Posted on May 26, 2011 by Sergio Ulloa
Manulife Financial Corp, Canada's largest insurance company, plans to increase sales of its insurance policies for low-income customers in Vietnam by expanding its microinsurance operations into more regions of the Southeast Asian country.
Microinsurance products provide basic, inexpensive insurance coverage to individuals on low incomes who require protection for typical risks including the affects of severe weather conditions, healthcare, crop, life and non-life products. Microinsurance offers vital security options for individuals who need insurance protection but until now have been unable, or even aware of, the ability to afford the relatively high cost of coverage. For insurers, microinsurance presents an opportunity, with a high volume of potential policyholders coupled with low cost margins. The global microinsurance market is estimated to be worth over US$40 billion
In 2009, Manulife partnered with Vietnam's Women Union to introduce simple microinsurance life products, covering accidental death and hospitalization costs, to nine Vietnamese provinces. The policies cost clients roughly US$15 a year for coverage with monthly premiums payable via SMS or text message for those in more remote parts of the country. To date Manulife has already sold about 80,000 microinsurance policies in Vietnam, far exceeding the company's expectations. Microinsurance alone made up 6 percent of Manulife's total sales in Vietnam last year.
Manulife Vietnam Chief Executive Officer Carl Gustini said in an interview that the company was taken aback by its success among low-income earners in Vietnam: "The microinsurance sales actually made a significant contribution to our top line, which was a surprise because we didn't go into this for top-line at all, we went into it not expecting to make any significant money on this. We really just expected to break even and spread the word."
Manulife now expects to sell at least another 50,000 micro-insurance policies this year if they are granted regulatory approval by the Vietnamese authorities to operate in an additional 12 provinces. The company is also considering new products, such as policies that cover a whole family. And, in addition to SMS messages, Manulife is looking at providing customers with a mechanism to pay their microinsurance premiums over the Internet.
According to Manulife's research, microinsurance products could be an attractive proposition to about 70 percent of the Vietnam population who currently can not afford a standard US$400-a-year life insurance policy in the country. The Toronto-based insurer plans to build on its initial customer base and attract even more clients who could become more affluent as Vietnam's economy steadily improves.
Mr. Gustini, who has been head of Manulife's operations in Vietnam since January 2010, insisted that getting into this emerging market early has been critical, and that improving awareness about insurance services is an ongoing project for the company. "The underlying principle is to form a lifelong relationship with these people, there's also the word of mouth and indirect impact to our brand out in the provinces." Mr. Gustini commented further that for many Vietnamese "the very concept of insurance, the concept of paying a premium and providing a savings benefit, is actually foreign."
Enabling low-income policyholders to pay their premiums with their cell phones has proven to be a very effective innovation for Manulife, one which it may roll out for its more profitable standard customers later. Roughly one-quarter of the company's microinsurance customers in Vietnam are making their payments by text message. Mr. Gustini predicted that this number would grow. "The cellphone penetration in the rural areas is very high, upwards of 70 per cent in some provinces," he said. While most Vietnamese families can't afford home computers, internet cafes are popular.
Manulife was the first company to offer microinsurance policies in Vietnam but now it finds itself competing with 11 established multinational life insurers including AIA Group Ltd. and Prudential Plc. A further four new players have been granted permission to enter the insurance market
later this year and the Vietnamese government has indicated that it will allow more to follow.
According to Mr. Gustini, the government will also soon rule on whether to allow asset-management products, including mutual fund services, to be sold in the country.
Manulife increased their market share in Vietnam to 12.4 percent in 2010, up from 11.4 percent in 2009. In the first quarter of 2011, about 36 percent of Manulife's US$965-million reported profit came from Asia, with about 1 percent of all Asian earnings coming from Vietnam.
"We would expect over time that as a percentage, that will ramp up," said Mr. Gustini, adding: "Countries like Vietnam are not short-term profit players for us."
Manulife wants to build on its success and is currently in discussion with industry regulators from several other Asian countries about selling coverage options to the low income segments of their populations in the near future. This month, Manulife released its first microinsurance product in the Phillipines, titled FirstProtect, which provides life and accident protection for 10 years, with premiums as low as P471(US$10) per month. The Canadian insurer has also intimated that it may look into developing family insurance policies under the same design.
As a number of challenges confront its US business, Manulife recognizes Asia as the most important market for the company's future growth.
This market will clearly be a focus for activity in 2011 in order to improve upon 2010's overall loss of US$ 395 million, due to poor results in the first half of the year, and develop the company back into a platform of sustained profitability.
Competition within the Asian insurance markets has become more intense than ever, with European and American multinational insurers gaining access to the region through acquisitions, joint-venture partnerships or self-started new businesses. These developments are initiating the development of innovative insurance and investment products in order to achieve greater market penetration.
Insurance Company Mentioned
Manulife (International) Limited is a member of the Manulife Financial group of companies. Manulife Financial is a leading Canadian-based financial services group serving millions of customers in 22 countries and territories worldwide. Operating as Manulife Financial in Canada and Asia, and primarily through John Hancock in the United States, the Company offers clients a diverse range of financial protection products and wealth management services through its extensive network of employees, agents and distribution partners.
Manulife in Vietnam
Manulife Vietnam was the first 100 per cent foreign-owned life insurance company in Vietnam, being its operation in September 1999 as a joint-venture called Chinfon-Manulife Insurance Company (CMIC). Manulife in Vietnam has grown rapidly to become a world class company providing a competitive array of financial protection products and services to Vietnamese customers. Since commencing operations, Manulife has helped more than 300,000 middle to upper-income Vietnamese plan right for their life.