More mainland Chinese buy insurance policies in Hong Kong, and the watchdog is taking notice
Insurance Authority chairman Moses Cheng has an extraordinary job ahead of him: regulating an insurance industry that has grown enormously thanks to China’s investors
Moses Cheng Mo-chi, the first chairman of Hong Kong’s new Insurance Authority (IA), was already enjoying a beckoning retirement before being called out by the government to establish the insurance watchdog agency.
At 67, Cheng has seen a lot of change in the city and in its financial and insurance industry. Cheng was one of the first full time law students to get his degree from Hong Kong University, taking his first job in 1973. Though he retired in 2015, he continued to work as a consultant. Known for his contributions to society and love of the arts, he is the founding chairman of Opera Hong Kong and the Child Development Matching Fund.
The IA is so new that Cheng’s interview for this article took place in his old law office – the offices of the Insurance Authority were still in build; the IA officially started operations on June 26, 2017.
The new regulator took over from the Office of the Insurance Commissioner as the regulator for all insurance companies and overseeing about 90,000 insurance sales staff.
It’s no small task. The government debated the creation of such an agency for ten years, as the industry itself exploded. The gross value of insurance policy premiums in 2016 stood at HK$448.8 billion (US$57.5 billion), up 763 per cent from HK$52 billion in 1997, according to government statistics.
The number of policies had more than tripled in the same period, to 12.66 million last year from 3.4 million 20 years ago. And the number of sales agents in Hong Kong has grown by 141 per cent to 92,465 in 2016 from 38,383 in 1997.
Mainland China is the driving force behind this growth. In 1997, there were no statistics of mainlanders buying policies and products in Hong Kong, a trend that did not truly start until almost a decade later.
Cheng said the stable economic environment; the support of the Hong Kong government has led to many international insurance companies setting up offices here.
Chinese people spent HK$48.9 billion buying policies in Hong Kong during the first nine months of last year, the latest available data from the government. It represents 37 per cent of all policies sold. That’s 26 times higher than the HK$1.8 billion they purchased in the nine months from April to December 2005, when the data was first published. The fall in the RMB has only increased mainland buyers’ appetite.
Mainland Chinese companies have subsequently started to buy the city’s insurance firms. Of the 21 proposed takeovers of Hong Kong insurers worth at least US$4 billion in the past three years, nine have been led by mainland companies, according to data from Thomson Reuters.
“I’ve learned a lot of new things in the past two decades, with the most significant one to be my Putonghua,” Cheng said in an interview with The Peak magazine, published by the South China Morning Post. “I believe my Putonghua was horrible twenty years ago, but now I can make a public speech in the language fluently.”
These trends are healthy and likely to continue, he said. “Hong Kong is a free market and we welcome mainland companies to invest in Hong Kong insurance companies.”
Looking after all these takeovers requires ensuring that the people who buy Hong Kong insurance companies know what to do once they have them.
The IA is to work with its mainland counterpart, the China Insurance Regulatory Commission (CIRC), on cross border regulation. The nature of cross-border transactions will require vigilance on any form of malpractice, Cheng said.
Looking ahead, Cheng believes upcoming infrastructure projects stemming from the Belt &Road Initiative will further increase demand for related insurance policies, leading to more work in the industry.
As the latest piece in the government’s regulatory framework, Cheng has to find a way for his new IA to work with the SFC and the Hong Kong Monetary Authority (HKMA) in particular. Before the IA was set up, a government department issued licenses to insurance companies, but let an industry body self-regulate some 90,000 agents. A major task for the IA will be to develop a new licensing system. From 2019, all insurance agents will need a license from the IA before the can do business.
The new regulator operates as a public body with independent financial status. The plan is for the IA to employ up to 300 people under non-civil service contracts. As a financial regulator, the IA has a similar status as the Securities & Futures Commission (SFC) and HKMA.
One aspect of the government’s decade-long discussion about the IA was whether it should be a standalone agency, or if it should be merged with the SFC, since so many insurance products are investment linked policies that need SFC approval.
Like his regulatory counterparts, Cheng believes that Hong Kong’s regulatory system works well, as long as its leaders are always talking to each other.
“The investment linked insurance products need to be approved between the SFC and the IA. There are many banks selling insurance products that need the HKMA and IA to work together to make sure the salespersons have explained the products appropriately to the policyholders,” Cheng said.
He counts both SFC Chairman Carlson Tong and HKMA’s chief executive Norman Chan as friends.
“It does not matter for us to have several new regulator. What is more important is to have the leaders of the different regulators to work closely together,” Cheng said.
It was Cheng’s work as a solicitor in the 1970s that introduced him to the insurance industry, where civil litigation involved insurance compensation on personal injury cases. But his knowledge (and friendships) of finance and insurance really comes from past positions with both the SFC and the HKMA, including chairman of the SFC’s Process Review Panel and the Exchange Fund Advisory Committee Authority of Hong Kong Monetary Authority. He also spent six years as a director of the Hong Kong Exchanges & Clearing Ltd.
In 2006, Cheng set up the Financial Reporting Council, garnering significant experience dealing with government. So when Secretary for Financial Services and the Treasury Chan Ka Keung in 2016 asked Cheng to take up the job to establish the Insurance Authority, he said yes without hesitation. “It is great to establish a new regulation from nothing, but it is also a major challenge to establish it from scratch,” he said.
That enthusiasm will be necessary, given the task ahead. But Cheng also likes to keep a smile on his face. He says he takes pride in the growth of the legal profession, and the path of Hong Kong over the past 20 years. “Being a happy person is important to (staying) healthy and young.” He therefore recommends Hongkongers look to the future, and avoid complacency.
“We should be humble and ready to learn from our neighbours; re-engineer ourselves in order to compete on the global stage,” he says. Perhaps he’ll need to deliver a similar message in Putonghua.
(This an article that appears in the July/August issue of The Peak magazine, available now at selected bookstores and by invitation.)