The trio submitted to the life insurance company 789 policies taken out between October 2002 and September 2003 with total annual premiums of US$1.64 million.

In return they were to receive a commission of more than 100 per cent of the annual premiums.

Among the 789 policyholders, some of them fictitious, were the names of real people who had no knowledge of the policies.

Others said they were offered a 'free policy' plan by the agents. These policies lapsed about a year after they were taken out.

To implement the 'free policy' offers, the agents settled the premiums out of their own pockets and received the huge commissions paid in advance by the company. They then kept the difference.

A spokeswoman for the Office of the Commissioner of Insurance said yesterday that the agents involved in the case had violated the professional code of conduct.

'Regarding insurance companies, we also provide circulars to remind the insurers to regularly review their credit systems, to maintain their internal control systems and guard against fraudulent practices,' she said.

The spokeswoman added that insurers had been informed on methods to protect the interests of policyholders and said the office did not determine commission rates.

Eric Lee, secretary-general and registrar of the Confederation of Insurance Brokers, encouraged insurance brokers to maintain their professional integrity.

In the District Court, prosecuting barrister Thomas Iu said the three defendants worked for Anderson Financial Management Strategy (Far East) Association, which had entered into an agent agreement with New York Life in 2002.

New York Life agreed to pay commissions at a maximum rate of 138 per cent of the annual premiums in a lump sum in advance to Anderson. In fact, rates varied by type of policy.

Mr Iu said the defendants conspired to defraud New York Life by recommending and selling insurance policies underwritten by the insurer to nominees and fictitious persons whereby Anderson would earn the advance payment of commissions arising out of the sale of the policies.

The three defendants were arrested at their homes on September 22, 2005.

Senior inspector Eddie Chow Cheung-yau, of the police's commercial crime bureau, said outside court that the public was advised to be more careful with agents or brokers who offered them free policies.

'In fact, all insurance policies, apart from travel insurance, require a policyholder to pay premiums. When there is an offer of a free policy, there may be a crime, and I advise the public to refuse the offer and report it to police.'

He said another case concerning a similar insurance scam was scheduled to be heard in the District Court.