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Online-only insurers have the advantage over traditional rivals of not having to pay commission to agents or banks. Photo: Shutterstock

Home-grown digital insurer Bowtie receives Hong Kong’s first virtual insurance licence

  • The virtual insurer’s new licence prohibits it from selling products via agents or banks, and is part of a government push to develop the city’s online finance services
  • Bowtie will target younger, tech-savvy customers who can take out a policy for just a few hundred HK dollars a month, says co-founder

Hong Kong’s insurance watchdog has issued its first virtual licence to an online-only insurer, as the government makes strides to boost the city’s internet finance services.

The recipient of the digital licence, which will allow it to sell insurance products by computer or mobile phone, is Bowtie Life Insurance, a home-grown start-up. The licence forbids Bowtie from using any agents or banks to sell insurance.

According to co-founder and co-chief executive Fred Ngan Yiu-fai, that is where virtual insurers have the edge.

“The online business model allows us to run at low cost – we only need about 50 people to develop the technology and provide customers services,” said the 35-year-old Hongkonger. “We don’t need to share any commission with agents or banks so we have a cheaper distribution channel than the traditional insurance companies.”

Bowtie’s Fred Ngan Yiu-fai says the idea is not to compete directly with traditional insurers. Photo: Roy Issa
The Hong Kong Insurance Authority launched a fast-track approval system for insurers which operate purely online late last year, and it has attracted a number of applicants. Bowtie received its licence within about a year, faster than a traditional insurer would expect to wait.

“Virtual insurers still have to follow the same high-capital and conduct requirements as traditional insurance companies,” said Clement Cheung, chief executive of the regulator at an insurance forum last week.

“The introduction of virtual insurers will allow start-ups that use new technology and innovative business models to serve customers. It is a significant move in pushing insurtech in Hong Kong to give more choice for customers.”

The entry of virtual insurers adds to an already booming life insurance market in Hong Kong. Total life insurance premiums in the first nine months of this year reached HK$347.8 billion (US$44.43 billion), up 7 per cent from a year earlier.

It is however a very crowded market, with 48 life insurers and 19 composite insurers – which cover both life and general insurance – operating via about 100,000 agents and bank staff.

“We do not plan to compete with traditional insurers,” said Ngan. “While they sell more sophisticated policies involving higher sums, we target simple life and medical products which don’t need much explanation and which enable the customers to buy and make claims all by themselves via their smart phones or computers.

“We want to target a younger generation of customers who are tech savvy and like to do everything by themselves.”

Bowtie intends to launch life insurance products next year which will only cost policyholders a few hundred Hong Kong dollars a month.

“The traditional insurers and agents would not be interested in these type of products as the profit margin is not high. This provides us with a business opportunities,” said Ngan.

Ngan, who studied in Canada, worked as an actuary for 15 years in the US and Canada.

He set up Bowtie with another actuary, Michael Chan, while the roughly 50 staff are either actuaries or technicians.

“We called the company Bowtie because people only wear a bowtie at important moments such as a wedding or graduation. We believe life insurance is as important,” he said.

The company secured Hong Kong’s largest series A funding of 2018, securing HK$234 million (US$30 million) from investors including global insurer and Sequoia-backed HK X-Technology fund – chaired by Tencent boss Pony Ma and Canadian insurer Sun Life.

Cheung said Hong Kong Insurance Authority will continue to issue virtual insurer licences next year.

Among the candidates will be home-grown online pet insurer OneDegree, which was co-founded by former JPMorgan banker Alvin Kwock Yin-lun to offer medical insurance cover for the half-a-million cats and dogs in Hong Kong.

The Hong Kong Monetary Authority, the city’s de facto central bank, will also issue the first batch of virtual bank licences in the first quarter of next year.

James Lloyd, partner and Asia-Pacific fintech leader at EY, said that virtual insurance could work in Hong Kong.

“The outlook of virtual insurance is somewhat comparable to the virtual banking opportunity, Lloyd said. “Consumers are arguably ‘over-banked’ in Hong Kong, but there is considerable scope to improve customer experience, product reach, and price transparency. It’s the same for insurance. We believe that the introduction of digitally native competitors, operating in a well-regulated environment, can only be beneficial for end-customers.”

This article appeared in the South China Morning Post print edition as: first licence for digital insurer