Seven of Hong Kong's leading life insurance groups have been cheated out of at least $80 million in commission payments by a group of local brokers.
It is believed the brokers signed long-term investment-linked insurance savings plans with the companies. After a few monthly contributions had been paid - and the commission fees received - the policies were cancelled.
The scam takes advantage of the industry practice of paying commissions larger than the initial premium payments.
Insurance companies routinely award lucrative commission fees on long-term savings plans, ranging between 50 to more than 100 per cent of one year's premium contributions. On a 20-year, $20,000-a-month savings plan the upfront commission payment could exceed $200,000.
The victims are believed to include CMG, Standard Life, New York Life and Winterthur Group. They contacted the Office of the Commissioner of Insurance (OCI) - the de facto industry watchdog - in April, and later the police, after noticing an abnormal increase in the number of policy cancellations issued through certain insurance brokers.
Industry sources say the size of the fraud could be much larger than insurance companies are willing to disclose, with some estimates placing the total losses at US$60 million.