William Courtauld, CEO Asia, Fortis International
On May 10, Maybank and Fortis announced that they had entered negotiations to form a strategic partnership in bancassurance. Under the terms of the agreement, Fortis will purchase a 30% stake in Maybank's insurance businesses. The two hope that a tie-up between Malaysia's largest financial services group and the largest provider of bancassurance in the Benelux countries will prove a winning partnership against more established rivals in Malaysia's nascent insurance market.
For Fortis, the agreement marks its first major foray into Asia. Currently little known in the region, Fortis was created in 1990 out of a merger of the Dutch combination AMEV/VSB with Belgian's largest insurer AG 1824. Since then, the group has also acquired ASLK/CGER, Generale Bank, MeesPierson and John Alden.á William Courtauld, CEO of Fortis' Asian operations, discusses the group's plans for Asia.
Q: How would you characterise the insurance industry in Asia?
A: Very obviously dominated by a couple of foreign players who distribute their products throughátraditional means, using an army of insurance agents. But that world is changing and we want to be part of the new equation. This is one of the main reasons why we don't want or intend taking majority stakes in any joint ventures we undertake. We just don't think that it is in our interests. Over the longer term, a Malaysian player will have more advantages than a foreign player. It's therefore important that Maybank's insurance business retains a distinctly Malaysian identity.
Q: Why did Fortis make Malaysia its first target in Asia?
A: Theáfirst decision we made was to targetáSouth East Asia above North East Asia because this is where insurance is only really now taking off. In North East Asia there have already been years of rapid growth. Malaysia also looked most promising, because it has predictable levels of economic growth, a business-friendlyáenvironment, solid physical infrastructure, and the right intelligent infrastructure, ie legal and accounting services. The insurance industry is also well regulated. At the moment, actual premium incomeáis only about $1.6 billion per annum, withároughly $400 million of new life insurance premium being created each year.
As a percentage of GDP the figure seems even smaller. But it has been clearly demonstrated that at a certain level of GDP per capita, insurance takes off and Malaysia is just hitting that point now. In Belgium, for example, the ratio is 5.1%, in Singapore 3.5%, but in Malaysia only 1.9%.
Q: What does Fortis have to offer Maybank?
A: When I was asked to do this job, we decided thatáif we wanted to come to Asia in a big way, we had to have a world class operation and provide something that was relevant and different. We felt that bancassurance fitted all those criteria quite nicely.áIt's a terrifically exciting business.áFor my own part, I joinedáFortis in the autumn of 1997 and before that ran Kleinwort Benson's Asian business. But my main experience comes from 20 years in the industry at Jardines where I put together their life insurance group.
In Belgium, Fortis have already built up a 70% market share in the bancassurance market and through a joint venture with la Caixa, become the single largest life insurer in Spain.áWhat is interesting is that hereáwe have a bank which is bigábut still a bit unknown outside its main region of operations.
Q: Benelux isn't exactly the powerhouse of Europe.
A: No, but while these countries may be small, they represent two thirds of the Chinese economy. And while Belgium may have roughly half the population of Malaysia, its life insurance market is six times as large. It's the difference between a mature market and one that's only just beginning to take off.
Asia is tiny compared to Fortis's existing businesses in Europe, but that's why it's so exciting. What really turned me on about coming to Fortis was the fact that the bank has made Asia one of the key planks of itsáfuture development. We see ourselves as being in the skills transfer business. None of the joint-ventures will push our own products, for example. We don't want to take business away from existing players, but to add value. Our speciality is to structure bancassurance products for leading retail banks in the region. All products will therefore be sold under the Maybank name.
Q: What exactly is bancassurance?
A: Essentially it boils down to the distribution of retail insurance products through banking channels. It sounds like an obvious concept, but it's surprising how small a number of companies have made a success out of it. There has to be a very tight integration between insurance and banking. From the customer's point of view, it has to be a completely seamless product menu. Agency distribution of life insurance products is very inefficient by comparison. A bank can do the same jobáto a much greater degree of customer satisfaction, more cheaply and certainly more efficiently.
Q: What do you have to get right?
A: A number of things right. Firstly and most importantly, a bank has to recognise insurance as a part of its core business and not just a bolt on product. Without top management commitment, it just doesn't work. At Fortis, we like to say that we are in the job of providing financial solutions for our customers and insurance fits into that.
Secondly, you need a good sized customer base. Thirdly, a high degree of IT competency. And finally it has to be a bank-centred operation. If the insurance company is driving the bank, it tends not to work. The main driver has to be the bank.
Q: Is it a widely-used concept in Asia?
A: No, and we make presentations to central banks all the time, trying to get them to change the rules. At the moment, only Hong Kong, Singapore and Malaysia really allow bancassurance products. In the Philippines it is theoretically possible, but not really in practice.
Q: How did the joint-venture with Maybank come about?
A: It has been quite a long love affair. Everyone always wants to do things by yesterday, but we have got to know each other over a period of time and built a solid relationship. Maybank officials have regularly been coming to Belguim where we have opened our black boxes and shown them our operations.
What we'll do now is create a project team within Maybank whose purpose will be to build a cutting- edge bancassurance platform combining the expertise of Fortis and Maybank. This will obviously involve some secondment of personnel - project managers, IT staff, sales and marketing people.áAt the same time, we'll also create a virtual organisation in Europe so that people building the platform on the ground in Malaysia can ring up and say, "We've stubbed our toe on this or that. What was your experience in Europe?"
Q: What new products will this venture offer?
A: In essence it's not so much about product, but platform and distribution. The key difference between us and our competitors will be how we distribute those products and how we talk to customers.
Q: Have there been other tie-ups in Malaysia?
A: Well, Hong Leong bank has tied up with AIG and Public Bank has a relationship with John Hancock. But it is important to recognise that bancassurance is very much a European phenomenon and hasn't yet taken off in the US.
Q: Why not?
A. Because of the legal separation between investment and commercial banking which prevented synergies being created across the two. At the moment aávast amount of consolidation is taking place in the US banking industry, but the merger between banks and insurance companies will come some way further down the road.
Q: Does this mark the beginning of Fortis spreading its wings across the whole region?
A: We definitely sleep fast. But really we want to operate in true Asian style. We want to take a step-by-step approach whereby we undertake one or two more joint-ventures and that's it. I can't tell you exactly how many this willárepresent over the next three to five years, but what I can tell you is that we are not in the flag planting business. We want to establish a small number of very deep relationships.
Q: Thank you