Deep Dive Podcast: Income-Allianz deal - Are concerns justified?
Income Insurance has to balance between "wanting to do good and wanting to do well" to remain sustainable, says our guest.
.jpg?itok=HLI2xFsk "Deep Dive Podcast: Income-Allianz deal - Are concerns justified?")
CNA's weekly news podcast takes a deep dive into issues that people talk about at dining tables and along the office corridors. Hosted by Steven Chia and Crispina Robert.
News that German insurer Allianz is planning to buy a majority stake in Singapore's Income Insurance has led to sharp criticism. Questions are being asked - is Income Insurance, formerly an NTUC co-operative, prioritising profit over people? Or is it moving as all corporations do?
Steven Chia and Crispina Robert speak to Professor Lawrence Loh, director of Centre for Governance and Sustainability at the NUS Business School and Eddy Cheong, CEO of Havend Pte Ltd, an insurance advisory firm.
Here's an excerpt from the podcast:
Crispina Robert:
From a business point of view, tell me why this is a good deal. Why does it make sense for Income (Insurance) to merge with Allianz?
Professor Lawrence Loh:
Beyond the capital injection, the price that was offered by Allianz, $40 something (Singapore) dollars, it is really a very significant premium over their net asset value per share, an almost 37 per cent premium, which is something I would say is irresistible.
But having said that, I think even with the current model as a corporate entity, and even with a new owner with a majority stake, they can still maintain their social character. Sometimes, companies even label themselves as a social enterprise.
But we must understand that beyond social, there's still this word called enterprise. It's good to do good, but I think you have to do well, to do better.
Steven Chia:
So social enterprise means you got to make money before you can give money away, right?
Prof Loh:
If you are not financially sustainable, there's nothing to talk about in governance, you cannot even help other people if you cannot help yourself.
Steven:
Was Income (Insurance) in a way, in not such a great shape ... that they needed some support ... if they stayed on their own, would they maybe even die out at some point in time?
Prof Loh:
No. Let's look at it in perspective. Before they became corporatised, and I have made some computation, their rate of growth as a co-operative is actually much lower than the rate of growth of the finance and insurance industry. So we thought that corporatisation could turn the situation around, but in fact, the revenue from premiums did not go up. It actually went down.
Crispina:
Income (Insurance) is technically one of the big four, "too big to fail”. The narrative seems to be that this would have helped them make (more) money. But were they not competitive, or are there just more players in the field?
Eddy Cheong:
Firstly, the insurance thing has become very competitive over the years. Over the last 20 years, there are many new insurance players coming in: Aviva, FWD, China Taiping and so on. And when these players come in, the market share of individual insurance becomes smaller.
And with competition, (companies) tend to undercut each other and the margin gets very thin. In order to remain very competitive, you need to bring the price down to very little.
When Income (Insurance) started in 1970, (its) growth was phenomenal.
Crispina:
When it was a majority player, so to speak, when there were less people in the playground?
Eddy:
That's right ... Over last 20 years, based on the report, their market share has dropped to less than 10 per cent on average over the last 10 years.
