A large part of Aviva’s business in Asia is generated in Singapore and Hong Kong and through a partnership with DBS Bank, which has operations in both markets. Titien Ahmad speaks to Charles Anderson, managing director of Aviva Asia.

Charles Anderson, managing director of Aviva Asia, believes that he understands what makes banks tick and that growth potential in the Asian bancassurance arena is substantial.

In an interview with LII Anderson recounted the scepticism with which his ambitious plans for bancassurance in the region were met when he arrived there five years ago. “I was interviewed by the local newspapers when I first came here and I said that we want to pursue the bancassurance model; this was met with incredulity by the interviewer since 90 percent of business was through agents and brokers did not exist.”

Bancassurance has since grown as a distribution channel in the five-year period and the number of agents has in fact reduced. Anderson arrived in Asia five years ago from Aviva’s UK operations to head the India operations and has since gone on to oversee the insurer’s regional expansion.

“We just believed that there was untapped potential and that we can create value for both parties. We have relationships with more than 30 significant banks and have not lost one globally at all,” he continued.

Interests must be aligned

Anderson believes that being a good partner involves working in a way that is helpful to the banks. A deep level of understanding means working with “every level within the bank”.

According to Anderson: “We are not inflexible and need to understand the strategies of the bank. When partnerships fail, it is because you do not have an alignment of interests. For example, an insurance company that only rewards the company with sales volume will soon have concerns about the profitability of the product. On the other hand, you get an insurance company that says they can’t provide to any of the bank channels because of channel conflict as they’re selling the same products to the banks and the agency. There are a lot of reasons why partnerships fail and our approach is to anticipate them right into the discussions – we talk about all these things and ask the difficult questions before getting involved.”

The basic premise is to “go back to the customer requirement. If a bank does not have an arrangement where it sells insurance to its customers, customers will still buy insurance from someone else – there is a latent demand. Aviva, and I personally, regard banks as very capable and able partners and we can try a number of attractive ways to get into an arrangement with them.”

However, Anderson lays the caveat “that there is only so much profit in an insurance product of any sort. There is a natural limit to which you can meet distribution costs and commissions before you weaken the proposition for the customer. If any distribution channel becomes too expensive either customers get a worse deal or the proposition does not become viable. In some markets in Asia, particularly China, the balance of the profitability goes very much in favour of the distributor.”

China still in Aviva’s sites

Although it currently has operations only in Singapore, Hong Kong and India, Aviva has ambitious plans to expand in the region and aims to have ten licences to operate in various Asian markets by 2010. Its peers such as Prudential and Axa have gone ahead with arrangements in booming markets such as China and Aviva has been criticised by observers for being late into the game.

However, Anderson believes that Aviva will still succeed in the twin growth markets of China and India. “We need to have a strong position in both markets,” he said. “Current regulation limits us to 26 percent of the life business in India but in China we can own 50 percent of the business. But things can change and both will grow. There have been a considerable number of initial public offerings in the last year and this has brought a lot more focus on profitability measures, governance and external reporting.”

An ambitious expansion into the region from a small base will be challenging. Anderson recognises this. “In China the challenges are really around managing and implementing in a rapid growth and competitive environment,” he said.

“Some of the local banks have already pulled out of the insurance profit because there are minimal profits in single-premium products. In Hong Kong, it is going to be about providing a really unbeatable competitive service offering for the independent financial adviser market alongside the bancassurance business and making sure we have new and exciting products. Singapore is a mature market, so growth of net new premiums is quite modest. Because of this, we have to find some ways to break through with distinctive product offerings in the mass market.”

Although Anderson does not want to go into specifics on his regional expansion plan, he highlights that Aviva has analysed a number of markets in South-East and North-East Asia for market entries.

Closer scrutiny welcomed

The insurance industry has also been under close regulatory scrutiny, especially in Singapore and Hong Kong as the rapid take-up of insurance in these markets also means that customers are sometimes unaware of the policies that they have bought into.

A recent mystery shopper survey conducted by the Monetary Authority of Singapore found that local financial advisers have not been totally transparent in their recommendations. The survey, conducted from October 2005 to February 2006, involved 40 mystery shoppers who consulted a total of 100 advisers from the banking, insurance and capital markets sectors for recommendations on investment or insurance.

According to the central bank, “financial institutions generally had better processes for investments as compared to insurance sales. For advice on insurance products, only 31 out of 50 representatives checked the mystery shopper’s ability to meet regular payments before recommending an insurance policy.”

Anderson thinks the increased scrutiny is good news. “While it is not good for the newspapers to see scandals every week, good market conduct and appropriate governance is essential to build confidence in the business. Trust is a difficult thing to come by and easy to lose. If the industry gets that wrong in a systemic way, it will be detrimental to our growth.”

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