Life cover spreads in retirement planning

PUBLISHED : Sunday, 21 September, 2003, 12:00am
UPDATED : Sunday, 21 September, 2003, 12:00am

The Sars crisis kick-started an investment once spurned in Hong Kong as courting bad luck, but perceptions were already changing


Fear is an insurance salesmen's best friend. And back in April, at the height of the Sars crisis, business was booming.


John Snelgrove, general manager of new product distribution at AXA China Region Insurance, recalls that the telephones in the company's Wan Chai sales office rarely stopped ringing. As the crisis escalated, the company's 2,500 face-masked salesmen went into overdrive.


They signed tens of thousands of clients driven by concerns the outbreak was about to develop into a full-blown epidemic. Mr Snelgrove estimates life insurance issuance for AXA is up 20 per cent so far this year.


But he believes there is plenty of room for growth as Hong Kong residents awaken to the benefits of life insurance policies - and the need to plan for unforeseen circumstances.


'Traditionally Hong Kong people didn't buy insurance,' he says. 'They preferred their families would provide the insurance.'


Until the 1980s Hong Kongers avoided life insurance, believing it was bad luck to put a price on one's head. Now growing affluence and the surge in the white-collar workforce is changing perceptions.


However, despite rapid growth in an industry that was almost non-existent in 1980, Hong Kong still lags behind other modern banking centres. About 69 per cent of households have some sort of life-insurance coverage, compared to Singapore, where almost all households have some coverage, or Japan, where each household has about 21/2 plans.


On an aggregate basis the territory is also under-spending. Total life-insurance policy issuance in Hong Kong represents about 4.2 per cent of gross domestic product, compared to 7-8 per cent in Britain.


Another reason for the rising interest: most life-insurance policies are now geared towards family protection. AXA offers more than two dozen plans covering a spectrum from life-insurance-only policies to those which can help build retirement nest eggs.


'We have moved away from being simply an insurance company to something we consider a vehicle for wealth creation and wealth preservation,' says Mr Snelgrove, adding that AXA ranks, when Macau is included, as the third largest issuer in the Hong Kong region.


The chief executive of Sun Life Financial (Hong Kong), Janet De Silva, believes the insurance business is going through a renaissance in Hong Kong, thanks in large part to the heightened awareness brought about by the introduction of the Mandatory Provident Fund more than two years ago. The government-mandated scheme illustrated the need for individuals to adopt a structured savings scheme, a first for Hong Kongers, who tend to harbour entrepreneurial dreams instead of retirement plans.


Despite the heightened awareness of these savings products, Ms De Silva says selling insurance in Hong Kong is an uphill battle because of the lack of tax incentives.


'I look at our North American business, where our entire life-insurance market is driven off saving estate taxes,' she says. 'In Hong Kong there are very low taxes and what I've found here is that what we call life insurance is much broader than how we would define it back in North America.'


To make up for the absence of capital gains tax, Sun Life has adopted many of its products into savings programmes that 'go much beyond life insurance in the event of early death', Ms De Silva says.


One example is the Sun Retirement Fund 65. In addition to coverage for early death, the policy sets a monthly contribution rate designed to meet the holder's financial goals.


The Canadian company ramped up its Hong Kong operations recently as part of a broader strategy to cover China and India.


Sun Life's main business is providing group insurance policies through employers, but it has decided not to offer these services in Hong Kong because of thin margins. Instead, its strategy focuses on private insurance packages - a potential growth area Ms De Silva expects will pick up in the months ahead.


As evidence of the low-level of retirement policy issuance she points to Canada, where there are four times as many retirement policies than life-insurance policies. In Hong Kong about 69 per cent of people own life insurance, but only 23 per cent have a retirement plan outside of the MPF.


'Our consumer research shows attitudes are changing, people are looking to be more accountable for themselves and not necessarily looking for the next generation to support their retirement,' Ms De Silva says. 'People also want to encourage their children to pursue their own success, and understand the financial burden for their retirement should not be placed on their children's shoulders.'


Sun Life's joint retirement-life insurance policies allow clients to custom design their coverage. Holders can raise their death insurance coverage as well as control the risk profile of the investment component. This operates much like MPF schemes, which allow holders to switch asset classes several times a year.


'Clients can select which funds, or which combination of funds they want to invest in, put aside monthly contributions, and at a point in the future, they can take that lump sum which has been accumulated and convert it into a retirement income,' Ms De Silva says. 'Or they can take it in cash.'


At what age should someone consider signing on for life insurance? Ms De Silva advises clients to view it much like retirement planning. That means developing a structured savings plan in your early 30s and increasing your contributions - and the insurance portion - as your family commitments grow.


She cautions those looking into a scheme not to get discouraged by the confusing array of products on offer.


'In the Hong Kong market consumers really like the new, so you tend to get a proliferation of products coming at you all the time,' she says. 'If people fail to plan, a lot of the reason for that is they are too confused, there are too many choices out there.'