McKinsey’s Where the life insurance industry can go from here highlighted many Asia–Pacific countries as engines for global growth. The region is forecast to account for nearly 50 percent of top-line gross written premium growth in the years to come.
But to speak of the region as a monolith is to obscure its actual opportunities. Indeed, life insurers that fail to differentiate their approach across and within markets would miss the real-value opportunity. And those that can pinpoint Asia–Pacific’s pockets of value can achieve market-to-book ratios that are double the average. Given these variances, knowing where to play—and developing the capabilities needed to excel—will be critical to success.
McKinsey has performed thorough analyses of countries across the region and within each market by product, customer, and channel. Asia–Pacific’s total embedded value is around $1.1 trillion, and its total value of new business (VNB) stands at $90 billion annually. The following exhibit illustrates the major opportunities from a product and geographic lens. As life insurers reflect on where to play in Asia–Pacific, they should keep five insights top of mind.
1. Look beyond macro market numbers to see the real differentials
The top-line numbers by market rarely don’t provide an accurate picture. Take Japan, for example: on the surface, the country’s life insurance market is stagnant, and most domestic players face valuations at or below their book value. However, a closer look reveals attractive opportunities: health and critical illness protection as well as foreign currency–denominated long-term savings products are growing and producing high VNB margins at scale. Looking ahead, retirement and longevity solutions could be the next growth space. Japan still represents Asia–Pacific’s second-largest market by embedded value, which generates continued growth from value in force accumulation. So a macro market view is not enough to see the real differentials.
2. Embrace constant transformation in China
China alone represents close to 50 percent of the market growth in Asia–Pacific and about 25 percent globally. It is home to some of the largest financial services institutions by assets and market value. Simply following the market in China is not enough, however. Success in China requires continued transformation, as highlighted by three emerging shifts:
- Growth has been fueled by tier-1 cities but is now picking up momentum in tier-2 and -3 urban areas, which are growing faster than their peers. Serving these cities requires broader geographic distribution and footprint across more provinces.
- For years, visitors from mainland China have flocked to Hong Kong to buy life and health insurance. This segment accounts for more than 35 percent of its annualized premium equivalent and has helped make Hong Kong one of the region’s most attractive life insurance markets. The recently announced development objectives for the Greater Bay Area will link Hong Kong and mainland China more closely, initially in motor and health, requiring coordinated business and operating models across the full territory.
- Protection and health have been the growth and value engines in recent years, accelerated by the regulatory push to curtail short-term savings-oriented life business. From here, China’s rapidly aging population will soon shift its focus to retirement and longevity solutions, which are currently underrepresented.
3. Decide if and how to make a long-term push on India and Indonesia
India and Indonesia are among the largest populations and economies in Asia–Pacific. Yet from the size of the opportunity, both markets have been underwhelming so far. Each country has generated around $10 billion in VNB a year, not appreciably more than the much smaller Malaysia. The big strategic question mark is if and when these markets will gain traction and how to then best capture those opportunities. Taking India as an example, low margins have been a major obstacle to value growth. Yet our analysis found promising early indicators for a turnaround: healthy macro environment, accelerated growth, and improved VNB margins. Carriers must weigh bold choices and commitments now that may pay off only over the long term.
4. Redesign the product portfolio to articulate a clear customer value
Across Asia–Pacific, protection and health products have demonstrated superior growth and VNB margins of more than 50 percent. However, the optimal mix of products can differ by country. The biggest market opportunities across Asia–Pacific are protection in China and Hong Kong and protection and health in Japan. On a smaller scale, product lines such as protection in South Korea and Takaful in Malaysia provide further evidence of the need for nimble portfolio choices. Customer surveys indicate the demand for living benefits, active engagement and experience. These demands give reason why pure mortality covers have not gained much momentum to date. We see life and health products converging and increasingly being embedded in a comprehensive customer experience around well-being. Several areas, such as serving the young affluent population or addressing aging and retirement, remain largely untapped. All these examples highlight the power of nimble customer proposition innovation.
5. Build on face-to-face, digitally empowered customer engagement
The channel mix for life insurance in the Asia–Pacific is still dominated by agencies (around 40 percent) and partnerships (around 35 percent). Face-to-face customer engagement will remain the dominant form of distribution. However, about 80 percent of all sales are enabled and supported by digital technologies and analytics (and this goes far beyond an iPad with some tools). Building professional face-to-face distribution power, embracing partners in specific ecosystems, and fully harnessing digital and analytics across the customer journey will be critical. Success in Asia–Pacific requires insurers to build, control, and constantly professionalize face-to-face distribution and digitally enabled customer engagement.
The size of the prize in Asia–Pacific life insurance and its faster pace of growth compared with other markets has placed the region at the top of the list for executives. Winning insurers will be the ones that make informed, nimble choices about where to play and tailor their product mix and engagement to dynamics and consumer preferences in each market.