Lured by synergies and pressed by commoditization and low interest rates, Japanese banks and insurers are increasingly joining forces. But diverging goals remain an obstacle to effectively penetrating bank customer segments and product development efforts.
That was the chief finding from RGA’s 2019 survey of 24 major Japanese insurers. The survey also included 20 regional banks through a collaboration with Hoken No Madoguchi Group.
Over the past 17 years, Japanese banks and insurers have forged growing numbers of distributor-partnership agreements to market bancassurance – the sale of life insurance products in banks. Bancassurance has become the dominant distribution channel for life insurance in the nation, making Japan a testing ground for innovations with important implications for other global markets.
RGA’s third survey of the market also revealed that insurers and banks are formalizing strategic partnerships. In 2019, 33% of Japanese insurers reported planning for, or entering into, more formal strategic alliances and joint ventures – a 7% increase over two years ago.
Sales growth, not profits, are the drivers for these exclusive partnerships. Survey results show that 92% of insurers see bancassurance as a critical distribution channel for sales; while 71% of insurers reported that they did not believe profitability had grown in the last three years.
Is this a reflection of the fact that pure distribution partnerships are flooded with commoditized products and are not sustainable if they are trying to effectively increase revenues? Sharing access to large customer bases can be profitable both for banks and insurers. Within the bancassurance structure, life products are related to financial products: because banks hold their clients’ personal financial assets, they are well positioned to promote life policies with built-in cash value as an alternative form of investment, citing tax benefits.
Building customer loyalty also figures into the growth of these products. Banks ranked “appealing to customers” as the top reason to participate in bancassurance, citing the ability to improve the customer experience through more convenient one-stop shopping for financial services. Increased fee income is another motivator for the bank participants.
A Growing Opportunity
An exception to these results was Japan, where bancassurance products did not drive sales for general insurers---but the product worked well for specialist insurers. One-third of surveyed Japanese insurers reported that bancassurance generated 10%, or less, of their total life insurance sales. At the same time, another 17% of specialist insurers generated over 90% of sales from bancassurance.
Japan’s banks appear to be relying more heavily on insurance to generate growth and are actively establishing new distribution agreements to meet the needs of their customers: More than one-fourth of all bank respondents drew at least 10% to 20% of their fee and commission revenue from life insurance sales. Another 25% of banks stated insurance products sales for fees and commissions were greater than 40%.
Japan’s banks are also focused on expanding bancassurance product offerings. Half of bank respondents had launched two single-premium products and two regular-premium products within the past year; despite this expansion, approximately 40% of the banks surveyed reported gaps in current product portfolios. Surveyed banks suggested that adding the following insurance benefits could help drive sales:
- Long-term care (LTC)
- Education endowment products
- Unit-linked products
- Medical insurance (without cash value to support expensive treatment of unapproved medications)
- Dementia products
- Disability income products (with higher age limits than existing products)
Banks and Insurers Pursue Differing Approaches
Product development strategies of banks and insurers differ — driven largely by a range of opinions on customer targets and needs. RGA’s survey revealed that while banks are still looking for single-premium Japanese Yen-denominated (JPY) products, insurers are heavily focused on foreign currency products given ultra-low interest rates. However, adding new benefits, such as long-term care, helps insurers meet the needs of banks.
More significantly, bank and insurer respondents are targeting very different customers: Insurers’ top-ranked prospects are affluent or high-net-worth (HNW) individuals, while the regional banks surveyed prioritized individuals with young families (in their 20s to 40s). Conversely, only 17% of insurers reported plans to develop products for the young family segment in 2019, a 13% decrease in this demographic group from the RGA 2017 Japan Bancassurance Survey.
Unfortunately, the young family segment also presents unique challenges to banks and to sales of regular-premium products. RGA concludes that young family segments are difficult to target in banks due to constraints on their time during the workday and bank branch operation hours that are not always convenient. The Nikkin Report (a Japanese trade publication) reported stagnating sales of regular-premium products in their latest figures.
As a large proportion of Japan’s population continues to age, new opportunities for targeting older demographic sectors are emerging. An overwhelming 90% of bank respondents identified dementia and long-term care products as the most promising bancassurance sales drivers.
RGA’s survey shows that insurers do not share the same level of confidence in the benefits of targeting the senior segment with health-oriented product features: Only 50% of insurers viewed banks as a viable sales channel for future medical and cancer products. That represents an 11% decline since 2017. The opportunity was rated as medium in strength, as banks continue to struggle with sales of these products.
And while one-fourth of insurers reported selling regular-premium annuities through bank channels, only two reported that sales results were meeting expectations. The remaining four stated that sales were below expectations.
Digitization to Increase Sales?
The Japanese experience is not unique. Online banking and related technologies continue to reduce the number of consumer transactions in bank branches worldwide. Diminishing visits are prompting banks in many markets to close bank branches and increase digital engagement, with many shifting to end-to-end digital delivery to improve the customer experience. This increasing emphasis on digital strategies can complement bancassurance strategies, according to RGA’s recent study: Digitization and Strategy: Bancassurance Trends and Best Practices.
The global digitization trend has profound implications for the traditional bancassurance sales model in Japan, which has been heavily reliant on face-to-face interactions in the branch or tele-sales marketing. RGA’s survey found that 80% of Japanese bank participants expect simplified underwritten products to increase bancassurance sales due to fewer cases being declined. Banks also reported relying on information gathered during the course of business to identify customers who could benefit most from insurance products. Insurers’ top goals for bancassurance include a paperless process, followed by greater end-to-end sales process efficiencies—all to improve profitability.
And at a time when insurers’ most prioritized bancassurance innovation is sales digitization, Japan’s banks are answering the call: The majority (19 of 20 banks) indicated they are currently using, or plan to use, a paperless process to electronically submit applications. Nine banks already offer a paperless application process; the remaining 10 banks plan to implement the process within the next 12 to 24 months. Still, there is evidence that banks may have much more room to innovate: Only one respondent has incorporated automated underwriting into this process to speed decision-making.
Japan’s bancassurance industry has been evolving over several years and is increasingly becoming a dominant distribution channel for life insurance sales, particularly for senior segments. And yet bancassurance sales have been slowing amid a prolonged ultra-low interest rate environment and the rise of rigorous new sales procedures. Though many Japanese bancassurers offer full product portfolios, including protection products, such as medical and cancer, they haven’t been able to penetrate young family segments as well as expected.
The RGA 2019 Japan Bancassurance Survey Report reveals insurers and banks' approaches to insurance sales and the protection products offered to customers. Click here to read the full report. To learn more about RGA's insights into bancassurance and alternative distribution trends, contact us.