

Despite this, he says, only 9.5% of the total adult population in Hong Kong have investments in retail funds or unit-linked products. In the USA, that figure is closer to 80%.

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