The best cover for everyone
Flexible policies are finding favour in Hong Kong and more institutions are scrambling to offer such packages, writes John Cremer
The concept of the one-stop shop has become all the rage in the world of wealth management over the past few years. Most notably, banks and other financial institutions have been making concerted efforts to break into the insurance sector, but at the same time, the leading insurance companies have been expanding into new areas, taking them well beyond their traditional territory.
Insurers have found what may be the perfect commercial riposte by offering an extensive range of specially designed investment-linked products which offer all-in-one insurance protection and opportunities for wealth accumulation.
Manulife (International) recently launched Matrix, which Bonita Leong, the company's vice-president, marketing and finance, for individual financial products, said was intended to cover every kind of need from 'nought to a hundred'.
According to Ms Leong the product allowed for a 'cafeteria approach', making numerous combinations possible to suit individual needs.
'It is multidimensional, appealing to a wide range of people with different dreams and different budgets,' she said, adding that there was therefore no such thing as a typical customer.
In each case, though, whether for a young graduate, someone with a growing family, or a person nearing retirement, the starting point was the same. It was to establish the client's available resources and future needs. This gave an understanding of priorities and time frames, and made it easier to give detailed recommendations or to point out factors which had been overlooked. In practice, Ms Leong said, most new clients began by setting up umbrella insurance protection. This could include basic life and medical cover, as well as a range of additional items perhaps providing cover for disability, long-term care or premium waiver benefits.
'It is up to you to balance it, depending on what you can afford, and it might be a step at a time,' Ms Leong said. She added that, within the prescribed parameters, it was also possible to switch the amount allocated to different insurance elements under the overall policy. So, for instance, if someone was granted medical benefits by a new employer, he or she could then change the split of the monthly premium under Matrix, allocating more for other types of cover.
When establishing a policy, customers also select preferred investment funds, relating to the savings part of the product. There are 26 available, ranging from 'achiever' funds, which generally entail higher risk, to broad-based equity funds. Customers receive a quarterly statement, can adjust their fund allocation at any time, and can do up to six switches a year at no extra charge.
At present, the minimum monthly investments are US$100 on the savings side and, for the protection element, US$36 or 10 per cent of the sum allocated for savings. The two parts are managed separately.
'Decisions on new funds to launch are made at corporate level,' Ms Leong said. 'We will be watching customers' needs and behaviour and making additions, but we believe what we have now caters for the Hong Kong mentality.'
Kevin Chan Kam-chung, vice-president of marketing and product management for Sun Life Financial, said the company's investment-linked 'Fortune builder' product was similarly versatile.
It could provide insurance cover for multiple lives and a selection of 32 funds for wealth accumulation. This allowed investors to choose from bond, equity and money market funds, as well as a guaranteed interest fund with different risk and return characteristics.
By insuring more than one life in a single policy, customers could save costs, Mr Chan said. Because the premium payment terms were flexible, it was also possible to adjust the amount paid, as needs or concerns changed.
Each month's premium, he explained, was used to buy units in the underlying funds chosen by the client. The company then calculated how much of the income from these was needed to cover the insurance element. That sum was transferred through an internal mechanism, with the surplus reinvested.
The target level of premium, say US$1,000 per month, was intended to ensure a reasonable return from a balanced portfolio. Meanwhile, free switching between the underlying funds enabled customers to maximise their investment returns.
'There is also a wide range of riders for customers to choose and add on,' Mr Chan said.
In taking advantage of these, each client could create a tailor-made protection plan, selecting the desired protection level for such items as critical illness, accident, or hospital and surgical cover. When individual circumstances changed, the details could be reviewed and amended.
Mr Chan said that the initial feedback from customers had been extremely encouraging. Referring to standard industry measures used to track performance, he noted that the attachment rate of protection riders was 25 per cent higher than for other investment policies, and the average case size had increased by 50 per cent.
Sun Life Financial's professional advisers receive extensive training in conducting a proper financial needs analysis to explain and promote the new product effectively. They must also obtain mandatory licences and attend monthly in-house seminars to keep abreast of the market.
Within a month of its launch in late March, more than 1,000 Fortune Builder policies were sold, and Mr Chan was optimistic about the future prospects. '[In due course], we hope this product can generate at least 25 per cent of the company's annual sales,' he said. 'People are looking for protection, but with an option to allow savings and, with the right positioning, we will increase our market share.'
Thomas Lee Mun-nang, vice-president and assistant general manager for American International Assurance (AIA), said that demand for investment-linked products was increasing, spurred by the boom in equity markets.
He said that such plans helped customers acquire the habit of investing regularly, while the chance to make additional lump sum payments allowed them to capture investment opportunities.
He said that the AIA Asset Accumulator was one of the company's top selling products. Customers could invest for between 11 and 30 years and enjoy the benefits of dollar cost averaging, which helped to even out market ups and downs. The flexibility of the product allowed holders to temporarily stop premium payments and resume later, provided the policy had sufficient value to cover fees and charges.
'Partial withdrawal of funds is available when there is a [short-term] need for money. And, after the premium payment period, customers can elect to receive the benefit accumulated at any time,' Mr Lee said. This can be as either a lump sum or an annuity payment.
According to statistics from the Office of the Commissioner of Insurance, new investment-linked business in Hong Kong recorded 51.2 per cent growth last year compared with 2005. In doing so, it outperformed all other classes of insurance business.
The number of authorised investment-linked business has also grown significantly in the past five years, with more than 200 to choose from locally at the end of last month.
Mr Lee said the next step for AIA was to launch a flexible variable universal life plan. It would combine permanent insurance protection and maximum flexibility in investment allocation.
Premium payments could be adjusted and death benefits restructured to suit shifting financial needs or goals over a lifetime.