Healthy outlook for islands in the sun

Colonial has long had a place in the sun as the dominant distributor of financial service products in Fiji. But Colonial’s recent strong growth in the Fijian insurance market have laid the foundations for the Melbourne-based group to provide Fijians with a much wider range of investment products and banking services, reports John Wilkinson.

Colonial's 76 per cent growth in its Fijian operations over 1998 is surprising for a company that already holds 70 per cent of the life insurance market in a country with a population of only 800,000 people dotted around a number of islands.

The normal rules of marketing say companies with such strong market shares tend to be declining. But Colonial's chief operating officer Simon Swanson says his aim is to grow the business further, proudly proclaiming: "We are aiming for 90 per cent market share of the Fijian financial services market."

One of the reasons for such a bold target is the fact that 50 per cent of the country's population is aged under 21. This young and growing market will, Colonial believes, be receptive to a range of new products it plans to introduce to the islands.

"Fiji is a developing economy and we are going to be a dominant player delivering integrated financial services to a target market of employed and self-employed people," Swanson says.

One advantage for Colonial in this strategy is that it is perceived to be a local company rather than a foreign-owned multinational. This stems from the fact that the Fijian operations date back to 1876, when it became the first overseas branch to be opened by the Melbourne-based Colonial Mutual. This early date is even more remarkable considering that it was only two years after the islands ceded their sovereignty to Britain, a measure aimed at halting the bloody warfare between Fiji's tribes.

In the 1920s the business was administered by Colonial's New Zealand operations, but in 1979 it became a separate reporting unit with its own board, again reporting to Colonial in Melbourne.

Further growth came in 1990 when Colonial bought the Blue Shield health business and again in 1994 when it bought National Mutual's operations in Fiji.

The next big step in Colonial's Fijian operation was the demutualisation of the parent in 1997. This resulted in 29,000 islanders - 30 per cent of the country's employed population - becoming shareholders, according to Swanson.

"We have become part of the fabric of the islands, offering traditional life insurance and health care products," he says.

Life business in Fiji is relatively simple. But health care, as in Australia, is more complex and will need more attention to achieve the growth Swanson anticipates. Colonial sells its health-care products through agents, which produces a three-way partnership between distributors, doctors and customers. Complex cases must be sent to Australia and New Zealand for treatment and health operations generally suffer from rising costs and expensive drugs.

Swanson says Colonial was facing three options with its health care business - provide health insurance, seek preferred health providers or provide managed care. "Colonial will not leave a business where we have a 60 per cent market share," he says.

To make the health-care business more profitable, Colonial is managing its risk by better management of claims and health providers. This involves contracting doctors to treat a set number of patients in an agreed period for an agreed fee.

"The result has been that doctors see fewer patients, which means better health care," Swanson says. "As the patients pay a co-payment, this cuts out over-servicing."

Colonial is also negotiating with a major Australian health-care provider, understood to be Mayne Nickless, to build Fiji's first private hospital. It will cost about $A6.7 million and could be open by next year.

Swanson says this will cut the cost of sending patients to Australia and New Zealand and provide Fiji with a facility it currently lacks. Colonial has also developed a preferred list of pharmaceuticals, although Swanson says there is flexibility to allow doctors to prescribe drugs outside the list. "Managing health care is a big issue for Colonial," he says.

Creating greater efficiency in the Fijian operations is another objective Swanson sees as an important step towards achieving a greater market share.

The agent network is spread across the Fijian islands, with 246 administration staff in four locations. These operate two core product support systems. The life product support system is moving to a Windows NT platform, which will become the basis for all programs running throughout Colonial's Asian operations, including China.

The system was developed in Suva, a software centre of excellence for the Colonial Group. The manual for the new system, which is capable of handling numerous Chinese dialects, will be written in New Zealand. The Fijian staff are also being made more computer-literate and there is now one terminal now for every 1.2 employees, Swanson says.

The Fiji agents are supported by a training team with a strong emphasis on professionalism, Swanson says. "This has meant many are members of our $1 million (sales) round table." Brokers are limited to selling health care products and general insurance, and do not provide financial advice.

Trail fees have just recently been introduced in Fiji, Swanson says, but franchising agent operations is a long-term prospect and won't happen for another three to four years, he adds. Direct sales are just beginning in Fiji and Swanson says this will be useful when the company introduces unit trusts and banking to its range of products.

The move into banking is subject to gaining a licence from the Reserve Bank of Fiji, although Swanson points out that the company has the infrastructure in place. Colonial will then begin offering traditional banking services, mortgages and credit cards, although EFTPOS has not been successful due to problems with interfaces and customer distrust. "They can see their balances in their passbooks, so electronic acceptance is slow," Swanson says.

Master trusts will also be introduced this year, although with limited investment options due to the lack of listed companies. The Fijian stock market is capitalised at only $US70 million and has just nine companies listed, although another three or four are expected to be added this year. "Any turnover in stocks is a news item," Swanson says with a smile.

Colonial's strategic plan now is to retain the strong new business the group has won over the past few years. As well as last year's 76 per cent rise in new business, average premiums rose 31 per cent to $860 per client.

"We have a strong platform for growth with a strong brand," says Swanson. "In banking it means Fiji will now be an 'allfinanz' operation like the rest of the Colonial group."