After growing rapidly in Asia, Sun Life Financial is now looking to become more profitable in the region by selling more higher-margin protection products such as health and accident insurance.
The Canadian insurer expects its push will tip its China operations into the black by next year.
“So we’ve built scale and now we’re shifting to a more profitable mix whilst still trying to grow — which is hard,” Sun Life's Asia President Kevin Strain said in an interview with FinanceAsia.
Sun Life is targeting an operating net income in Asia of C$225 million by 2015, up from C$157 million in 2013. Its return on equity was just 6.9% in 2013.
There is certainly a market in Asia for protection products. The mortality protection gap — the extent to which families are insufficiently covered if the primary breadwinner dies — is $32 trillion in South and East Asia, far larger than the $7 trillion deficit in Latin America and the $13 trillion gap in Continental Europe, according to reinsurer Swiss Re.
A recent study by Swiss Re of 2,500 people across six Asian markets showed a high intention to buy medical insurance in the next 12 months.
Sun Life is looking to build on its expertise in its home market. “We have a big footprint in health and accident in Canada and we want a bigger footprint in Asia,” Strain said in his office overlooking Hong Kong's harbour, surrounded by mementos given to him by his sales agents around Asia.
The challenge is raising awareness about protection in Asia and changing many people's addiction to short-term investment products, particularly in China.
“We have to find ways to integrate protection products into the bank’s financial planning for clients — because the appetite for true risk products is still evolving in China,” said Strain, whilst demonstrating a plan he had helped develop while back in Canada.
Governments across the region are keen to ensure that their citizens have adequate insurance and have grown increasingly frustrated by people’s purchase of savings-type products with a veneer of insurance. They have stamped down particularly hard on this practice in China and India.
In Sun Life’s 2013 results, strong sales in the Philippines, Hong Kong and Indonesia were partially offset by lower sales in India and China.
New rules
In China, bancassurance rules introduced in 2003 triggered a boom in sales. Volumes grew swiftly to about 40% of all insurance premiums — but much of that volume comprised single-premium investment products. In January China’s banking and insurance regulators, the CBRC and CIRC, jointly issued a circular requiring insurers and banks to derive at least 20% of their bancassurance volume from long-term savings and protection products, effective April 1.
China's push to encourage more protection products is in line with Sun Life’s efforts to gradually move from volume of sales to profitability. Single-paid products is the biggest product line for Sun Life in China but is not very profitable.
“The regulator is being more supportive of risk-based sales and clearly that is positive for insurers,” said Strain.
Sun Life has a joint venture with state-backed China Everbright Group, which is called Sun Life Everbright Life Insurance Company. Founded in 2002, China Everbright Group has 44 million customers, close to 25 million credit card customers, including a significant number of affluent customers who are most likely to buy insurance. “We’re not exclusive with Everbright but we’re the home team,” said Strain.
“Traditionally the agent knew when you’d had a baby or another life event – this relationship-based management will shift to data analysis as there is so much more information is available about people,” said Strain.
