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BY NEIL HONEYMAN
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January 30, 2018
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IT IS NOW over 70 years since I saw well-dressed gentlemen cycling through the streets of London. They were readily identifiable as the “Men from the Pru.” Their task was to collect weekly subscriptions from those who had taken out insurance policies with Prudential. A typical subscription was half a crown (one eight of a British Pound).
That was then.
Now the Prudential is a world-wide operation with a substantial presence in Asia, including the Philippines. Prudential (UK) Asia is headquartered in Hong Kong. Its Philippine subsidiary is the responsibility of Antonio de Rosas who has been CEO for several years.
In 2010, Prudential (UK) made an offer of $35.5 billion to purchase AIA, the Asian subsidiary of the US giant AIG (including PhilamLife, its Philippine subsidiary) which in a spectacular piece of financial illiteracy was, in 2008, found to be unable to meet its financial obligations. Eventually, the US government influenced by the dubious concept of ‘too big to fail’ bailed out AIG to the tune of $182.3 billion.
AIG accepted Prudential’s bid which was made subject to AIA meeting the Pru’s due diligence requirements. Clearly, something was wrong and after due diligence the Pru’s offer was reduced to $30.8 billion. A reduction of $4.7 billion is substantial and I hope AIA is now running a tighter ship than it did in 2010. AIG did not accept the Pru’s reduced offer.
Since 2010, Pru Life UK (Asia)-Philippines has developed steadily in line with the increased demand for life insurance products.
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It was recently announced that, subject to regulatory approval, Robinsons Bank and PruLife UK have established a Bancassurance relationship. The idea of Bancassurance is that the insurance company can gain access to the bank’s customers and, hopefully, make sales. On the debit side, Bancassurance means an extra layer of involvement compared with a direct agreement between an insurance company and the client who purchases an insurance product.
Commissions may be a problem in a Bancassurance relationship. Insurance companies reward their people by commissions on sales made. In 2010 de Rosas boasted that his successful salesman could achieve commissions of P2 million per annum. Salary-based bank employees may be envious.
Some Bancassurance relationships may also reward bank staff commissions for facilitating sales of insurance products. This can create a conflict of interest if a problem arises between the insurance company and the bank’s customer. This means that the customer may not receive the support from the bank to which he is entitled. Believe me, I know whereof I speak.
Many years ago a family member paid for a single premium policy from PhilamLife, then a Bancassurance partner of BDO. There were three entities responsible for management: BDO, PhilamLife, and Pelac (owned jointly by PhilamLife (95 percent) and BDO (5 percent). Anyhow, a Pelac FSE’s misconduct went undetected by the three entities so that we were victimized and never receive the policy documents.
It will be important for Robinsons Bank and Prudential to agree on management aspects. (Hint: Robinsons Bank will need to ensure that its customers’ signature cards are not misused by the insurance company’s representative).
“Subject to regulatory approval.” It is my experience that the Insurance Commission (IC) is about as useful as tits on a bull, but I hope that the Bancassurance relationship pushes through. IC will focus on capital adequacy requirements but these should pose no problem to Prudential./PN
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