CLOSING THE GAP
AIA on a mission to help Asians lead healthier lives by ensuring they have the right coverage. By Erich Parpart in Singapore
AIA stresses protection in Asia
Asia’s largest life and health insurer, Hong Kong-based AIA Group, is aiming to close the health protection gap in the region in line with its brand promise.
“Everything that we are doing at the company is designed to promote healthier, longer and better lives and in doing so, we are going to close the protection gap,” says chief marketing officer Stuart Spencer.
The insurance protection gap, or underinsurance, is the difference between the amount of insurance coverage in force versus what a given population needs.
It can be measured by calculating the cost of unforeseen events that would result in money being spent for protection.
The gap in Asia was estimated at US$1.8 trillion in 2018, according to a study by the Swiss Re Institute. It based its finding on a survey of more than 16,000 con- sumers in 12 Asian markets: China, Hong Kong, India, Indonesia, Japan, Malaysia, Philippines, Singapore, South Korea, Taiwan, Thailand and Vietnam.
For AIA, “everything we do is focused on protection”, Mr Spencer says. It begins with recruitment and training which emphasises how to sell and provide customers with the right protection.
Expansion of distribution channels is also important. In Thailand, AIA and Bangkok Bank last year signed a new 15-year bancassurance agreement under which the bank offers AIA life insurance products to customers via its 1,200 branches and other distribution points.
AIA Thailand is now aiming to rev up the growth of unit-linked insurance products, with a focus on self-employed individuals and others who need high protection with flexibility. As the first company to offer unit-linked products in Thailand 10 years ago, it has more than a 50% share of the segment.
The company now has more than 10,000 insurance agents with investment consultant licences, more than any of its peers, AIA Thailand chief executive Alger Fung said in August.
“First-year insurance premiums for unit-linked products grew by more than 40% consecutively between 2016 and 2018, according to the Office of the Insurance Commission. Unit-linked products have high potential in the market,” he added.
AIA had a market-leading 18% share of the country’s 619-billion-baht life insurance business as of the end of 2018. Viriyah Insurance led the 233-billion-baht non-life market with a 17% share, according to the Economic Outlook Report 2019 by Deloitte. Total life premiums grew by 4.7% last year and non-life premiums by 5.9%, it said.
“The deal with Bangkok Bank was meant to increase our reach within Thailand so we can touch more customers, not just through agencies, but in other ways to actually get protection into the hands of the people who need it the most,” Mr Spencer said at the AIA-sponsored International Champions Cup in Singapore in July.
One of the company’s most basic and best-selling life insurance products is AIA 20 Pay Life. The premium for a 35-year-old male is around 26,600 baht per year for 20 years for coverage that lasts to age 99.
“We are focusing on financial inclusion … and it is our responsibility as an insurer to continue to find ways to touch customers and close the protection gap,” added Mr Spencer.
The Swiss Re study notes that most
of the estimated insurance protection gap of $1.4 trillion (see chart) originates from emerging Asia, mainly China, India, Indonesia, Malaysia, the Philippines, Thailand and Vietnam.
This reflects large populations, low disposable incomes, high out-of-pocket medical expenses and low health insurance ownership levels in these markets. Out-of-pocket spending on healthcare in emerging Asia constituted almost 18% of net household income and is a frequent source of financial stress, it said.
The good news for Thailand is that its insurance protection gap is the lowest among the 12 markets surveyed at $6 billion. The country’s universal health coverage system means it has one of the lowest out-of-pocket medical expense totals in the region, the insurer said.
However, in the absence of corrective action, Swiss Re expects the insurance protection gap to widen across Asia, reflecting ageing populations and high growth of medical inflation relative to average incomes.
For AIA, helping fill the large insurance gap in China has proven to be profitable. The company posted a 20% rise in new business in the first half of the year, bolstered by sales from the mainland, the fastest-growing of the 18 Asian markets in which it operates.
New business rose to $2.27 billion in the first six months, from $1.95 billion in the same period last year, lifted by sales in mainland China and Hong Kong, according to a filing to the Hong Kong stock exchange. Net profit more than doubled to $3.86 billion while operating profit rose 11% to $4.5 billion.
As much as 40% of the insurer’s business comes from Hong Kong, while 15% comes from China, according to Bloomberg data. New business conducted in Hong Kong rose 19%, while sales of new policies jumped 34% in mainland China, the South China Morning Post reported.
With restrictions on foreign insurers set to be relaxed next year, AIA hopes to do even better in China. It opened new sales and service centres in Tianjin and Shijiazhuang in Hebei province in July after being allowed to do so by Chinese authorities earlier this year.
“Could China become our largest market? Absolutely,” Ng Keng Hooi, group chief executive and president, told reporters in Hong Kong in August. “I want to see it happen as soon as possible.”
AIA first entered China almost 100 years ago through wholly owned subsidiaries. It operates there today through units that were set up before China tightened its rules. Foreign firms offering insurance in China must do so through joint ventures in which foreign shareholding is caped at 50%. With the rules scheduled to be relaxed a year earlier than previously planned, Mr Spencer is optimistic about AIA in China.
“China is growing very rapidly and we have received permission to continue to expand in China, which we are delighted with,” he told Asia Focus.
“We were born in China in 1919 and we were very encouraged by Premier Li Keqiang’s declaration in Dalian where he indicated that the Chinese market will continue to liberalise and open up for foreign companies, including foreign insurance companies.”
He believes that AIA is “very well positioned” to take advantage of increasing liberalisation in China through more provincial expansion, further expansion of its agency force, the focus on using its strength in protection and the building of its brand in China.
“We are feeling very strong and good in China,” he said.
In Myanmar, meanwhile, the company is currently setting up shop after receiving finance ministry approval in April as a “preferred applicant” to operate through a wholly owned subsidiary.
“We have appointed our chief executive and he is building his team,” said Mr Spencer. “We are extremely excited that we are going to be able to help the people of Myanmar live healthier, longer and better lives.”
AIA will be joined in Myanmar by wholly owned units of four other big names: Prudential of the UK, Daiichi Life of Japan, US-based Chubb and Manulife of Canada. Eleven local insurers have had licences to operate in Myanmar since 2013, while 14 foreign insurers have set up 30 representative offices.
However, none of the foreign insurers have been allowed to do business so far except in the Thilawa special economic zone, where three Japanese companies were granted permission to offer nonlife coverage: Tokio Marine & Nichido Fire Insurance, Sampo Japan Insurance and Mitsui Sumitomo Insurance.
If AIA and its four multinational peers fulfill the pre-licensing requirements, they will be allowed to operate elsewhere besides Thilawa. That would be good news for the 14 foreign insurers expected to enter the market by the end of this year through either wholly owned subsidiaries or joint ventures with local firms.
With a population of 54 million, Myanmar has an insurance penetration rate, the ratio of premium income to gross domestic product, at just 0.24%, according to Swiss Re. That compares with 3.9% for Thailand. The life insurance penetration rate in Myanmar is just 0.05%, much lower than the 0.79% in Cambodia, where per capita GDP is similar, since it opened its insurance market to foreign competition in 2017.
“Could China become our largest market? Absolutely. I want to see it happen as soon as possible”
NG KENG HOOI
AIA Group chief executive and president