Asia still holds opportunities for Australian life companies but they must be selective about target markets, according to Towers Watson.

Director of Insurance Consulting Asia-Pacific Alan Merten says Australian groups “might not have scale in some markets”, but that should not be regarded as a limitation.

“Australian life companies are big enough to compete, although some markets such as Singapore or Hong Kong would be difficult,” he told Life+Health insuranceNEWS.com.au.

Towers Watson identifies Indonesia, Philippines, China and India as holding limited opportunities for Australian life insurers.

Countries such as Vietnam, Cambodia and Myanmar have greater potential.

“Companies have to accept that entering an overseas market is a challenge and they are faced with long, slow growth,” Mr Merten said. “The danger is [that] buying something large in the country increases the risk.”

He says IAG’s disciplined approach to expansion in Asia is “commendable”.

Asia will produce $US2.1 trillion ($2.2 trillion) of annual life insurance premiums by 2025, according to a Towers Watson forecast.

Current life insurance premiums are $US980 billion ($1 trillion), up from $US320 billion ($346 billion) in 2002.

Southeast Asia’s premiums are forecast to grow to $US180 billion ($195 billion) by 2025, up from $US53.5 billion ($58 billion) in 2012.

Despite the opportunities of smaller markets, when Towers Watson recently asked life groups to name their preferred entry market 31% said they favoured China.

In 2012 53% cited Indonesia, but a year later that figure fell to 21%.

Mr Merten says Australian life companies have distribution expertise as an advantage over their Asian rivals.

“Australia has a sophisticated financial planning sales force, but that is not the case in Asian markets. Life companies could bring the adviser model and software to Asia.

“In fact, Australia did export the agency model about 25 years ago to Asia, but with the move to financial planning there are still opportunities in markets such as Japan and Hong Kong.”

Life groups that expanded to Asia in the 1990s have mostly disappeared due to takeovers, but major Australian banks have continued to grow in the region, particularly ANZ.

“The banks are moving offshore and building a presence with lending products,” Mr Merten said. “The next step is to build a distribution model for insurance products, but none of the Australian banks have built a massive business yet.”