With new regulations covering investment-linked insurance policies kicking off yesterday, policyholders at least can get some protection from mis-selling by sale agents. This is better than nothing but obviously still not good enough.
Banks and insurance salespersons now have to disclose their commission on investment-linked assurance scheme (ILAS) sales to clients, and must ask clients to give reasons for choosing to invest in the products before selling them.
Last month the Hong Kong Monetary Authority meted out its first punishment for mis-selling of these products when a former front-line employee of HSBC was suspended from the banking register for three years.
At last it looks like our regulator is doing something to tighten curbs on the products. But there are still many regulatory loopholes.
First the products. Although they are investment products in nature, they are not subject to the regulation of the Securities and Futures Commission.
The investment-linked insurance products are really a cross between a life insurance policy and an investment fund, allowing policyholders to choose how to invest the premium among various fund choices.
The SFC has declared it is not responsible for how the products are sold except to vet advertising materials. These products are so complicated that investors are reliant on the salespersons to explain them.
The HKMA now covers about 25,000 bank staff who sell investment products, including ILASs, and with regard to these staff, the authority has shown its teeth on mis-selling.
However, about 45,000 insurance salespeople are not regulated by the HKMA, the SFC or the Office of the Commissioner of Insurance. Anyone who wants to be an insurance agent only needs to register with the Insurance Agents Registration Board, which is not a statutory regulator but a self-regulatory body.
Unlike Britain, Australia and Singapore, whose insurance sectors are monitored by independent regulators, Hong Kong's is overseen by the government's Office of the Commissioner of Insurance, which has no power to control agents.
The government is planning to present proposals to lawmakers on Friday before a formal submission is made in November to set up an independent Insurance Authority in 2015, which will license and regulate all 70,000 insurance salespersons, including those who work for banks or insurance companies. Before that happens, many insurance agents continue not to be licensed.
Some insurers say these types of policies represent about 30 to 40 per cent of all sales and they sell particularly well when the stock markets are buoyant.
This showed many policyholders consider these products serious investments, even though they are not regulated by the SFC.
This, again, shows this city urgently needs an insurance authority.