The twin forces of regulation and technology will see the emergence of new distribution models in 2017. This sounds like a commonly heard disrupter scenario for the U.S. and European markets, but it’s actually a prediction for the future of agency distribution in Hong Kong.
Indeed, next year will mark the “beginning of the end for mass agency in Hong Kong,” according to Joyce Chan and Kevin Martin, who are partners in Clyde & Co.’s Hong Kong office.
“Hong Kong has for a long time discussed the opportunities for evolution in insurance distribution, but, in reality, it has largely remained a traditional agency-based market,” they said, noting that this is set to change in 2017.
Their prediction is just one of many such predictions for global markets, authored by the insurance team of international law firm Clyde & Co., which Carrier Management has summarized this week in four articles.
Today’s article—the last in the series—includes Chan’s and Martin’s predictions on insurance distribution in Hong Kong and a second piece on technology in China, which regulators are warily embracing. (Parts I-III can be accessed via links below and also here: Part I, Part II, Part III.)
‘Costly Mass Agency Distribution Models’
In their comments on insurance distribution, Chan and Martin said they expect to see a drive to new affinity, bancassurance and direct distribution channels, led by the arrival of new market entrants in combination with innovative technology.
The result will be a transition from “costly mass agency distribution models,” they continued.
“This will be given greater impetus when the cost of administering such channels increases under the additional scrutiny of the new Independent Insurance Authority, due to take over in 2017, and the recent regulatory changes relating to the sale of life insurance, which are intended to reform the industry’s approach to sales, with a greater focus on customer protection.”
Companies best placed to take advantage of these changes are established brands that are not tied to existing costly mass agency forces and can partner with innovative technology companies to create cost-effective distribution models, according to Chan and Martin.
“There is a lot of opportunity for disruption in a market where significant volumes of direct sales have yet to take off,” they emphasized.
Technological Evolution in China
The potential market disorder from technological evolution also was the theme behind Carrie Yang’s prediction about Chinese regulation in 2017.
She said the Chinese insurance regulator encourages innovation but is wary of possible side effects. “New business models responding to technological evolution require a watchful eye,” said Yang, who is a partner in Clyde & Co.’s Shanghai office.
“To implement the industry-specific 13th Five-Year Plan, the Chinese insurance regulator has been taking various steps, including the reform of its commercial auto insurance market, the development of a multilayer intermediary market and the change in supervision of insurance products,” she added.
“While more flexibility will be given to insurers in respect of product diversification and business innovation, the regulator will impose heavier corporate governance obligations on insurers, increasing their cost base as they have to comply with new regulatory requirements,” Yang went on to say.
She noted that new business models have been developed in response to technological evolution—for example, many insurers are using the popular Tencent platforms (WeChat and QQ) to explore new business opportunities by targeting individual customers.
“While most of the market players are doing business within the regulatory regime, some have taken advantage of virtual tools to conduct activities in violation of existing laws,” Yang explained.
“Although the regulator expressly encourages business innovation, it will pay close attention to any potential market disorder to echo the State Council’s plan of preventing internet finance risks and will adjust its rules as a result.”