Company admits many salespeople are not up to scratch, which could affect profitability and stability of new business China Life's success in the mainland will hinge on the quality of its agents, say industry players. According to Benno von Canstein, chief executive of Allianz Dazhong Life Insurance, a joint venture company of Allianz Group and Dazhong Insurance of China, the present low-quality insurance agents do not sell products based on needs but on relationships. 'This can have repercussions for profitability and the stability of new business,' he said. Dr Von Canstein's observation agrees with the statements made in China Life's Global Offering prospectus. 'Because of differences in productivity, a relatively small percentage of our sales agents are responsible for a disproportionately high percentage of our sales of individual products,' states the prospectus. 'If we are unable to retain and build on this core group of highly productive agents, our business could be materially and adversely affected.' The maturity of the agents was tied to the maturity of the market, said Dr Von Canstein. 'Savings rates [in China] remain very high, and priority is given to relatively short-term cover and family durables if incomes are limited,' he said. 'There are variations in insurance awareness across the regions in China, but even in coastal regions it will take some years before insurance awareness reaches the levels seen in mature economies.' One of the ways the insurance companies have been able to lower the risk associated with the dependence on agent performance is to diversify their distribution channels. In China, banks and post offices are fast becoming valuable distribution channels. 'There is a greater emphasis on developing multi-channel distribution [in China],' said Dr Von Canstein. China Life, however, does not have any exclusive agreements with banks and post offices. According to the company's prospectus, this may affect its sales 'materially and adversely' if one or more banks or post offices choose to favour competitors' products. To counter such risks, China Life recently announced the establishment of a dedicated business unit 'to enter into strategic alliances with partner banks'. Educating agents and raising their standards would be crucial to the success of the insurance market in China, said Dr Von Canstein. 'Attention is increasingly focused on the quality of agents in China and efforts are being made to ensure agent practices are professional,' he said. 'Insurers are investing in educating and developing their agents to become financial consultants.' Regulations are also becoming stricter to curb malpractice among insurance agents. Life insurance agents are required to obtain qualification certificates from the industry's watchdog, the China Insurance Regulatory Commission. In addition, the Insurance Law requires all life insurance agents to register and obtain business licences from local administrative bureaus. But compliance could be a hurdle for China Life. According to the China Life's prospectus, 'if the CIRC were to enforce this regulation in the future, and if a substantial number of our agents do not become licensed, our business may be materially and adversely affected'. As of June 30, 37 per cent of the China Life's agents had not obtained such a certificate, according to official figures. China Life does not believe the requirement imposed by the Insurance Law will be an issue. 'Historically, this requirement has not been generally enforced, and it is our understanding that the SAIC [State Administration of Industry and Commerce in China] does not have procedures in place to effect the registration and licensing of individual insurance agents,' the prospectus says. 'Consequently, as we believe it is also the case with other insurance companies operating in China, substantially all of our individual agents are not in compliance with this requirement.' To date, China Life has declared that this non-compliance has not had a 'material adverse effect' on its business.
