PUBLISHED : Tuesday, 26 February, 2013, 12:00am
UPDATED : Tuesday, 26 February, 2013, 4:51am

Time for action on insurance investment-linked products

Without any regulator to oversee the sector, the government needs to act before it is too late


Enoch Yiu is the chief reporter of business pages at the Post. She writes feature stories with a focus on regulatory issues, stock exchanges, the Securities and Futures Commission, accountancy, insurance, pension and other financial industry development issuse. She has a weekly column, White Collar, covering the latest issues in the professional industry and also hosts podcasts and video programs on She is the author of two books.

The best news heard last week is that our securities watchdog will look into the regulation of investment-linked insurance products - a good move that should have come earlier. But it is still not too late.

Securities and Futures Commission chairman Carlson Tong Ka-shing said the regulator was talking to the government on how to tighten controls over these products, which, despite their name, were more like investment products.

Classified as insurance products - a combination of insurance policies and investment funds - they are basically off the radar of the SFC, which only vets their marketing materials. As the city's planned Insurance Authority will not come into existence until 2015, there is no regulator to keep an eye on them.

This situation has caused problems before - just like the Lehman Brothers minibonds, which led to thousands of investors suffering losses when the US lender went bankrupt in 2008. Despite its name, the minibond was not a corporate bond but a risky derivative product. It was also off the SFC's radar. It too only approved the marketing materials.

It is true there have not been many complaints about investment-linked policies, as in the case of the Lehman minibonds before the bank's collapse. It makes sense for the SFC to take action sooner rather than later.

The investment-linked products allow policyholders to invest in different funds and they shoulder any gain or loss. This is different from traditional life insurance policies in which the insurers invest the premium in more conservative products and pay dividends to policyholders. The policyholders do not bear investment losses.

Investment-linked products look attractive when the market is hot because they produce better returns than traditional policies. Sales of such products reached HK$60.04 billion in 2007 when the Hang Seng Index hit a record high.

The tide turned in the ensuing market crash, with sales plunging to HK$15.5 billion in 2009, and HK$7.17 billion in the first nine months of last year. Still, they represent about 30 per cent of all policy sales.

With such popularity, we wonder if agents explain to buyers all the risks involved. Unlike brokers or fund managers, insurance agents are not overseen by the SFC.

Something ought to be done before another fiasco happens.


Travel cash call

A reminder to all readers travelling overseas: under new rules effective from Friday, those wanting to use their ATM cards to withdraw cash while overseas must activate the function before they leave the city. The daily withdrawal limit and activation period must also be set.


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