More rules on investment-linked insurance products welcomed

Insurer says the tightening of regulations on investment-linked insurance products is an important boost to protection for customers

PUBLISHED : Wednesday, 20 March, 2013, 12:00am
UPDATED : Wednesday, 20 March, 2013, 4:35am

The securities regulator's plan to tighten the rules on investment-linked insurance products is more an opportunity than a threat, one insurer says.

James Tan, general manager of British insurer Friends Provident International's Asia, Middle East and Africa operation, said proper regulation would ensure investor protection, which is important for the development of investment-linked insurance products.

"We always make sure our insurance brokers make policyholders fully aware of the risks and other details of the policies before they buy the products. We welcome proper regulation on the sales process," Tan told the South China Morning Post.

The chairman of the Securities and Futures Commission, Carlson Tong Ka-shing told the Post earlier this month that the regulator was in talks with the government to tighten the rules on the products, particularly the sales process.

The products are currently not regulated by the securities watchdog, and salespeople are not required to obtain an SFC licence.

Tan said the real challenge for investment-linked products was not the proposed tightening of regulation but the market volatility.

"We have seen sales of investment-linked products going down in recent months in step with market volatility. Policyholders have been opting for simpler products to pre-empt losses," he said.

Investment-linked insurance policies, which allow policyholders to choose how their premium will be invested in funds, with the policyholder then shouldering the resultant gains or losses, have been increasing in popularity. Friends Provident International is one of the market leaders in the products.

These are different from traditional policies where the insurers invest the premium and deliver the returns to policyholders. Tan said customers have increasingly been tilting towards term life and other similar products.

Figures from the Office of the Commissioner of Insurance also show that volumes in investment-linked products swing with the market.

Such products issued by Hong Kong insurers reached HK$60 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$7.2 billion in the first nine months of last year.

Tan believes that in the longer term, investment-linked products will continue to grow, as the Asian market has seen an upsurge in the number of wealthy clients. "Our investment-linked policies have over 100 fund choices for customers to pick from," he said.

Friends Provident International is the wholly owned subsidiary of Britain-based Friends Life group. In Hong Kong, the Middle East and the rest of the Asian region managed by Tan, the insurer is targeting the expatriate community as well as the local affluent.

"We are not AIA or Manulife, which target the mass market, but focus on a particular client segment to focus on their demand," Tan said.