Strategy for insurance growth

D. Murali

Chennai: Acquisitions are not likely to play a big role in MNC entry into Asia, since there are not that many acquisition targets, say Stephan Binder and Joseph Luc Ngai in ‘Life Insurance in Asia: Winning in the next decade’ (www.wiley.com).

They speak of other reasons too, in this regard. “First, all the pan-Asian franchises are owned by large MNCs who have voiced no intention of scaling back their Asia operations (with the exception of AIG who will likely sell a part or all of its Asian operations after its bailout from the US Government).”

Another point, according to the authors, is that many local Asian insurers are family-owned (especially in Taiwan and South Korea), “and they often see the insurance company as a family jewel in a larger, diversified group of businesses.”

Yet the current financial crisis may create unique opportunities for aggressive acquirers to buy assets, Binder and Ngai foresee. They estimate that 40 per cent of global premium growth in the next five years will be generated in Asia. “Also, margins continue to be very attractive and generally much higher than in more mature international markets.”

To those foreign insurers who are not present in the region, and who therefore wonder if they have missed the boat, the authors’ answer is a clear ‘no,’ if the time horizon is long. They assure that the next decade will see substantial changes in the market dynamics.

“Many Asian markets, in particular China and India, are still at an early stage of their development curve. Penetration is still low and the growth story of the last 5-10 years could easily continue for another couple of decades.”

Choosing an appropriate partner is often a critical part of the strategy, the authors advise. “In circumstances where the partnership is created out of regulatory necessity only, it is critical to have an understanding of what happens when regulatory limitations are lifted.”

Informative read.

The hammer game

Whether it is football, baseball or cricket, commercialisation implies the same thing, and the financial model is simple and straightforward in all the major sports leagues across the world, observe Alam Srinivas and T. R. Vivek in ‘IPL: An inside story – cricket & commerce’ (www.rolibooks.com).

What are the major revenue streams for the teams? “For the smaller clubs in a league, and indeed all the teams in a new format such as the IPL, central revenues distributed by the league’s apex body is the largest slice of the cake, ” the authors explain.

In the case of IPL, the eight teams get an equal portion of the 80 per cent of the money earned from selling broadcast rights, for the first two years; then it becomes 70 per cent, for the next three years, and later 60 per cent for the remaining five years of the 10-year deal.

Teams also get, for ten years, a flat 60 per cent of central sponsorship, including ‘money from title sponsor DLF and others such as Hero Honda, Vodafone and Pepsi,’ which translates into an assured income of $8 million right from year one, remind Srinivas and Vivek.

“The teams get to keep what they earn through ticket sales for matches held in their cities, the sponsorship deals they click independent of the governing body, and sales of merchandises such as replica shirts and assorted souvenirs.”

As the IPL progresses, the marketing skills of the franchisees in getting bigger sponsorships, forcing more ticket sales and their ability to sell merchandise would differentiate the profitable teams from the losing ones, the authors expect.

Action-packed.