Insurers Standard Life and HIH have joined forces with a mainland China conglomerate, China Everbright, pushing life products to Hong Kong's young and educated market and selling investment funds in the process. Relying on HIH's referral power, Standard Life's financial planning expertise and China Everbright's connections in high places, senior company officials expect the joint venture to break even in four years time for its HK$200 million initial investment.
HIH's network of general insurance agents will be responsible for client prospecting, passing on selected clients to Standard Life's financial planners. The planners will then sell life products as well as investment funds depending on the clients' needs. Standard Life holds a 51% share in the joint venture; HIH 29%. China Everbright, with a 20% stake, will play a largely passive role in the partnership.
According to Robert Knight, Standard Life's chief executive officer in charge of the local insurance office, investment of the premium raised will be managed by the UK insurer's fund management arm, Standard Life Investment. The manager is currently setting up its Asian investment headquarters in Hong Kong in preparation for a public launch in January. An Asian investment portfolio of around $12 billion managed out of Edinburgh at present will also be moved to Hong Kong. Headed by Kevin Smith, the new investment office will be transferring a number of managers from the UK as well as recruiting locally.
Although Standard Life is the largest pensions provider in the UK, the company has no plan to enter Hong Kong's Mandatory Provident Fund (MPF) market. "We feel there is going to be huge consolidation in the MPF market. There are far too many players at the moment. Once the consolidation happens, I think that's the time when we will have a look at the market to see if there's anything that we can do. We also know that the current MPF products are quite difficult to make money," Knight says.
On insurance market potential, Knight believes the perception that Hong Kong has become saturated for insurers "is a myth".
"Hong Kong has one of the lowest insurance penetration rates of the whole of Asia, at just over 50%. In countries like Korea and Taiwan the penetration rates are as high as 80% or 90%. I believe Hong Kong has huge potential," he says.
Poor quality products, high charges, low return and substandard selling practices, according to Knight, are the reasons for the penetration rates being low, particularly with the younger generation.
Standard Life hopes by separating client prospecting from product selling, it will break new ground in the Asian distribution model. "We want to create relationships with our customers that have probably never existed in Hong Kong. At the moment the relationship between customers and insurance companies is really non-existent," Knight says, adding that the company will be able to provide customer service at the person-to-person level.
Standard Life currently has 8 financial planning consultants and it hopes the number will grow to 30 by the end of next year. Knight declines to comment on how many clients the planners can service each year, saying only that they are not necessarily sales-driven people. Knight expects all planners will be graduates under the age of 35. Standard Life will provide the recruits with in-house financial planning training.
"We are not going to be targeting a specific market percentage, a specific kind of product or policy. We are going to let our business grow organically. And we are never going to get away from the fact that we want to be the best," he says.
HIH agents, on the other hand, will receive a one-off introductory fee for referrals each time Standard Life planners make a sale. Knight says this could increase the agents' earnings by as much as 60% of the commissions they make from selling general insurance policies.
Eyes on China
Scott Bell, group managing director of Standard Life, says the company is hoping to be granted a license to operate in the Chinese market next year. The company currently has offices in Beijing and Shanghai with a total staff of eight. "We can't determine what business model we'll use in that market yet," Bell says. "What we'll do is, first, to get a license, and then identify a suitable partner for every party that we are allowed to operate in."
Standard Life also hopes its relationship with China Everbright, a dominant securities service provider in China, will help it open doors in the Chinese financial services market. Knight explains China Everbright's contribution to the joint venture is mainly capital and connections. In return, he says, it can learn from the partnership about the insurance business, which the mainland company has no expertise. China Everbright dabbled in insurance before through its involvement with AXA. But its investment was subsequently withdrawn. With around $130 billion under management, Standard Life is the largest mutual life insurance company in Europe. The Australian general insurer, HIH, has been operating in Hong Kong since 1949.