Source: Broker China Author: Pan Yurong
On the one hand, there is the legend of an influx of talented people and an annual salary of one million; on the other hand, there is the reality that the Hong Kong government is arresting people and making notices like arrows. Hong Kong insurance became a new favorite among mainland customers after the pandemic. This time, the new Hong Kong Insurance Force, represented by talented and talented people, crossed the border with mainland customers and achieved a “miracle” of 28 times a year of growth. Is Hong Kong experiencing a “splash of wealth”? Where will the new round of the Hong Kong Insurance Feast go? The reporter went to Hong Kong a few days ago to find out.
The reason behind the current round of Hong Kong insurance is the centralized release of overseas asset allocation requirements that have been suppressed by the mainland for 3 to 4 years. Mainland visitors go to Hong Kong to buy Hong Kong insurance, often in pursuit of high returns. However, the payment cycle of life insurance usually spans more than 10 years. During this period, market risk, policy risk, and foreign exchange risk are intertwined, making it difficult to measure gains and losses. In the future, Hong Kong insurance will also be “disenchanted” as the regulatory side attacks and short-term influencing factors recede.
Immigration Department
Take the Guangzhou-Shenzhen-Hong Kong High Speed Rail to Hong Kong West Kowloon Station. As you pass through the high-speed rail gate exit, you can look up and see a huge AIA Insurance wall advertisement. There are many insurance advertisements, which is the first impression that many mainlanders have when entering Hong Kong.
Echoing AIA's huge advertisement, several LED advertising screens hang on the load-bearing columns in the lobby next to the gate, and the Hong Kong Insurance Regulatory Authority's reminders: “7 things to apply for insurance in Hong Kong”, “avoid contact with unlicensed persons”, “do not pay premiums directly to insurance companies” and “never agree rebates with intermediaries”.
A race for attention has begun at the immigration office.
Coming out of the West Kowloon High Speed Rail Station and passing through the narrowly paved banks and banknote exchange offices, billboards of Hong Kong's top insurance companies appeared one after another. Countless messages came to you, all of which seemed to suggest, “You are so important.”
Insurance is one of the “specialties” of the Hong Kong International Finance Centre. As the city with the highest insurance density and second highest penetration rate in Asia, the Hong Kong insurance industry contributes about 4% of the gross domestic product and ranks among the top ten industries. In this area, a total of 157 insurance companies are authorized to operate, and there are about 116,000 licensed insurance intermediaries, accounting for 3% of the total working population.
In 2023, the total gross premiums of Hong Kong were HK$549.7 billion, of which HK$58.971 billion were applied for premiums by mainland visitors, an increase of nearly 28 times over the previous year, surpassing the premium income of mainland visitors before the 2019 pandemic.
This is all thanks to customs clearance with the mainland. In January 2023, the Guangzhou-Shenzhen-Hong Kong High Speed Rail resumed. Hong Kong West Kowloon Station is connected to the mainland's 40,000-kilometer high-speed rail network, and operates more than 70 trains daily with 58 mainland cities.
At the Immigration Department, travelers who go to Hong Kong to buy insurance are clearly different from those who go to Hong Kong for work or travel: Mainland travelers who go to Hong Kong to buy insurance usually have a “guide” who understands Cantonese, can speak Mandarin, and is familiar with local affairs to provide personal service. These people are probably “referrers” cooperating with Hong Kong insurance companies, that is, “unlicensed persons” alerted by the Hong Kong Insurance Regulatory Authority in the Immigration Department's LED advertisement. According to the Hong Kong Insurance Industry Regulations, unlicensed persons are not allowed to promote insurance to customers, and the whole process of explaining and selling Hong Kong insurance must be completed in Hong Kong.
How to complete insurance promotion, bank account opening, and signature during the visa period? Time is extremely valuable. Around the West Kowloon High Speed Rail Station, the one-stop service surrounding Hong Kong Insurance has brought the “efficiency of Hong Kong” to the fullest.
The Tsim Sha Tsui business district where the high-speed rail station is located can be called “five steps one bank, ten steps one insurance”. China Merchants Wing Lung Bank, Bank of China Hong Kong, ICBC Asia, and Nanyang Commercial Bank have all set up branches here. The reporter visited various bank branches and found that the average queuing time at the site was more than three hours. As the first stop for mainland visitors to Hong Kong to apply for insurance, Tsim Sha Tsui Harbour City is a must-see place for mainstream insurance companies in Hong Kong. AIA, Prudential, Manulife, Wan Tong, and Fortis have all set up insurance service centers here.
Walking from the high-speed rail station to Harbour City in just a few minutes, the reporter saw several insurance company agents standing on the side of the street holding signs to visitors to solicit business. The scope of the consultation covered bank account opening, Hong Kong insurance services, high-end medical care, family trusts, asset allocation, studying in Hong Kong, Hong Kong identity processing, etc.
Million round table signing room
Liu Fei (pseudonym), who graduated from Sun Yat-sen University, obtained a Hong Kong ID card last year through the Talent Program under the guidance of her teacher and sister. Afterwards, she quit her job in the marketing department of a listed company in the Pearl River Delta, joined her sister's insurance company, and became a Hong Kong insurance agent.
After receiving Hong Kong status, she soon became a counselor for friends around her who were interested in applying for Hong Kong status, and taught more than a dozen friends to apply for the Hong Kong Talent Admission Program. In addition to talking with friends about her Hong Kong identity, it was inevitable that it involved family financial planning and future education arrangements for her children. Liu Fei's Hong Kong insurance business started from here.
On the morning of a weekday, Liu Fei brought the reporter to the company's insurance application service center at the Gateway Tower in Harbour City, Tsim Sha Tsui. The service center has a half-floor circular conference room with dozens of interlaced round tables, known as the “One Million Round Table Conference Room”. When the reporter arrived here, the round table near Victoria Harbour in the conference room was already full. People were talking softly, and waiters were delivering coffee. Among the guests were middle-aged parents planning for their children's education, new mothers who chose medical insurance for their babies. Some flew over, and others took the high-speed rail and stayed here for a while carrying big bags and small bags.
At around 11:30 a.m., the conference room experienced a peak in traffic. The round table in the lobby was full, and the waiters began reminding agents who had made appointments to speed up. It was at this pace that many people came and went in a hurry to complete the signing of the order.
Although the Hong Kong Insurance Regulatory Authority reminds that the entire process of applying for insurance in Hong Kong should be completed in Hong Kong, from product promotion, content explanation, risk assessment, and signing of the contract, and must be provided by a licensed Hong Kong intermediary, under normal circumstances, when customers come to Tsim Sha Tsui to enjoy the ocean view and drink coffee, it is already the last step in signing the contract.
Zhang Jia is an insurance industry headhunter. Over the past year, he received requests from many Hong Kong insurance institutions to help the latter find insurance agents in the mainland to work part-time to sell Hong Kong insurance. He told reporters that eligible mainland insurance agents will be supported to apply for Hong Kong status and become official Hong Kong insurance agents after passing the examination. However, most mainland agents can only cooperate in the form of “referrers.” According to Hong Kong law, a “referrer” is a non-licensed person and cannot carry out any Hong Kong insurance promotion or marketing actions.
Hong Kong insurance institutions seek excellent insurance agents in the Mainland and value their customer resources and service capabilities. According to regulatory requirements, the latter are not allowed to make any kind of recommendation for Hong Kong insurance in the Mainland. This is obviously unrealistic. In fact, most mainland customers choose an insurance plan before leaving Hong Kong.
Compared with the mainland insurance industry, the advantages of Hong Kong's insurance commissions are obvious. With the implementation of the “integration of reporting and banking” in the mainland insurance industry, commissions for some life insurance products have dropped dramatically. In Hong Kong, the commission for insurance agents selling long-term life insurance is around 30%; the commission for insurance brokers selling long-term insurance can reach 60% to 70%. Tempted, some mainland agents began to develop the Hong Kong insurance needs of mainland customers and became “referrers.”
New forces in Hong Kong insurance
The mainland population, which has been granted the status of talented and talented people in Hong Kong in recent years, is a “new force” driving this wave of Hong Kong insurance growth.
In 2023, the Hong Kong Government adjusted its talent introduction policy. According to data from the Hong Kong Immigration Department, more than 224,000 applications for various talent entry schemes were received in 2023, which is about four times the number of applications in 2022; about 135,000 applications were allowed to enter Hong Kong, an increase of 255% compared with those approved in 2022.
New Hong Kong people like Liu Fei need to find a job after getting their status to guarantee future renewals. According to the Hong Kong Statistics Department, the median monthly income from finance and insurance in Hong Kong is HK$35,000, which is higher than the median monthly income of HK$21,000 in Hong Kong. The financial and insurance industry's ability to make money is very attractive to new Hong Kong people; for Hong Kong insurance companies, new Hong Kong people can bring resources to mainland customers. As a result, talented people and the Hong Kong Insurance Company completed a “two-way journey”.
Although she occasionally heard that her peers had signed big orders, Liu Fei did not feel “splendid wealth.” In her opinion, the insurance system in Hong Kong is very complicated. Different types of products such as savings and annuity insurance, investment insurance, medical insurance, etc., need to pass different qualification tests to obtain an exhibition license. The study intensity is very intense, and the job of selling Hong Kong insurance is not easy. “There is only a legend that the monthly income of Hong Kong Insurance is one million. It is used to inspire people to have hope and work hard.”
According to the data, the Hong Kong market in 2023 had a total of 6,467 million round table members (MDRT, with standard premiums meeting certain criteria), mainly distributed among AIA and Prudential companies. Compared to the 116,000 number of licensees, MDRT members are only 5% of the industry.
In the past year, Liu Fei's old insurance agents who have survived the pandemic may have ushered in the peak billing season, but new insurance agents like her still have to ask for a question mark on how long they can keep up on this path. Like the mainland, the turnover rate of insurance agents in Hong Kong is extremely high. According to some data, the industry's retention rate within a year is only about 30%.
Catch and hide
Recently, the Hong Kong Insurance Regulatory Authority and the Independent Commission Against Corruption have taken joint action for the first time, pointing to unlicensed operations and high commissions in the process of mainland customers buying Hong Kong insurance.
From April 10 to 11, personnel from the Hong Kong Insurance Regulatory Authority and the Independent Commission Against Corruption visited four premises for two consecutive days to execute search warrants, including searching the offices of a licensed insurance brokerage company and a referral company. Eventually, they arrested a personal broker and an introducer, accusing them of unlicensed sales and conspiracy to commit corruption and bribery.
The “Hong Kong Government Arrests People” incident caused the Hong Kong Insurance Referral Model, which had been sneaking around for many years, to be publicly attacked. The reporter learned from the Hong Kong Insurance Regulatory Authority that the Hong Kong Insurance Regulatory Authority received intelligence during the review process and discovered the illegal business activities described above during the actions of disguised customers.
As early as November 2023, the Hong Kong Insurance Regulatory Authority issued a circular to the industry warning practitioners to abide by the rules for licensed trade shows and not allow licensed insurance intermediaries to violate their responsibilities as licensees, that is, rely on or arrange for unlicensed persons to carry out regulated activities on their behalf (such as marketing Hong Kong insurance in the Mainland). Although the warning was issued, illegal exhibitions continued unabated, leading to unannounced visits and arrests in April.
In Hong Kong, unlicensed trade shows is a felony. A spokesman for the Hong Kong Insurance Regulatory Authority told the Securities Times reporter that it is a criminal offence for anyone to carry out regulated activities without the required license (unless exemptions apply). The importance of this provision is that those who violate the provisions of the law can be fined and imprisoned for up to two years.
Wu Hua (pseudonym) is a Hong Kong insurance industry professional. He explained the background of the arrests to reporters from a different perspective.
Since customs clearance in 2023, in order to obtain customers, some Hong Kong insurance brokerage companies have cooperated with mainland referrers to bring interested customers to Hong Kong after front-end marketing, then connect with Hong Kong brokerage companies to complete the signing of contracts. Since the Hong Kong brokerage company has no control over customer resources and does not participate in sales promotion in the early stages. It is just an “order submission channel”, and the vast majority of the commissions they receive are paid to referrers.
“Although insurance policies have been signed, all profits have gone out. It has also given rise to bad practices such as rebates and rebates, causing indignation among some Hong Kong insurance licensees. Some people complained to industry associations and the Insurance Regulatory Bureau, which eventually triggered regulatory and enforcement actions.” Wu Hua said that in Hong Kong, rebates are seen as an act that harms fairness and undermines market rules, and that no rebates are the bottom line that practitioners all abide by. Meanwhile, in the mainland, some workers are known to have a custom of rebates, and the industry has repeatedly banned them. If this trend is allowed to develop, it will inevitably challenge Hong Kong's past traditions, which Hong Kong insurance practitioners cannot tolerate.
The Hong Kong Insurance Regulatory Authority believes that when unregulated and unrecorded rebates are used solely as incentives in the sales process, customers may be distracted and unable to carefully consider whether the insurance policy they have purchased is suitable for their personal circumstances. As a result, such rebates can be a tool for improper sales and may have adverse consequences for policyholders. Additionally, unregulated rebates can discriminate among customers.
The Hong Kong Insurance Regulatory Authority reminds that insurers are responsible for ensuring that the compensation structure of long-term insurance products does not create “improper incentives”, leading to improper sales and overaggressive sales by intermediaries. Unrecorded rebates and unusually proportional referral fees have all in fact encouraged unlicensed sales.
The actions of the Hong Kong government have deterred some Hong Kong insurance brokers and insurance companies that take risks in pursuit of performance.
The Mainland's regulatory attitude is the key
Insurance headhunter Zhang Jia said that in his contacts with Hong Kong insurance companies, he felt that the latter was closely watching the attitude of mainland regulators on cross-border insurance. The latest statement by mainland supervisory authorities on cross-border insurance is quite significant.
After the Cross-border Wealth Connect pilot was expanded, the Cross-border Insurance Connect plan was appealed to by many industry insiders. On February 1 of this year, in response to the proposal to promote “Cross-border Insurance Connect,” the General Administration of Financial Supervision stated that the proposal conflicts with the requirements of the “Insurance Law of the People's Republic of China”. Hong Kong and Macau's insurance supervision policies, product rates, product sales policies, etc. are quite different from those in the Mainland. Selling insurance products in the Mainland without commercial presence may be detrimental to protecting the legitimate rights and interests of consumers. “Cross-border Insurance Connect” involves various factors such as laws and regulations, financial supervision, and consumer protection, and the time is not ripe for direct pilot implementation at this stage.
In addition to the General Financial Supervisory Authority, attitudes in foreign exchange management are also critical.
Since income and expenditure under China's capital projects is not fully open, the exit of life insurance premiums and entry of claims payments with dividend financial management will be restricted by foreign exchange management. Traditionally, funds purchased by mainland customers for Hong Kong insurance are usually exchanged for foreign exchange in the name of travel, consumption, etc. For larger insurance policies, they either borrow exchange credits from family or friends, or find intermediaries to “pay” them, and even use underground money stores to remit the money abroad. In short, the money that mainland visitors buy Hong Kong insurance has always been in a grey area when entering and leaving the country.
Hong Kong insurance companies are also prepared for these risks. The reporter obtained a copy of the “Important Information Statement” prepared by China Life Insurance Overseas Company for mainland people to apply for insurance in Hong Kong. The above mentioned tips were given in the face of related risks:
“This policy is covered in Hong Kong. If the relevant regulations and policies of the Mainland change in the future, there may be unforeseen risks for you (such as changes in foreign exchange policies that prevent you from paying premiums and even the policy becomes invalid).”
“In response to Hong Kong law and insurance companies' underwriting and other requirements, insurance companies are responsible and required to verify the funding source of the insurance policy, including requiring the policyholder to provide proof of legal source of funds and proof of legal income matching the insurance amount of the policy when necessary or when the risk is higher. For suspicious cases or in response to requests from Hong Kong law enforcement agencies, insurance companies may forward relevant information to the relevant agency without obtaining the consent of the policyholder.”
Where is the Hong Kong Insurance Feast headed?
Time flies back to 2016. In the last round of Hong Kong insurance feast, mainland visitors contributed over HK$72 billion in life insurance policies to Hong Kong. With the State Administration of Foreign Exchange imposing a single limit of 5,000 US dollars for mainland customers using UnionPay cards to purchase Hong Kong insurance, the total premiums for mainland customers purchasing Hong Kong insurance have dropped drastically.
The current round of Hong Kong's dangerous heat is quite different from 2016. The rapid rise in the scale of insurances applied by mainland customers in Hong Kong last year was a centralized release from the mainland that suppressed overseas asset allocation requirements for 3 to 4 years.
In the past 3 years, the scheduled interest rate for mainland life insurance products has dropped from 3.5% to 3%, and the Universal Insurance settlement interest rate has bid farewell to 4%. In the future, if long-term interest rates continue to decline, the predetermined interest rate for life insurance may also be lowered. Meanwhile, during the same period, Hong Kong insurance policies were highly respected due to their high degree of freedom in investment strategies and global capital allocation.
Furthermore, Hong Kong's insurance design is flexible. For example, it can be priced in up to 9 currencies, the policy can be split, and the insured can be changed an unlimited number of times, meeting the asset planning needs of some high-net-worth individuals.
Due to this wave of Hong Kong insurance boom, there has also been a marked change in product transaction preferences. In 2019, critical illness insurance accounted for 57%, whole life insurance for 34%, and medical insurance for 3% of the products purchased by mainland customers in Hong Kong. However, after the epidemic, the share of critical illness insurance declined. Whole life insurance was favored because of its savings and dividend functions. In 2023, the share reached 55%, replacing the top position of critical illness insurance.
Comparing the characteristics of the Hong Kong insurance feast in the past ten years, it is easy to see that mainland visitors are attracted to Hong Kong insurance mostly due to their perception of the high benefits of Hong Kong insurance. Can Hong Kong insurance policies actually achieve the advertised annual return of 6% to 7%? The reporter found that many people overlooked that achieving high returns is a prerequisite, and that high returns are not guaranteed.
The income of Hong Kong dividend insurance is divided into a guaranteed portion and an unguaranteed portion. The unguaranteed portion has three levels of income: low, medium, and high. Take Prudential Hong Kong's popular Junfu multi-currency as an example. Based on mid-tier income calculations, the internal rate of return was 2.6% at the end of the 10th year when the policyholder held the policy; when holding until the end of the 15th year, the internal rate of return rose to 4.65%; by the end of the 20th year, the internal rate of return rose to 5.59%. In other words, many Hong Kong insurers advertise an annualized yield of 6% to 7%, which is based on the premise that the policy has been held for more than 20 years. However, when an investment is placed within a 20-year time frame, the interest rate risk, exchange rate risk, and market risk it faces are not the same as short-term investment decisions.
Another prerequisite for dividend insurance to obtain high returns is that 100% of the policy's dividends can be achieved. Hong Kong regulations require insurance companies to disclose the dividend fulfillment rate of dividend insurance every year, providing a window for external observation and monitoring of Hong Kong's insurance dividends. The reporter checked the dividend realization rates of some well-known insurance companies' product lines over the past ten years, which were roughly distributed between 30% and 120%, and fluctuated as the market fluctuated. It can be seen that Hong Kong Insurance, as stated in its contract, does not guarantee the non-guaranteed portion of dividend insurance and does fluctuate. Buyers should be fully prepared. These announcements are an official “deception” of Hong Kong insurance, but they are often overlooked in sales.
Although Hong Kong insurance can invest globally, it also has to face major uncertainties and challenges in the global financial market. In the long run, excess income is directly proportional to the risk taken. Most insurance companies adopt a scattered and balanced investment strategy, and do not pursue so-called “clearly outperforming the general trend.” For example, according to the 2023 annual report of Prudential Hong Kong, its asset management company Hanya only 44% of its managed fund investments performed better than their respective benchmarks in the past year. This ratio was 59% in 2022. If you go back three years, this ratio is 50%.
In the first quarter of this year, mainland visitors contributed HK$15.6 billion in new premiums, accounting for 24% of the new premiums for personal businesses in Hong Kong. In the fourth quarter of 2023, this proportion was 35.3%. In fact, after the scale of insurance coverage for mainland visitors surged in the first half of 2023, it declined somewhat in the 3rd and 4th quarter.
A number of insurance industry insiders said that the continuing popularity of the Hong Kong insurance market is affected by various factors, including internal and external economic environments, policy changes, etc. After the concentrated release of the backlog of demand from mainland visitors, the popularity of the Hong Kong insurance market will stabilize if there are no major policy changes.
Zhang Yunzheng, the chief executive of the Hong Kong Insurance Regulatory Authority, said not long ago that in the future, the size of new insurance policies created by mainland customers is expected to remain at the level of HK$40 billion to HK$50 billion each year.
edit/lambor