Japan insurers feel pinch of bancassurance-Accenture

By Naomi Tajitsu

TOKYO, May 25 (Reuters) - Many Japanese insurance firms are facing a challenge in holding on to their customer bases as banks are now allowed to distribute more insurance products, a study by consulting firm Accenture (ACN.N) showed on Friday.

Nearly all of the respondents to a survey of 37 domestic and foreign insurers in Tokyo as well as Japanese banks that offer insurance services expect that the evolution of bancassurance will result in a stronger, more competitive industry.

But as customers become more demanding, insurers will have to find ways to maintain their client base as potential policyholders will have the option of going either to the insurers or to banks for their insurance needs.

In an effort to free up the industry, financial regulators have been slowly lifting a ban on insurance sales by banks since April 2001, and they will be allowed to offer a full range of insurance products, or bancassurance, by 2008.

Accenture said that the biggest challenge facing domestic insurers -- the top nine life insurers alone manage more than $1.3 trillion in assets on behalf of policyholders -- was losing client relationships to banks under the new distribution system.

"By losing that, they will lose the ability to market their product, to feel the customers' needs, and they will have to compete with banks (for customers). That's the biggest threat," said Pierre-Louis Seguin, an executive partner of financial services at Accenture who worked on the study.

In the study, more than three quarters of respondents considered brand identity a major competitive edge for Japanese insurers, while more than half said that strong distribution channels and customer loyalty also helped their businesses.

But the insurers said that these aspects are coming under threat as consumers have become more discerning and cost-conscious about policies over the past decade or so, while demanding more efficient service.

The study also showed that as foreign insurers raise their profile in Japan, domestic firms acknowledge that product innovation affords overseas firms a competitive advantage, in addition to their expertise in finance, human resources and sales management.

Little by little, overseas insurers like U.S. heavyweight American International Group Inc. (AIG.N) and France's AXA SA (AXAF.PA) have been creeping into the market and foreign players currently have a market share of roughly 25 percent.

They are eager for a slice of the insurance pie as Japan's population ages, but Seguin said that they continue to lack the strong brand identity enjoyed by their domestic counterparts, adding that this was an issue they must improve to extend their hold on the Japanese market.

Many domestic insurers expect the privatisation of Japan Post [JP.UL] that will begin later this year to offer new channels for product distribution, although they said it was too early to adopt specific strategies to deal with the transition.

In addition to offering postal services, Japan Post runs the world's largest bank and has some $3 trillion in assets.