Insurers ‘hold key’ to China wealth creation

Providing life and health cover will change Chinese consumer mindsets, making them comfortable with less liquid investing, hears the Asian Financial Forum.
Insurers ‘hold key’ to China wealth creation

Insurance agents hold the key to changing consumer mindsets and building a vibrant savings and wealth management market in China, a forum was told.

Barry Stowe, chief executive of Prudential Corporation Asia, used the Asian Financial Forum in Hong Kong yesterday as a platform to outline the “often overlooked” role the life insurance industry plays in wealth creation.

A World Economic Forum committee member on investment and emerging markets, Stowe had already informed the audience how Asian markets such as Vietnam and the Philippines were stacked with millions of un-banked savers.

“Their first idea of saving is to put money in a jar, that is how millions of Asians still save,” he noted. “It is the life insurance agent who approaches the customer to sell them their first financial product.

“That is the importance of the industry in creating what ultimately becomes a more robust wealth management opportunity.”

He spoke enthusiastically about the growth potential of Hong Kong as a market for life insurance products, pointing to the influx of mainland Chinese consumers.

“The market in Hong Kong is growing faster than we can penetrate because of the influx of mainland customers,” he said. “The prospects for the industry are strong and by global standards there is still a penetration gap, certainly with respect to protection products, but also savings products.”

Asked by the audience how China could build a wealth management industry, Kathryn Shih, head of wealth management for Asia Pacific at UBS, pointed to the launch of mutual recognition between Hong Kong and mainland China.

“Asset management products are still limited in China,” she said. “When we start having mutual recognition for funds, that will certainly help the wealth management industry in China.”

She pointed to Chinese consumer concerns about being denominated in yuan and needing a currency hedge for international product. She also pointed to the segregation of banking and securities in China as a hurdle. “You need different licences to provide holistic wealth management in China,” she explained.

Shih noted how some jurisdictions with a similar segregation such as Japan had created intermediary licences to enable banks to represent advisers from securities firms, creating a more holistic wealth management market.

But she reasoned it was really the development of China’s capital markets that would underpin development of the nation’s wealth management industry.

Moderator Benjamin Hung, CEO for Greater China at Standard Chartered Bank, asked what type of products manufacturers and distributors would need to cater to this need.

In response, Stowe highlighted how foreign companies had come to dominate Asian markets such as Hong Kong, Singapore, Malaysia and Indonesia, yet collectively represented only 4% in mainland China due to restricted access.

“All of us involved in asset management look with enormous frustration at how Chinese people hold these gigantic savings in cash, which in a low interest-rate environment is not smart. But that is what they do,” said Stowe.

He observed that what many Chinese consumers seemed to want was a pure savings product with fairly limited protection elements.

But he said: “That is not building a strong and robust life insurance industry in China. What they need is protection generally, and health oriented products in particular.”

He acknowledged that Chinese consumers were saving with a purpose, aware they might need to pay for medical provision in the case of an emergency.

“One thing that has to change the mindset of the Chinese consumer is to get them protected,” suggested Stowe. This typically happened via government provision of health-care infrastructure combined with private health insurance products.

“People then feel protected, so they are comfortable in being less liquid in how they invest,” said Stowe. “It is another important dimension of the life insurance industry and how it impacts broader investments in savings in Asia that we tend to overlook.”

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