Insurers brace for tough sales under ban on cross-selling of products

PUBLISHED : Saturday, 02 May, 2009, 12:00am
UPDATED : Saturday, 02 May, 2009, 12:00am

Competition in the local insurance market has intensified as the demand for investment-linked products falls and the industry braces for tougher sales following a recent ban on cross-selling of financial products.

Hong Kong has more than 140 general insurers and 46 life insurers and has long been considered a crowded insurance market. As the global crisis curtailed the appetite for investments, many insurers expanded their business along a different tack to sustain premium growth.

'We are seeing a slowdown in single-premium sales in the market,' said Jeff Walker, the chief executive of Prudential Assurance in Hong Kong. 'At the same time, there will be a shift in consumer preference away from investment-oriented products back to traditional insurance protection. We've been quite aggressive in wrapping up our agency distribution, and that strategy is expected to thrive in today's environment.'

The slowdown in the global economy and the resulting lack of demand for investment policies has significantly reduced the underwriting revenue of Hong Kong insurers. According to the Office of the Commissioner of Insurance, the industry collected HK$60.41 billion in new premiums last year, 25 per cent lower than the HK$80.61 billion collected in 2007, when the subprime crisis was only beginning.

Market watchers say rising risk aversion and implementation of a ban on cross-selling to bank customers could give rise to a larger and stronger tied-agency channel.

Regulators called on banks to separate traditional deposit-taking services from the retail securities business following the Lehman Brothers minibond sales fiasco last year. Bank staff will no longer be allowed to advertise insurance and other fund products at counters by the end of September.

Mr Walker said Prudential would increase the number of its agents 50 per cent to 6,000 this year, while its rival AIA said it planned for a 35 per cent increase of agents to 11,500.

Standard Life, which entered the Hong Kong insurance market in 2000, is banking on a growing number of mainland customers, who purchase investment-linked policies in Hong Kong.

Existing laws prohibit authorised insurance brokers or independent financial advisers from conducting direct marketing activities on the mainland and in Taiwan. However, they can sell financial products on a referral basis.

'We will follow the strict rule under the law,' said Alan Armitage, chief executive of Standard Life (Asia). 'But we do see an opportunity due to their desire to look for more sophisticated and complex products.'

About 25 per cent of the premiums now come from non-Hong Kong residents, Mr Armitage added. 'It will become an important growth driver for our future business.'