Asia's insurance to see radical shift

Asia's insurance to see radical shift

SINGAPORE (Reuters): Asia's economic crisis could spark
radical changes in the distribution and regulation of life
insurance sales, a senior executive said.

"There is going to have to be a professionalization of the
agency sales force in Asia," Chris Singleton, the Asia-Pacific
head of distribution and marketing at Swiss Re Life & Health,
told Reuters in an interview at the weekend.

Most life insurers in Asia sell their products through agents
working on a part-time, commission-only basis.

But industry studies have shown part-time agents to be the
least effective and least able to match increasingly complex
insurance to client needs or retain long-term customers.

"The costs of distribution this way are just too high and poor
productivity is rife," said Singleton whose company, a unit of
Zurich-based giant Swiss Re, is the biggest player in the global
life and health reinsurance market.

Most agents in Asia sell only a handful of the products
available from the companies they work for, regardless of the
needs of clients who might be sold simple term assurance life
policies when they really want investment-linked contracts.

Typically, once agents have sold policies to their immediate
family members and close friends, their sales slump dramatically.

Meanwhile, more foreign access to local markets stimulated by
International Monetary Fund-backed rescue packages to the region
will strike at the same time the economic crisis squeezes premium
volume, bringing cut-throat competition in its wake.

Foreign firms are queuing up to move into the region to win a
slice of Asia's US$70 billion life insurance market which is set
to grow at 10 percent a year in real terms, more than twice the
global average, until 2005.

Industry analysts say the combination could make conditions
ripe for sales scandals like those which have rocked the industry
in the United States and Britain.

Life insurers now face bills which run into billions of
dollars to compensate consumers duped into buying policies not
suited to their needs by agents desperate to earn commissions.

The scandals enraged the consumer lobby and spurred Britain to
introduce tough regulations setting training and professional
standards and forcing full disclosure of commission earnings on
new policies, raising insurers' business costs.

Singleton said life insurers in Asia must overhaul sales
practices to become more productive and preempt regulatory moves
that would push up costs and make it harder to do business.

Many insurers have seen their balance sheets ravaged by the
economic crisis that has wiped billions from equity and property
portfolios and seen about 80 percent wiped off the value of some
currencies since the crisis started in July 1997.

Regulators in Indonesia, Thailand and Malaysia have called for
companies to merge or find new equity partners in order to
survive a downturn that analysts reckon will see premium volumes
severely underperform previous forecasts over the next two years
at least.

"To impose the sorts of costs of (regulatory) compliance that
we have seen for example in Britain would be extremely
inappropriate given the level of capitalization of some of the
life companies in the region," Singleton said.

"Companies have got to put better practices into place before
the regulators move in and do it for them," he said.