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Wednesday, 27 September 2017 00:00 - - {{hitsCtrl.values.hits}}
Newly-appointed AIA Group CEO Ng KengHooi talks to Daily FT about challenges and opportunities in the region and future plans for Sri Lanka along with AIA Sri Lanka CEO Pankaj Banerjee and Regional Chief Executive Bill Lisle.
Below are excerpts of the interview:
By Uditha Jayasinghe
Q: What is the aim of your visit to Sri Lanka?
NH: As the new Group CEO I am visiting all the countries where we have a presence. We are in 18 markets and I am going to each country we have business in. As soon as it was possible I wanted to see our people here.
Q: What is AIA’s next growth chapter?
NH: If you look at Asia, obviously there is still a huge opportunity for growth. We are seeing big growth in terms of numbers of middle class people and we find that when a family earns an annual income of $10,000 and above, they become a potential customer for life insurance. That is the level when we see them expressing an interest in making sure they are well protected, and safe for the longer term. So this means there is still huge growth potential for our company.
We believe in the growth potential of Asia. In each of the countries we are operating in we go deeper into the business and it is the same thing in Sri Lanka. Our team is good and we see ourselves growing more of our business here.
Q: Could you give details as to how you plan to expand your services in Sri Lanka?
NH: We want to insure more people in Sri Lanka. Penetration level is still very low in Sri Lanka, much like other markets in Asia. If you look at premium against GDP, it’s less than 1%. So we want to help to increase that number. Penetration rates are low because people need to be persuaded that they need to be protected.
Life insurance is a product that is needed but not necessarily wanted because when people have to pay for it they don’t necessarily want to put aside money for that. This is why we need to persuade them of the importance of life insurance. We need to have better distribution.
Over here we distribute through banks and our agency. So if we have good agents who go around and persuade people then we will get more clients. For this we need to attract good people to our business, and ensuring they are productive. If they are productive then they earn good income and can continue in this sector for a long time. We support them by making sure they are well trained and equip them with technology. A large number of our agents use iPads for their presentations, almost 60% of our business comes through digital interaction, through apps.
Bank distribution is also important, where we work together to promote the right product for the bank’s customer. We have had enthusiastic response from our banking partner about growing the business with them. We are very pleased with that relationship.
Q: Digitalisation is the next big wave and internationally the insurance sector is being challenged. What is AIA’s digital strategy?
NH:To us the strategy on digital is to break it into three horizons. Digital can mean different things to different people.
In the first horizon we see ourselves investing to automate and digitise all our processors in what we call the back office. This is about submission, underwriting, claims, policy servicing and other aspects of the business that the customer needs. We have invested a lot in this and building the capability everywhere in the group. In certain places we have advanced into using Artificial Intelligence (AI). In Australia we use AI to do claims processing for us. Over time this will be the capability that will respond to the customer when they call in, to make inquiries and all that. We have auto-underwriting, where we have gone to the stage where a case can be submitted via an iPad, it goes into a system that we call Mobile Magnum and it behaves like a normal underwriter. It will look through all the information and make an underwriting decision and give it back to you instantly.
The second horizon is where we help our agents to interact better with our customers. Our agents, in some countries, are almost entirely on the iPad. They go to a customer, do a presentation, key in information and it shoots straight up to our central computer to get processed. That is the sales process that our agents use.
AIA Vitality, which we have also launched in Sri Lanka, is a new way our agents will interact with customers. In the old days agents only met customers sporadically, sometimes only when they sold the policy and to collect premiums, but now through AIA Vitality we promote wellness. We tell our customer to live healthy, they can track their exercise, sleep and food intake.
AIA Vitality allows our agents to interact with the customer daily, if they want to, and encourage their customers to live well. Such engagement allows us to transform everything, it’s not just about the product, and it’s not just about technology. The technology supports the product and the product builds a cultural of transformation in the whole AIA group. If the customer is healthy they are rewarded with lower premiums in the future, and other benefits.
Q: Would this change your business model?
NH: I think it will future-proof the company. There are a lot of debates in the life insurance industry about agents and how they will move into the future. To us this is future-proofing our agents for us, because the role that they play has evolved.They have become ambassadors of wellness.
We believe over time our customers would like to deal with AIA as the agents help them to live better. This also becomes the social contribution of AIA in all the countries we are operating in as it helps them live healthier. Staying healthy is needed but not a lot of people want to do it, same as insurance, so they need to be persuaded. Therefore, our strategy is to persuade them, so over time our agents will partner in changing their lifestyles and will always be wanted by their customers.
Q: Insurance buyers sometimes default payments or lose confidence in their insurer because at times they find their conditions are not covered. How do you think can be addressed?
NH: As a group we believe all claims, which are genuine, should be paid. Our business is in protecting people. At the point of purchase customers should be aware of what they are buying but we make sure our sales force is well trained to explain everything carefully.
Q: Sri Lanka has a rapidly aging population and has greater insurance and retirement benefit needs. How can the industry and AIA in particularly bridge this gap?
NH:This is an area where we would like to come up with products able to accumulate for retirement. People are living longer, even after retirement, so they continue to need funds.
PB: If you look at the longevity of Sri Lanka, it is almost 76 years now. So we are looking at almost 20-25 years post-retirement funding, which is equivalent to the number of years of working. We do see this as an area where people will need more protection. Inflation will continue to have an impact and just as we have talked about future-proofing the business, people need to future-proof their retirement, by taking those decisions today. We do have products to help people do that, we are helping towards creating better solutions in that domain.
Q: It has been said that the insurance sector in Sri Lanka has a lopsided playing field. What is your view?
PB: Our GDP to premium is less than 1%, if we look at our peers they are at the range of 2.5% to 3% so I think there is ample opportunity for growth. Competition, where it is State owned or private, as long as it is helping to develop the industry as a whole I think is welcome. It keeps everyone on their toes. Over the years as more and more companies have come we have seen those organisations, including AIA, have been able to grab a fair share of the market. The good news is that the market is expanding so everyone wins here when we reach out to more and more customers.
Q: How fast is the industry growing?
PB:This year in the first half the gross premiums have grown at around 12% for the industry. That is pretty decent growth in terms of the overall industry.
Q: The new Inland Revenue Bill has raised concerns of increased taxes for the insurance industry. How do you view this development?
PB: Fundamentally what we believe is that insurance should be treated as any other business and therefore we should be paying taxes as any other business does on their profits. Our belief is that this view is being endorsed in general by the Government and I see support from the Government, overall, not just for the insurance industry to make the tax such that it helps, while generating revenue for the government it is also conducive to business development. I really don’t see any reason why the government will take a different view on that.
NH:When it comes to taxes there is clearly a case for insurance to be given more support by the Government. Why do I say that? If you look at most Asian countries there is no significant social security net, unlike in some developed countries. In these Asian countries without a social security net you want the private sector to play a role in providing social security for the population. To do that the Government should encourage people to put money into protection and long term saving.
So one way many countries in Asia do that is to allow premiums paid to insurance to be tax deductible from personal income. If that is done then people who can afford it and can protect themselves will reduce the burden on government services. That is why there is a strong justification to do this and many countries including Singapore and Malaysia allow it.
Q: Do you feel any changes need to be made to the regulatory framework to encourage the insurance industry? If so what specific changes would you suggest?
PB: If you look at the entire regulatory framework here there have been many progressive initiatives that have been taken. For a country at this stage of development the capital regime and solvency regime that has been deployed here called Risk-Based Capital (RBC) is fairly forward thinking by the regulator. We really welcome that as it strengthens the balance sheet of the companies that are operating here.
In general we have seen the regulator being extremely supportive of step changing and transforming the industry.Whether it is about new distribution channels or introduction of new products we have continued to receive significant support, both as a company and as an industry. We continue to believe that as an industry it is our responsibility to work closely with the regulator in further developing life and non-life sectors.
Q: Do you think this could facilitate greater investment, foreign or otherwise, in the industry?
PB: If that is the criteria that any foreign company would look for then it would be positive. The regulator is definitely progressive, helpful, collaborative, and open to new ideas. I would mention that as an industry our job would be to continue to be collaborative with the regulator in developing the industry.
BL: The relationship we have with our regulator here is replicated across the other markets we operate in and we work extremely closely to the point where we connect regulators. One thing I have been impressed with regarding IBSL was they are very open, they are prepared to listen, dialog, collaborate, not just with the industry but with other regulators across Asia to absorb best practices and create an environment where the industry can grow and, from a socioeconomic perspective that is a good thing for the country.
Q: As a company with special focus on the Asia-pacific do you see any emerging trends?
NH:The explosion of wealth in Asia. I’m sure Sri Lanka will become part of this explosion of wealth. Earlier on I talked about people stepping into $10,000 or above, we see that all across Asia. The young people see that trend because it will create growth opportunities for people. This is an amazing place, all the people I see in Sri Lanka are very positive in their thinking and willing to work hard. All these are ingredients for people to do well going forward. This trend of wealth creation will continue.
BL: One thing in terms of insurance we are seeing is that the family network is definitely changing. Earlier the assumption was children would look after their parents but now sometimes kids are not even in the same country when parents get to retirement. The reliance on ourselves to provide for the future is becoming more and more evident and more and more required. That is really changing in Asia and that is in our sweet spot as a life insurance provider.
NH:That is a very good point. The whole world is becoming more global and that has led to people becoming more mobile.
Pix by Indraratne Balasuriya
