Opinion | Time for action on insurance investment-linked products
Without any regulator to oversee the sector, the government needs to act before it is too late
The best news heard last week is that our securities watchdog will look into the regulation of investment-linked insurance products - a good move that should have come earlier. But it is still not too late.
Securities and Futures Commission chairman Carlson Tong Ka-shing said the regulator was talking to the government on how to tighten controls over these products, which, despite their name, were more like investment products.
Classified as insurance products - a combination of insurance policies and investment funds - they are basically off the radar of the SFC, which only vets their marketing materials. As the city's planned Insurance Authority will not come into existence until 2015, there is no regulator to keep an eye on them.
This situation has caused problems before - just like the Lehman Brothers minibonds, which led to thousands of investors suffering losses when the US lender went bankrupt in 2008. Despite its name, the minibond was not a corporate bond but a risky derivative product. It was also off the SFC's radar. It too only approved the marketing materials.
It is true there have not been many complaints about investment-linked policies, as in the case of the Lehman minibonds before the bank's collapse. It makes sense for the SFC to take action sooner rather than later.
The investment-linked products allow policyholders to invest in different funds and they shoulder any gain or loss. This is different from traditional life insurance policies in which the insurers invest the premium in more conservative products and pay dividends to policyholders. The policyholders do not bear investment losses.