ING has a masterplan in Korea and it involves the potentially enormous growth in the bancassurance industry.
ING has agreed that it will up its stake in Korea's premier bank, Kookmin to make sure that this strategy plays out. It will inject up to $250 million next August when bancassurance becomes possible - provided the new regulations (as yet unclear) allow Kookmin to exclusively sell ING's insurance products.
Should this come to pass, it could either buy the stake from Goldman Sachs (which owns 5.3%), the government (9.6%) or from the market. It will take ING's stake in Kookmin to 6%.
ING is keen to sell through Kookmin's 1300 branches; and has already drawn up a business plan that will involve training the requisite people in the branches to sell its products. The entity it will sell through is ING Life Korea, which is 80% owned by ING and 20% by Kookmin.
Nor is it alone in getting excited about the Korean insurance market. Last year, W359 trillion of new life insurance policies were sold in Korea, up 18.7% (by value) from 2000. The growth looks set to continue.
Bancassurance may end up being a roaring success as a result. Hence Allianz is trying to hook up with Hana, Cardif with Shinhan, and Samsung Life with regional bank, Daegu. Likewise Samsung Property & Casualty is in discussions with Woori.
The only fly in the ointment will be how Korea's new government dictates this particular aspect of policy. The debate will be between the benefits of open architecture systems (where you offer multiple offerings in a best-of-breed approach) versus exclusivity. In terms of consumer protection, the debate is also split.
Open architecture ostensibly looks better for the consumer, but experience shows that the people at the banks selling "all" products tend to know a lot less about any of them than those trained by the insurance company to sell its products in an exclusive relationship. Poorly trained bank staff leads to customers being given the wrong advice and buying inappropriate products (often the easiest one to sell).
Worse, there always tends to be one provider that pays a better commission per sale and thus even in an open architecture system, the client may not be directed towards the best product for them as opposed to the bank. Exclusivity brings more professional and informed sales, but it is fairly obvious that it limits choice.
By signaling its intent to up its stake, ING will clearly be trying to influence the future debate. It will hope the government permits exclusive arrangements, such as the one it wishes to have with Kookmin.
Likewise, Kookmin will hope that its stake in ING Life Korea will bring risk-free fee income that will further boost its bottom line.