Mainlanders have been flocking to Hong Kong to buy life insurance policies. In the first quarter, these customers accounted for more than a third of the market.
Last year, mainlanders spent HK$31.6 billion in new premiums, representing 24 percent of all new premiums for life policies sold in the city.
Hong Kong policies are typically more attractive than those available in mainland China.
Three types of policies are particularly popular.
First is long-term endowment insurance policy, which is one of the major products offered by global insurers.
The policy usually covers a long protection period of up to 100 years old. It’s not uncommon to see policies worth over HK$100 million being written.
Compared with similar insurance products on the mainland, Hong Kong policies have fewer exemptions and offer more flexible ways to draw cash.
The most attractive feature is the high projected return. Though not guaranteed, a potential return up to 6 percent per annum proves to be a big draw for mainland clients seeking yield.
Short- and medium-term savings insurance policy is another hot product, which is usually provided by mainland-based insurers and sold through banks.
With an average maturity of three to six years, the policy offers a fixed annual return ranging from 3 to 4.5 percent.
Some banks also offer policy financing, and investors could get a return of above 7 percent using such leverage.
These policies are quite similar to popular universal policies and ordinary policies that have become very popular on the mainland in recent years.
As such, it’s quite natural for mainlanders to purchase these policies against the backdrop of falling interests rate and the lack of good investment assets on the mainland.
Dreaded disease policies are also popular. This segment is dominated by global insurers.
Policies sold in Hong Kong usually have wider coverage than mainland offerings. The former provides full coverage for around 100 medical conditions including early-stage dreaded diseases, while the latter usually only covers advanced-stage dreaded diseases.
Hong Kong policies also provide coverage for the recurrence of dreaded diseases and the insured are able to get a bigger amount of claims under similar conditions.
Besides, Hong Kong policies accept treatments in a number of first-rate hospitals on the mainland apart from those in Hong Kong and other nations if the insured need to make claims.
That offers greater convenience for high-net-worth individuals who travel overseas frequently.
Most dreaded disease policies have an embedded savings dividend. The insured will get cash value refund if they don’t make any claims before the policy matures.
Hong Kong insurance plans are slightly cheaper, too, compared with mainland products with similar coverage.
Mainlanders also consider Hong Kong policies as a way of asset diversification as most Hong Kong-registered insurers allocate their assets mainly in Hong Kong and internationally.
Hong Kong policies have become even more attractive since 2014, when the renminbi ended its long-time appreciation trend against the US dollar and the Hong Kong dollar.
Two things can change the favorable trend, though.
First of all, insurance companies are struggling to hit targeted returns amid an extremely low interest rate environment worldwide.
Mainlanders may become less confident if insurers fail to deliver the expected return.
Also, the China Insurance Regulatory Commission (CIRC) has issued a statement on its website saying that insurance products issued by Hong Kong insurers are not protected by mainland laws.
Chinese authorities have also stepped up their crackdown on illegal insurance offerings and tightened cross-border money transfers.
This article, published in the Hong Kong Economic Journal on Aug. 10, was contributed by Chen Dong Vice President of the China Financial Association of Hong Kong.
Translation by Julie Zhu
[Chinese version 中文版]
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