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Capturing current and future value in Asia–Pacific insurance

In this video, McKinsey senior partner Bernhard Kotanko discusses the most attractive value pools in Asia insurance today and, looking ahead, suggests how to capture that value.

While the value pool of new business in Asia life insurance today is massive, not all subsegments or geographies have equal promise. In this video, McKinsey senior partner Bernhard Kotanko suggests that insurers must take a more granular look at value pools and create a tailored, end-to-end business model to capture value.

Interview transcript

What are the most attractive value pools in Asia life insurance today?

Video

So, we recently did an analysis based on our proprietary data on value pools in Asia life insurance. And what we found is that the pool of value of new business is roughly [$100 billion]. When we look at growth, about 50 percent of global growth in value comes from Asia Pacific Life Insurance. However, when we then look one level into more detail, what we see is there [are] huge skews in that value creation, which can amount to five times to ten times by line of business or by subsegment in the market.

To give two examples, we see a big skew in China between protection—critical illness, for example—and savings. Similarly, in Japan between the medical sector and Yen-denominated life savings. And therefore, it is very important to really focus on those nimble choices and focus on granular value pools and not just [on] the big picture.

What does it take for insurers to capture those value pools?

Video

So as I said, a plain-vanilla strategy just going after a market is not enough. You need to be highly selective to say what you do and what you don't do. Second, to really then capture it, you need an end-to-end business model, an operating model, that is tailored to this.

For example, bancassurance in Japan requires a very specific model [for] how you work with banks, what products to offer, what kind of IT solutions to provide, what innovation circles to have. And therefore, it is important to make those choices and shape your business accordingly and rather think of it as several specialized businesses that go after these nimble choices of value pools.

Looking ahead, what are some of the possible future big pools?

Video

So, as of today, protection and health are the most distinctive high value pools. But, of course, looking into the future by anticipating trend lines, by looking at consumer patterns, and also pattern recognition from other markets, we try to anticipate what are some of the future opportunities that our clients can go after.

To call out a few, from a geographic perspective, India, which has been quite a challenging market in the past years, may actually see a substantial turnaround. What we already see is [the] value of new business margins [beginning] to stabilize and turn; growth is stable. The macroeconomic environment is good, and there is a broad consensus in the market that this is really now a moment where things could pick up.

Southeast Asia still has very high relative growth rates, but what we do see is, in absolute terms, it still takes a long time until we will see markets at high scale.

And then from a business perspective from consumer needs, it is interesting that retirement and the aging of the society is something everybody talks about, but retirement-product markets are relatively nascent and underdeveloped. And there is a substantial gap there.

The second one to call out is that what we see in many markets is a lack [of] professional financial planning and more sophisticated long-term savings and investment solutions. Where again, life insurers could play a major role as they do in other parts of the world. And that can be avenues for growth beyond what we see today.

About the author(s)

Bernhard Kotanko is a senior partner in McKinsey’s Hong Kong office.

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