Rodrigo Amaral talks to Richard Sutton, president and
CEO of Crédit Agricole’s Japanese insurance operation, about the
French group’s ambitious plans to sell life insurance in Japan. The
opportunities could be massive, with foreign insurance groups
making better use of the bancassurance channel than domestic

France’s largest banking group, Crédit Agricole, has announced
plans to start selling life insurance in Japan, looking to
distribute products via banks. The group says it expects its
bancassurance business to become its second most important
international activity in the future. “We are leaders in
bancassurance in France and we are developing our insurance
business in other European countries as well, so have strong
know-how in the area”, said Richard Sutton, the president and CEO
of Crédit Agricole’s Japanese insurance operation.

Over the counter insurance sales by banks in Japan are said to be
one of the areas with the fastest rates of growth. That is why
Crédit Agricole believes it can do well in Japan, despite the fact
that a high percentage of the population – estimated at almost 90
percent of all households – already have some kind of life
insurance. “Certain segments are already saturated, like the market
for traditional whole life and endowment products that combine a
savings and protection element”, Sutton said. “Even if overall
market growth may not be particularly strong, in the bank channel
side of the business the growth will remain very strong thanks to
the retirement savings boom and full deregulation.”

New products for an
evolving market

Sutton believes that changing demographics will help companies that
are willing to come up with new products for an evolving market.
“The baby boom generation will receive a lot of money as they
retire – an average of over €100,000 per person”, he said. “We
expect that in the next three years a huge amount of money will be
directed to different types of life insurance products, asset
management products and other investments.”

Crédit Agricole will start offering variable annuity products,
which are the main kind of insurance products sold by banks in
Japan. But the range is likely to expand as the business develops.
“Additional products can be developed with our distribution
partners, as we’ve done in other countries like France or Portugal,
where we have a full product range in life insurance”, he said,
adding the range could widen as the Japanese authorities keep the
process of de-regulating alive, allowing banks to offer a more
varied range of products.

Crédit Agricole does not have a retail bank network in Japan and
has forged a number of partnerships to guarantee the distribution
of its products, but Sutton would not disclose the names of the
partners before the new business starts to operate for good – the
company should start selling its products in the autumn. But he
gives perhaps a hint by reminding that the French group already has
links with Japanese institutions. “CAAM, our asset management
company, already works as a retail player in Japan, selling
products through both the big banks and regional banks.”

Japan is not the first foreign adventure for Crédit Agricole in the
field of bancassurance. In Portugal it already has a strong
presence in the sector, ranking third in the life insurance market
after the acquisition of the life insurance arm of Banco Espirito
Santo. The group has acquired sizeable insurance operations in
Italy, by means of Cariparma’s Po Vita, and Greece, with the
specialist division of recently bought Emporiki Bank.

In France, the group estimates it is the number two in life
insurance with a share of around 15 percent. The industry is
clearly seen by the group as a major focus for growth: a new
division was created in 2004 to push forward plans to turn the
insurance sector into the second most important activity in the
Crédit Agricole group internationally.

Poor business

In Japan, many domestic insurance groups have reported poor new
business figures. For example, among Japan’s top five players,
Nippon Life Insurance, the country’s largest life insurer, was the
only one to report higher premium income in the year to March 2007
– and then only a 0.2 percent improvement compared with the
previous 12 months.

Foremost among issues plaguing insurers is the hefty damage done to
consumer confidence. Assailing life insurers’ reputations are
revelations of claims non-payments following investigations into
procedures ordered by Japan’s Financial Services Agency (FSA). In
April this year, this culminated in Japan’s 38 domestic and foreign
life insurers admitting failing to pay out a combined ¥35.9 billion
($296 million) on 440,000 claims submitted between April 2001 and
March 2006.

The scandal could hardly come at a worse time for Japan’s domestic
life insurers as they face up to a competitive assault from foreign
insurers and – since the advent of systematic deregulation of the
financial sector – the banking industry, which has become a growing
force in insurance. Until the late 1990s, Japan’s financial market
was strictly partitioned and banks and security firms were not
allowed to sell insurance directly. This began to change from 1998,
when deregulation made it possible for securities firms to include
insurance sales within their scope of business. In 2000, this
deregulation was extended to banks, which were permitted to begin
sales of certain insurance products.

The advent of bancassurance was a move consultancy Watson Wyatt
notes has had far more impact on life insurers than on non-life
insurers. Domestic life insurers in particular have felt the cold
wind of change. The reason is simple: the introduction of variable
annuities (VA), a product ideally suited to marketing via banks.
Since the introduction of the first VA in Japan by ING in April
1999, the sector has boomed, reaching total assets of $124 billion
by the end of 2006. The VA bonanza has been led by Japan-based
foreign insurers which have grasped that bancassurance was the
channel to adopt.

US insurer The Hartford, for instance, entered the Japanese market
in December 2000 with VAs as its sole product line. It now ranks as
the top VA seller, having by the end of 2006 amassed over $31
billion in assets under management and achieved a market share of
about 25 percent compared with the largest domestic insurer in the
VA market, Sumitomo, whose market share is about 10 percent. The
Hartford’s distribution network covers more than 50 banks and
securities firms.

As an indication of the potential size of the VA market, the US
National Association of Variable Annuities believes total Japanese
VA assets could top $250 billion by 2010. Liang Zhang, The Hartford
Life International’s risk management actuary, views VAs in Japan as
a “potential trillion-dollar market”.