Is Hong Kong weighed down by the cost of insurance?

Step into a financial adviser's office in Hong Kong, or go in for a financial review with one of the banks, and there is likely to be one result. They will sell you insurance.

Why? Because insurance pays some of the highest fees for instruments sold by an agent or bank. As well as an upfront commission, many insurers make an annual payment to the sales company for as long as the policy is in place.

Bank staff and other advisers are motivated to sell insurance products because the instruments generate big selling commissions, helping staff meet their sales targets and earn bonuses.

In an industry circular, the Hong Kong Monetary Authority cites several examples of the ways banks over-sell one type of insurance product in particular - pension and savings plans called investment-linked assurance schemes. These plans take many forms. Typically they let customers buy into an array of mutual funds. But the instruments all contain some component of insurance, usually life, and are therefore classified as insurance.

In one case, an insurance sales agency sold an insurance-linked investment to a customer with only HK$1 million to her name a policy worth HK$5 million, with the total premiums on the policy working out to more than the customer's entire life savings, according to the Monetary Authority.