Numerous media reports have been published regarding the potential sale of ING’s assets in Asia. What is the latest update in this regard?
HODGES: With respect to the sale, I feel that it would be premature of me to make any comments at this time. What is being published shows an active process. There are many companies interested in the Malaysian asset, and this process is running in the background. This is a great company and business with grand future prospects, and though the sale will happen, these fundamentals will remain the same.
What new initiatives is ING Malaysia currently involved in?
HODGES: There are three components to the core strategies of what we are trying to achieve inMalaysia. One is service, which is a hard-driving focus on putting customers at the heart of everything that we do, and this underpins a number of initiatives. Underneath service, there is distribution excellence, which is a cornerstone of the foundation that we are building in all of our channels. Additionally, there is the customer service initiative, which ensures that our operations are efficient and have absolute excellence in customer service. The next component is the people component, which is equally important. If a company has great service and great people, the value is increased, and this brings value to the customers, value to the shareholders, and value toMalaysia. Those are the three major components that we are focused on currently. In terms of new initiatives in those categories, we have many, especially product initiatives, such as investment-linked. The investment-linked market has grown 11% over the last four or five years. Last year, we grew 28% and this year, we’re up 60%. This is a very important product to us in terms of delivering value to our customers. In the service initiative, we are making sure that every touch point for our customers is absolute perfection, which includes product disclosure sheets, customer communication, need-based selling, analyzing all process elements, and ensuring that we are delivering service and value to our customers at every step. Ultimately, this will get us the value and the great growth that we have experienced over the last number of years.
To what extent has Malaysia’s economic growth been matched by equivalent growth in its insurance markets?
HODGES: I am new toMalaysia, and one of the reasons why I chose to come toMalaysia is because it has really good fundamentals underpinning its economy. If you look back at the economic crisis, Malaysia fared quite well, and I have faith that the country will continue to do so. In terms of the insurance component to that, growth of insurance in Malaysia has surpassed economic growth, and the prediction is that this process will continue. This is largely because the penetration of insurance is very low in Malaysia. We have around 40% penetration of insurance, or about 3% of GDP, which is lagging behind other countries. I think we will continue to outpace many countries in that growth, which for us as a company is a great opportunity and one that gives value back toMalaysia. I think that insurance is not always what people think about top of mind. I think there is a lot of work we can do to educate people on good financial planning, their insurance needs, and meeting those needs. We have the ability to give back to the country.
What are the main challenges that remain in the market to increase the penetration rate?
HODGES: With respect to the penetration of insurance inMalaysia, I think we need to look at two key fundamental components. Insurance education is a key aspect of that and educating Malaysians on the need for insurance is paramount. There are a number of ways for approaching that. One, we are looking to the young generation; there is a growing population of affluent young people in a number of sectors acrossMalaysia. There is a number of initiatives that the government is also commencing, such as the 1 MMPP (1Malaysia Micro Protection Plan) programme. There are a number of ways that we can educate and grow the market for insurance and ensure that all Malaysians are insured. The second component to growth inMalaysia, or penetration of the insurance market ofMalaysia, is analyzing the underlying demographics. The general breakdown of the Malaysian population is an 80% penetration of the Chinese Malaysian market, around 10% penetration of the Bumi, or Malay market, and a bit less than 10% of the Malaysian Indian market, so it is crucial that we figure out ways to penetrate and educate the Bumi and Indian markets, especially, on our products and services. We just launched a joint venture, a Takaful line of business, which has incredible potential. We will really focus on the Bumi market, and strive to insure Malaysians and build a growing, sustainable business for our company.
How do you see the penetration rate evolving over the medium term?
HODGES: I think that at 40%, penetration is very low compared to the countries around us. I think that the penetration rate will continue to push up. It will be hard to predict how fast we will be able to move that. If you look specifically at the Takaful market, there are many points for focus, and it has great potential. How quickly we can move up the penetration is yet to be seen; that involves a lot of education. However, for the developed markets, it has taken generations to move the dial on penetration. I think it will move much faster here, but it is very hard to predict how fast. We are convinced that if we provide great service, people, and value proposition to our customers, it will move at a very healthy pace, outstripping that of most other markets.
How competitive is conventional insurance versus Takaful in the market?
HODGES: Looking closely at the Takaful product line up, I think that there is a lot of potential there. Around 60 – 65% of the population of Malaysia is Muslim. The penetration of that segment, as I mentioned, is very low. There is a lot of competition in the segment, but the potential is very large. It is going to take some time. We have launched our joint venture with Public Bank, which is a strong partner for us, and I think this will help us make a strong business here and continue to drive the penetration of insurance in the Islamic market more deeply.
There have been a lot of talks about M&A. Would you say that we are in a period of consolidation in this sector now?
HODGES: There is a lot of M&A taking place around the globe right now; it is not unique toMalaysia. There is likely to be some consolidation, in Malaysia. ING is in the process of some restructuring activity, and the results are still uncertain, but for our customers and our employees, it does not matter. We have great products and a very strong financial underpinning, and none of that will change. That is a combination of the way we run the business, as well as the regulations inMalaysia, which are very strong, robust, and always look after the customer’s best interests, as do we as the cornerstone of how we operate our business today.
If you look back at the economic crisis, Malaysia fared quite well, and I have faith that the country will continue to do so. In terms of the insurance component to that, growth of insurance in Malaysia has surpassed economic growth, and the prediction is that this process will continue. This is largely because the penetration of insurance is very low in Malaysia. We have around 40% penetration of insurance, or about 3% of GDP, which is lagging behind other countries.
In terms of product sophistication, how would you describe this market relative to others in the region and relative to more developed markets in the West?
HODGES: In terms of product sophistication, we have a very comprehensive product line up. I think our INGeasi For You Series, which is our recently launched investment-linked series, is a great addition to our product portfolio. Of the top three players inMalaysia, of which we are one, we have the most robust product line up, and we are the only dominant player to have a Top Three position in the tied agency, bancassurance, and employee benefits, or corporate market, segments. This gives us a very strong line up of products and allows us to be present at every stage of our customers’ life cycles, in line with our tagline which is “With you for life.”
Are there specific products that haven’t yet been introduced into the market that you think would be a great growth opportunity for Malaysia?
HODGES: With respect to new products, we are always looking out to the market, and we have a new initiative which is targeting the SME, or the Small- Medium-Enterprise market, which I feel is also an under-penetrated segment. There is some excellent potential in our employee benefits business, which we have just launched. We have a 50% market share in our employee benefits business, but this largely comprises the large corporate segment. Nobody has yet penetrated the SME market. There are around 400,000 SMEs in Malaysia, and we fully expect to have at least 50% of that market in the relatively near future. We have built a very strong employee benefits business based on service and great product offerings which no other company can match, and I fully anticipate we’ll be able to do exactly the same thing in the SME market, which is great for us as a company, positive for our customers, and beneficial for Malaysia, because SMEs are part of the underpinning of how economic growth is going to be moving forward.
What is your general outlook for the insurance industry here in Malaysia?
HODGES: I think the outlook for the insurance industry here in Malaysia is great. As I mentioned, the economic fundamentals are strong here. Malaysia has weathered the economic storms of late very well, and will continue to do so because I think there are economic storm clouds on the horizon. I fully anticipate, economically, that Malaysia will stay strong. With respect to our industry in particular, it has good, solid regulations, I would say one of the best in Asia, and one that lays a good foundation and framework for us as a company. The underpinning demographics are also very promising. I think we can engage both the underpenetrated market and the growing market of young and affluent Malaysians to really protect their futures and form comprehensive financial plans, all leading to great prospects moving forward.
Will insurance sector growth continue to outpace overall economic growth?
HODGES: The overall growth rate for this sector, I would say, will outstrip economic growth. There is discussion about a GDP growth in the 4 – 4.9% range for 2012. Looking at the overall segment, I think the market has grown 11% historically, and we have grown as a company around 15%. I would suggest that the insurance market will continue to surpass GDP growth, and we will continue to outpace the market with the offerings we have in our midst.