Why we urgently need an insurance authority in HK
The increasing popularity of investment-linked policies shows Hong Kong has an urgent need for an insurance authority to regulate the salespeople who market these products.
Investment-linked policies allow investors to decide how to allocate their funds into different investment fund choices so their returns follow market movements. This is different from traditional life insurance policies, which are invested by the insurance companies and pay dividends to policyholders.
Sales of such policies are huge. Policyholders paid a total of HK$60.04 billion into these products when the Hang Seng Index rose to a record high in October 2007, three times those of traditional policies.
The sales of investment-linked products dropped to HK$15.06 billion during 2009, only half that of traditional policies, when the market was hurt by the global financial crisis. In the first half of this year, 30 per cent of all life insurance policies sold were investment products, totalling HK$11.9 billion.
The Consumer Council has warned consumers to beware of the complicated fee structure of these products. Early surrender of the policies may mean policyholders only get back a small amount of what they paid in.
A Consumer Council report showed there were agents who had not clearly explained policies to customers. In one complaint an agent told a policyholder that they only needed to pay a premium for two years. In fact the contribution period was 48 years, so the 52-year-old policyholders would have needed to contribute until they were 100 years old. The case has been referred to the Insurance Agents Registration Board (IARB).
Hong Kong already has high-powered regulators such as the Securities and Futures Commission and the Hong Kong Monetary Authority to check on banks, brokers and fund managers.
Previously, agents were mainly selling simple life protection products only. Now they are selling a range of investment products. So why are they not yet overseen by an independent regulator?
In Hong Kong, the Office of the Commissioner of Insurance regulates insurance companies, but it does not cover salespeople or offer any consumer protection. Insurance agents now only need to register with the IARB, a division of the industry body, the Hong Kong Federation of Insurers.
The government has proposed setting up an insurance authority which would regulate all insurance salespeople. But that will only happen in 2013, since the legislative process for setting up the authority will only start from early next year.
The Office of the Commissioner of Insurance said the commission had done its part, including measures that require salespeople to assess what policyholders can afford. The number of complaints related to investment-linked policies last year fell by 39 per cent compared to 2009. There was a further drop of 16 per cent in the first eight months this year compared to the same period last year.
The decline in complaints is a good sign, but the Consumer Council report shows there is still mis-selling happening. We need an insurance authority set up as soon as possible to address the issue.