By Wang Xinyuan

China's current "many-to-many" bancassurance model – in which many insurers offer their products through many banks – is not sustainable, according to a white paper released Thursday by the Boston Consulting Group (BCG) and reinsurance company Swiss Re.

The paper states that business growth in the Chinese insurance market will stem from greater integration and exclusive partnerships between banks and insurance companies, instead of the current system in which banks work with multiple insurers, and vice-versa.

Bancassurance, which refers to the partnership between banks and insurers to sell insurance products, emerged as China's biggest insurance sales platform, but is mainly based on the many-to-many (M2M) model, said Eric Schuh, director of business development for Swiss Re's Beijing branch.

"In the long run, the current M2M model has reached its peak and is not sustainable," Schuh said. That's because the M2M model leads insurers to compete against each other hard on price but not on product and service innovation, which he said they have no incentive to pursue.

The country's top insurers, such as China Life, sell their products through all major banks. State-owned commercial banks such as Industrial and Commercial Bank of China (ICBC) and China Construction Bank distribute for almost all major insurers, said Frankie Leung, partner and managing director of BCG Greater China.

Holger Michaelis, partner and managing director of BCG China, said exclusive partner-ships between banks and insurers could take four different forms: exclusive distribution partnerships; joint ventures; financial holding companies; or integration of insurance into banks' product pipelines.

"I would prefer that one bank sell only one insurer's products, because the bank can provide a better and dedicated services to us," said Wang Yanhong, a customer at Shenzhen Development Bank.

But, "if a bank only sells one insurer's products, why wouldn't I buy directly from the insurance company?" asked a lady surnamed Li, a customer of Shanghai Pudong Development Bank.

"The exclusivity partnerships are quite unlikely (in China) at present," said He Yahui, a salesman at China Life Insurance, because "banks sell for whomever pays more."

Michaelis suggested banks create pilot exclusive partnership programs in one province.

Mei Jun, a professor at the Financial and Securities Research Institute of Renmin University of China, said the M2M and the exclusivity model both have pros and cons, but they can co-exist.

Right now, it's hard for small- and medium-sized companies to partner with large banks, he said, which will likely lead to mergers and acquisitions. That's not a bad thing so long as it doesn't create monopolies, Mei said.

As of the third quarter of 2009, banks selling insurance accounted for 55.08 percent of the insurance distribution channel and 58.5 percent of the overall premium income, according to the China Insurance Regulatory Commission.