'It has been a very fast growing source of new business for the industry. According to the Office of the Commissioner of Insurance, new linked business grew by 18.6 per cent to $14.8 billion in the first three quarters of last year over the same period in 2004, while non-linked business grew by only 13 per cent to $16.7 billion,' he said.

The contrast between the growth in investment-linked and non-investment-linked insurance business was even more pronounced in 2004. While new business in the non-linked insurance category showed respectable growth of 22.1 per cent to $19.7 billion, the new investment-linked business soared 116.9 per cent to $18.5 billion.

This surge in business was undoubtedly connected to the rally in global equity markets, low interest rates and a strong local economy, but Mr Chan said there were other more permanent forces driving the market. 'Hong Kong people are becoming increasingly sophisticated in the way they invest and this can be seen in the investment-linked insurance business,' Mr Chan said.

'Their awareness of the whole wealth management concept has grown. Consumers these days demand variety in investment options and some have proven adept and far-sighted in their investment strategies. For example some of AIA's customers were looking to invest in gold three years ago before the price of bullion shot up.'

The increasing sophistication of Hong Kong's retail investors has led insurers such as AIA, the market share leader in investment-linked business according to government statistics, to innovate and broaden product ranges.

'The number of authorised products in the investment-linked insurance market has certainly expanded. From 1990 to 2000, there were only about 10 authorised products in the local market. However, in the past five years the number of authorised investment-linked products increased significantly. Last year there were 35 authorised investment-linked products available to Hong Kong consumers,' Mr Chan said.

One popular investment savings plan, the AIA Asset Accumulator, offers a choice of more than 50 funds where policy holders can place their premiums, giving customers access to leading asset management firms, including SCMP Fund Manager of the Year 2005 award winners Allianz Global Investors, Fidelity, First State and Merrill Lynch.

Mr Chan said AIA would focus on designing new investment-linked insurance products and continue to launch new products in the market to meet demand and the changing needs of consumers.

'We would like to bring out more flexible products like variable unit-linked plans which have gained wide acceptance in North America and other developed markets. Such products combine permanent insurance protection with investment flexibility. Should customers change their insurance needs over time, the product can provide the flexibility to increase or decrease the amount of coverage, or even allow the policy holder to skip a premium payment in cases of an emergency,' he said.

While the market for investment-linked insurance is becoming more competitive as retail banks step in to grab a share of the business, Mr Chan believes there is still room for growth.

'The penetration rate of mutual funds has been improving, but it is still only about 12 per cent,' he said.

Another factor supporting expectations of further growth in the investment-linked insurance market is the wide retirement savings gap that most Hong Kong people are facing. Savings accumulated through the Mandatory Provident Fund scheme are not nearly enough to meet people's retirement needs, with some studies claiming that the MPF would cover only 10 per cent of what a person would need to retire on.

Echoing other industry practitioners, Mr Chan said there was a downside to the growth in investment-linked business: many consumers that have taken out investment-linked insurance policies are neglecting to buy adequate life protection cover.

'Many customers are stopping with an investment-linked plan because they believe it offers enough insurance coverage. But the fact is there is still a large discrepancy.'

He cited the case of family breadwinners who only had enough cover to protect a tenth of the income their families would need to live on if the breadwinners died.

Mr Chan said AIA would continue to evolve into a single access point for a complete range of protection and retirement planning products.

'AIA's business strategy is to provide total wealth management solutions to its customers. We are providing a comprehensive range of life insurance, as well as accident and health plans for protection. At the same time investment-linked products are available for savings and wealth management purposes. AIA will continue to put resources in training and technology to ensure we have the best people and state-of-the-art technology to provide quality services to our customers.'