Insurers Meet Bottlenecks in Cross Sales with Banks

Currently, those insurance companies under the control of commercial banks are troubled by the sales channels, development strategies and risk control problems.

While an insurance company wants to boost the cross sales with the commercial bank that controls it, the commercial bank expects to establish the bank-insurer cooperation with more than one insurance companies, as a result of which, the conflict between the bank and the insurer occurs.

As commercial banks and insurance companies have different modes of operation and different corporate cultures, those insurance companies under the control of commercial banks have to re-position their incentive systems.

Actually, commercial banks are understood to realize the diversified operation via the investment into target insurers. This requires innovative products and services. On the other hand, such a trans-industry and trans-market operation would probably cause risks. Therefore, both banks and insurers are expected to have adequate risk control ability.

By now, several Chinese lenders have already become the parents of insurance companies. Industrial and Commercial Bank of China (ICBC, 601398.SH, 1398.HK) on October 28, 2010 inked the agreement with the parents of the financial center Shanghai-based AXA-Minmetals Assurance Co., Ltd. on the equity acquisition of the insurer.

Based in Beijing, state-owned ICBC paid a total of CNY 1.2 billion for some stakes that AXA and China Minmetals Corporation hold in the Sino-foreign life insurance joint venture. After the deal, ICBC will control a 60% stake in AXA-Minmetals Assurance, and AXA and China Minmetals Corporation will take a 27.5% and 12.5% stake respectively.

After the move, AXA-Minmetals Assurance will be altered into ICBC-AXA Life Insurance. Both AXA and China Minmetals Corporation are understood not to totally withdraw from the joint venture life insurer, as they might make further investment in the future. In addition, these two minority shareholders expect to benefit from the robust performance of ICBC-AXA Life with the reliance on ICBC.

Actually, the outlets and customer resources make ICBC attractive to ICBC-AXA Life Insurance. As the largest commercial bank of China's Mainland, ICBC runs outlets in almost all provinces and provincial-level cities across the country. With this advantage, ICBC is expected to help raise the premium revenues of the newly acquired insurance unit. On the other hand, state-owned ICBC makes further progress on its way to diversified operation. In this way, the lender could not only sharpen its competitive edge, but also boost the comprehensive services, just as other financial giants do.