Why new insurers are growing rapidly in Singapore despite low-cost offerings
https://sbr.com.sg/financial-service...low-cost-offer
The market share of FWD and Budget Direct, which both entered the market in 2016, have grown 2,704% and 7,400% respectively.
New entrants in Singapores insurance market have succeeded alongside big players as they bank on low premiums to rapidly grow their market share, according to a report from research firm ValueChampion.
For instance, FWD and Budget Direct are two companies that entered the local insurance market in 2016. With motor premiums that are 30-40% cheaper than average, the new players were able to grow their market share in the motor insurance segment by an unprecedented 2,704% and 7,400% respectively, data from ValueChampionshow.
FWD and Budget Direct saw gross premium growth rates of 123% YoY each in 2018. On the other hand, the gross premiums of established players like NTUC Income and AIG Asia Pacific only increased by single digits of 1% and 9% respectively over the same period. AXA even saw gross premiums drop 5% in 2018.
FWD is usually one of the cheapest general insurers across multiple products like travel, maid and home insurance, analyst Anastassia Evlanova said in the report. On the other hand, Direct Asia tends to focus on offering benefits that are not typically seen with other insurers, such as unique travel or medical benefits.
Singapore's insurance industry shows a very different situation: small, new entrants tend to provide the lowest premiums to consumers. Because price is the most typically utilised differentiation factor, these companies have been able to capture market share quite quickly, Evlanova added.
Economies of scale
Part of the reason why Singapore has seen a number of new entrants successfully crack the market is due to its relatively small domestic market that enables newcomers to grow unlike the US where older and larger companies dominate the local landscape through low-cost offerings and still turn a profit by spreading out fixed costs over a massive customer base.
For instance, the top 10 non-life insurance players in the US control 47% of the market. Geico, which commands 13% of the auto insurance market, offers the second cheapest premiums, 30% below the nations average.This dynamic is also evident in South Korea where the biggest insurers offer the lowest premiums, which make it more challenging for new companies to compete.
Economies of scale are not nearly as difficult to achieve in a smaller market as they would be in markets like the US where major players companies are already massive, she noted.
In Singapore, Evlanova explained that new and foreign entrants enjoy the luxury of entering a market with low prices and stomach the consequent losses due to their larger operations elsewhere. Although FWD is relatively new to Singapore, the insurer has over US$30b in assets with operations in six other countries. Direct Asia and Budget Direct are both owned by larger overseas conglomerates, making it easier for them to compete aggressively on price in Singapore.
In other words, having much bigger, profitable businesses elsewhere makes losing money in Singapore for a few years an investment that is relatively easy to persevere through.
https://sbr.com.sg/financial-service...low-cost-offer
The market share of FWD and Budget Direct, which both entered the market in 2016, have grown 2,704% and 7,400% respectively.
New entrants in Singapores insurance market have succeeded alongside big players as they bank on low premiums to rapidly grow their market share, according to a report from research firm ValueChampion.
For instance, FWD and Budget Direct are two companies that entered the local insurance market in 2016. With motor premiums that are 30-40% cheaper than average, the new players were able to grow their market share in the motor insurance segment by an unprecedented 2,704% and 7,400% respectively, data from ValueChampionshow.
FWD and Budget Direct saw gross premium growth rates of 123% YoY each in 2018. On the other hand, the gross premiums of established players like NTUC Income and AIG Asia Pacific only increased by single digits of 1% and 9% respectively over the same period. AXA even saw gross premiums drop 5% in 2018.
FWD is usually one of the cheapest general insurers across multiple products like travel, maid and home insurance, analyst Anastassia Evlanova said in the report. On the other hand, Direct Asia tends to focus on offering benefits that are not typically seen with other insurers, such as unique travel or medical benefits.
Singapore's insurance industry shows a very different situation: small, new entrants tend to provide the lowest premiums to consumers. Because price is the most typically utilised differentiation factor, these companies have been able to capture market share quite quickly, Evlanova added.
Economies of scale
Part of the reason why Singapore has seen a number of new entrants successfully crack the market is due to its relatively small domestic market that enables newcomers to grow unlike the US where older and larger companies dominate the local landscape through low-cost offerings and still turn a profit by spreading out fixed costs over a massive customer base.
For instance, the top 10 non-life insurance players in the US control 47% of the market. Geico, which commands 13% of the auto insurance market, offers the second cheapest premiums, 30% below the nations average.This dynamic is also evident in South Korea where the biggest insurers offer the lowest premiums, which make it more challenging for new companies to compete.
Economies of scale are not nearly as difficult to achieve in a smaller market as they would be in markets like the US where major players companies are already massive, she noted.
In Singapore, Evlanova explained that new and foreign entrants enjoy the luxury of entering a market with low prices and stomach the consequent losses due to their larger operations elsewhere. Although FWD is relatively new to Singapore, the insurer has over US$30b in assets with operations in six other countries. Direct Asia and Budget Direct are both owned by larger overseas conglomerates, making it easier for them to compete aggressively on price in Singapore.
In other words, having much bigger, profitable businesses elsewhere makes losing money in Singapore for a few years an investment that is relatively easy to persevere through.