INSURANCE COMPANIES ARE targeting small investors with new savings products, which offer higher returns than bank deposits. Big insurers such as Manulife, AIG and AXA are leading the launch of new products in the SAR. John Harrison, vice-president of individual financial products at Manulife (International), said the company had launched new insurance products tailored for retail investors who regularly save small amounts. 'We will [continue to] make products for small and regular savings accounts and still [give investors] higher returns than the banks,' Mr Harrison said. Interest rates for savings accounts are near zero, a result of the aggressive rate cutting by the United States Federal Reserve last year to prop up a sagging US economy. Hong Kong has followed the Fed in cutting rates, as its currency is pegged to the US dollar. The local saving rates for smaller account holders were further made unattractive after the interest-rate deregulation last July, which saw account holders leaving bigger banks and looking for other means of gaining money. Last September, David Carse, deputy chief executive of the Hong Kong Monetary Authority (HKMA), warned that new fees and charges introduced by banks would drive away small depositors from the banking system because they would find it too expensive to keep their money in bank deposits. With larger banks introducing charges for small deposits and introducing tiered interest rates, insurance companies are taking advantage by luring small investors shying away from banks due to historically low interest rates. John Snelgrove, general manager of AXA China Region, the local arm of Paris-based insurance giant AXA Group, said: 'Banks are not offering very much to investors. Insurance products offer a choice of investment-linked [products], which have been very successful.' Gerry Ong, assistant vice-president marketing at American International Assurance (AIA), said because interest rates of insurance products were usually higher than those of fixed deposits and savings accounts in banks, they were more attractive for investors. As long as interest rates for bank savings accounts remains low, the insurance product is still a better choice for long-term investment. David Hughes, chief operating officer of Standard Life Asia, said: 'Low interest rates are also putting pressure on bonus rates in traditional products, hence people start to look for alternative investments.' Insurers said insurance investment-linked products would continue to draw attention and demand from investors this year due to weak economic conditions. 'Growth in the unit-link or investment-link insurance market will continue this year. We have seen significant growth in the past two to three years too,' Mr Hughes said. 'The old-style traditional insurance products are very opaque - people can't see exactly what they are being charged.' Mr Snelgrove said: 'The trend is towards product investment-related or wealth-related. The wealth protector and creator products will be the main products to be issued this year by insurance companies.' Mr Ong said investment-linked products were popular for the past two years but after the September 11 tragedy, traditional plans were more well-received by the market. Mr Hughes said people were becoming much more aware of their need to be protected with appropriate insurance products. There will be greater emphasis in the next 12 to 18 months in meeting these needs. 'This is because in times of economic difficulties or troubles, people tend to stop and think about what needs their families may have,' he said. Mr Hughes also said there was a natural progression in the insurance market away from the agency route to independent professional advice. 'It is a trend that had gathered a lot of steam over the past 12 to 18 months. The banks, brokerages, investment houses are also offering independent advice,' he said. Mr Harrison acknowledged there was a need to create more flexibility for policy holders who defaulted on payments in dire economic conditions, which resulted in massive layoffs. 'The unit-linked products have more default compared to the traditional products as they have been sold only recently. They are starting out and are more susceptible to the economic downturn,' Mr Harrison said. Mr Snelgrove said unit-link products in the market already offered the flexibility required for investors. Investors were able to suspend payment for a short period of time when they were unable to make payments. Mr Snelgrove said the volatile equity markets were also making investors nervous. Manulife said guaranteed funds were still in demand and did not rule out the possibility of launching more such products in the near future. Mr Hughes said the equity market had picked up, so guaranteed funds were no longer very rewarding. 'For everything you get, you have to pay a price and in this case, you pay for a guarantee,' he said.