How about an Insurance Connect to boost Hong Kong sector’s flagging fortunes?

Mainlanders spent just US$5.17b in the first nine months of this year buying insurance in Hong Kong, down 17 per cent than on a year ago as Beijing tightens its grip on capital flight

PUBLISHED : Monday, 04 December, 2017, 1:33pm
UPDATED : Monday, 04 December, 2017, 3:22pm

First we had Stock Connect, then Bond Connect, and now there’s even talk of IPO Connect.

But to me the obvious next way forward should be an Insurance Connect scheme – to reboot interest by mainlanders in buying Hong Kong insurance products.

The numbers of mainlanders – who’ve previously travelled to Hong Kong to buy everything from baby milk formula to jewellery as well as stocks and property – buying HK underwritten insurance policies have dropped off significantly, and they have been spending less too when they do buy.

In the first three quarters of this year, mainlanders spent HK$40.4 billion (US$5.17 billion) buying Hong Kong life insurance policies, for instance, down 17 per cent than HK$49 billion in the corresponding period last year, according to statistics from the Insurance Authority last week.

That has been the continuation of consistently sinking trend, as mainlanders spent just HK$10.1 billion on Hong Kong life policies in the third quarter of this year, down 13 per cent from HK$11.6 billion in the second quarter, which was down 38 per cent from HK$18.8 billion spent in the first quarter.

For the whole year, 2017 is set for a significant decline by mainlanders buying insurance policies in Hong Kong, from a record HK$72.69 billion last year.

The reasons behind the drop are twofold.

First, Chinese regulator has been putting various measures in place since late last year to block mainlanders from using credit card and other payment platforms to buy insurance products overseas.

But a strengthening of the yuan this year against the US dollar, has reduced the need for mainlanders to buy Hong Kong dollar or US dollar policies in Hong Kong, to hedge against the risks for devaluation of the yuan, which fell more than 7 per cent against the US dollar in 2016.

This year, however, the yuan has bounced back more than 4 per cent against the greenback.

Now the question is, what can the Insurance Authority and the Hong Kong government do to fight back, and arrest the dwindling number of policies being bought hereby mainlanders.

A properly managed Insurance Connect scheme might prove the ideal answer.

Beijing is uncomfortable with mainlanders buying insurance products in Hong Kong for fear of capital outflow, but they seem less nervous about buying stocks via the two Stock Connect schemes that link the Hong Kong stock markets with Shanghai and Shenzhen.

There are also Bond Connect, and Mutual Fund Recognition schemes that allow cross-border trading of bond and fund products.

The “Connect” concept clearly works at generating cross-border trading and boosts the internationalisation of yuan. We have seen more cross-border trading of stocks, bonds and funds but insurance sector now appears to be missing the boat.

If a proper framework can be created to allow mainland currency regulators feel comfortable about buying insurance policies in Hong Kong, that could provide a huge benefit the local insurance sector.

So let’s see the suggestion on the next meeting agenda between government officials and Insurance Authority executives, and their mainland counterparts.