Insurance authority targets unrealistic sales pitches related to life policies
Paying US$500,000 for a life policy and you may get US$450 million at aged 100? One can easily find such promotional material by Hong Kong life insurance companies in social media in mainland China, which has triggered the Hong Kong government to take a number of measures to crack down on misleading projections.
Hong Kong’s Insurance Commissioner John Leung Chi-yan said his office has also started to roll out a number of new regulatory actions to prevent salesmen, who may have used the mainland social networks such as weibo and wechat, to spread unrealistic return projections.
“Such promotion is potentially illegal because Hong Kong agents are not allowed to sell products in the mainland. Those misleading promotion materials on social media must all be scrapped. When we found these materials in social media, we would ask the insurance companies to check on that and scrap these messages. So far, all the Hong Kong insurance companies have complied with our requests,” he said.
“In addition, we have a whole set of regulatory measures rolled out from April to the second half of this year to make sure insurance companies are issuing products that are fair to policyholders while their sales persons must present only realistic return projections to customers,” Leung said. “These measures not only protect the mainlanders but also all policyholders in Hong Kong.”
Mainland law prohibits Hong Kong agents selling products in the mainland but mainlanders can purchase the policies while visiting the city. Last year mainlanders spent HK$31.6 billion on such policies, accounting for 24.2 per cent of total new premiums of life policies sold in Hong Kong last year, up from just HK$2.8 billion or 5.3 per cent in 2006 when the government first released the annual figures.
The China Insurance Regulatory Commission last month issued a warning statement on its website alerting consumers to be aware of the risks of buying insurance products in Hong Kong. The statement highlighted currency risk and the different laws between Hong Kong and the mainland.
The CIRC noted that while the mainland has detailed regulations on how insurance companies can project future returns on investment-linked policies, Hong Kong has little regulation.
Leung said his office received 47 complaints last year, half of them related to the projection of returns.
Leung said a guideline on investment-linked policies and how to calculate expected returns, was made last July.
“Under the new guideline, all new products launched after April 1 must be designed and presented in a way that is fair to the customers, while the insurance companies must also make sure the sales persons must make sure the customers understand the risks involved and how realistic the projection must be,” he said.
“Insurance companies should make sure the customers understand the projection is not a guarantee. They should not only give one rosy picture about the best possible benefits they could give to the policyholders. Instead, they should give both a high and a low return based on different assumed scenarios, based on different interest rates, economic outlook and market situations.”
For products sold before April 1, the insurance companies from January next year must provide an annual update to policyholders on the return projection.
“The Insurance Commissioner’s office staff in the second half of this year will conduct systematic inspections to check if the insurance companies have followed the new guideline,” he said.
In addition, the Insurance Commissioner is working with the Hong Kong Federation of Insurers to design an “important fact statement”. From mid this year, all mainlanders who purchased insurance polices in Hong Kong must sign this statement to make sure they understand the differences between mainland and Hong Kong law and regulation.
“This would be similar to the warning of the CIRC. The mainlanders would need to understand the currency risks as well as the different regulations between Hong Kong and the mainland,” Leung said.
A Hong Kong insurance agent, who did not want to be named, said mainland social media are used by some salesmen to promote investment-linked products. In some instances, it is claimed that potential returns could reach 9 to 10 per cent annually.
“This in fact is impossible at the current low interest rate environment. Honestly, an average long-term investment return of 5 to 6 per cent would be really what the insurers can earn these days,” the agent said. “But then it should note that we have already told the policyholders that these are not guaranteed returns and it is up to them to decide whether or not to buy the policies.”
Christopher Cheung Wah-fung, a Hong Kong lawmaker for the financial services sector, said the Insurance Commissioner’s office should tighten regulations related to the return projections.
“Regulation will enhance protection to the policyholders from the mainland and Hong Kong. It would be important to crack down on any misselling so as to encourage more mainlanders to buy financial products in Hong Kong,” Cheung said.
The government is going to set up the Insurance Authority by the end of this year which will take over the Insurance Commissioner’s office as the independent regulator for the insurance industry. The new authority will have more power and resources to crack down on misselling and will continue to implemented the existing guidelines.
“The set up of the Insurance Authority will further enhance insurance regulation in Hong Kong. It will continue to adopt the existing guideline on return projections,” Leung said.