AIA has big plans for growth

Sovereign buy opens up network

Insurance giant AIA says it plans to invest and grow the New Zealand life insurance market by bringing in more innovation and a focus on getting people to increase their interaction with the insurer.

The world’s second largest life insurer last week announced plans to acquire New Zealand life insurer Sovereign and CommInsure Life in Australia for A$3.8 billion from the Commonwealth Bank of Australia.

AIA already has a presence in New Zealand with around 140 staff based in Auckland, Wellington and Christchurch.

But it mainly sells its insurance through financial advisers and the corporate market.

The deal to buy Sovereign will open up a much bigger distribution network through ASB bank which has agreed to a 20 year ongoing relationship.

Damien Mu, AIA’s Australia and New Zealand chief executive, said: “This is about a growth story, we are looking to grow.”

Sovereign is already the biggest life insurance player in the New Zealand market but it has suffered growing pains in recent years.

A report by economic think-tank NZIER commissioned by Sovereign last year revealed revenue for the industry was only growing because policy- holders were ageing and premiums had risen with inflation.

“The number of policies seems to have been static since about the beginning of 2013. The average premium for both new and lapsed policies seems to be lower than the average premium for existing policies,” according to economist Mike Henson who undertook the research.

Henson said this suggested new customers and those who had dropped their insurance were more price sensitive than a shrinking core group of existing policyholders.

The research also found those typically targeted by insurance — families with a mortgage — was shrinking while the number of people renting was rising.

While more people were insuring their house, contents, health and car, take-up of life insurance is low and New Zealand has the third lowest penetration rate in the OECD after Greece and Mexico.

Mu said while Sovereign was a strong market leader there was still an underinsurance gap in New Zealand. It hoped that bringing the two businesses together would add up to more than the sum of two parts.

“When we bring the two together we want one plus one to equal three,” he said.

That would include bringing the best of what it did through AIA into the Sovereign business — like its technology and health and wealth programme.

Through that programme in Australia Mu said it had managed to increase the touchpoints of consumers from a once-a-year policy renewal to 20 times a month, through focusing on health and wellbeing. “When it comes to insuring our income or lives we have got to make life insurance more engaging,” he said.

It planned to co-design and collaborate with ASB on introducing new products and services.

The deal is timed to be completed next year provided it gets approval from the Reserve Bank and the Commerce Commission.

Mu said exactly when it would go through was down to it gaining regulatory approvals.