Fund manager Invesco has observed a rise in insurance firms and banks seeking to restructure new products into unit-linked investments to tap retail demand in Hong Kong and Taiwan.
Invesco offers a range of retail funds, some of which intermediaries use as building blocks to structure into mutual funds with an insurance component.
And Desmond Ng, chief operating officer and head of sales and marketing for Asia ex-Japan at Invesco, says: “We have been speaking to increasing numbers of insurance companies which are looking either to add new product to their funds, or add new fund managers’ product on their shelves.
“Unit-linked insurance is a segment where we see potential growth, and Hong Kong and Taiwan are pretty large retail markets in the region.”
In the immediate aftermath of the collapse of Lehman Brothers, unit-linked sales dropped off by 90%, estimates Robert Burr, Asia chief marketing officer for Sunlife Financial. The slump prompted a shift towards participating insurance, or conservatively managed mutual funds with a guaranteed cash value.
Ng confirms that while Invesco saw fund flows drop quite dramatically in late 2008 and early 2009, “for unit-linked products it has been quite stable for us throughout the crisis. These tend to be linked to an insurance policy and therefore be longer term.”
Speak to any insurer today and they’ll tell you that unit-linked business is bounding back. “We are starting to see a return into these products, and consumer sentiment is generally much more positive towards them,” says Alan Armitage, international take-to-market director for Standard Life.
Ng notes that banks are also becoming more active in selling insurance. “In our discussions with some of our key [bank] distributors, we understand that [insurance-linked investments] is something they are increasingly looking at,” he says.
A growing number of banks view bancassurance as a stable way to diversify their revenue stream. Unit-linked products that come tied to an insurance benefit, such as health or death cover, come with higher fees than plain retail products, giving a much-needed boost to bottom lines.
Figures from insurer Prudential, which sells unit-linked as a core product, show that the proportion of new business represented by banks stood at 28% in the first half of this year – itself a 42% rise over the same period last year. A still dominant 63% is carried out by agency.
David Fried, head of HSBC Insurance for Asia-Pacific, says insurance represented 17% of HSBC Group pre-tax earnings in the first half of 2010. The bank manufactures insurance products in 22 countries worldwide and uses “preferred strategic partners” to distribute products in 30 others.
HSBC manufactures in nine Asian countries, from two in 2006, and is now looking to expand its insurance capabilities into new markets including Indonesia, the Middle East and Latin America.
Asked if HSBC Insurance was becoming increasingly competitive with insurers, Fried replies: “I don’t wake up in the morning and wonder what is happening with insurance companies in certain markets. I wake up more concerned about how we align ourselves closer to the bank. Technically we are competitors. But our biggest challenge is deepening our penetration with customers we already have a relationship with.”
Ng of Invesco suggests it is a win-win-win for banks, insurers and asset managers. “It gives insurance companies new distribution channels rather than relying on their own agents and brokerage forces,” he says. “They can leverage the banks around town to help them sell products.”