Insurance sector back to basics after global crisis

The financial crisis triggered by the collapse of the sub-prime mortgage market in the United States has encouraged Hong Kong insurance policyholders to return to basics, according to the group head of insurance for HSBC, David Fried.

'Policyholders have gone back to basics. They like traditional savings products that can offer them guaranteed returns but also some upside,' Fried said.

Before the crisis of confidence that rocked financial markets late in 2008, Hong Kong policyholders were turning to investment-linked policies that promised higher returns, albeit at higher risk.

But customers had since returned to the best-seller list of traditional insurance products, said Fried, who was appointed to the post of head of insurance for HSBC in February. He was formerly regional head of insurance for Asia-Pacific.

Some 70 per cent of sales by HSBC's insurance arm are basic savings products, while the balance are investment-linked policies that allow investors to elect how to invest their premiums. While they can benefit from superior growth on such products, they also have to bear investment losses.

Government statistics show more people are buying the traditional products than the investment-linked products. There were a total of 814,701 traditional policies sold last year, up 17 per cent from 2008, and a rise of 20 per cent on 2007.

In terms of monetary term, there were HK$30.97 billion worth of traditional life policies sold last year, up 30 per cent on 2008 and 53 per cent more than 2007.

By comparison, total sales of investment-linked policies have been declining. Last year some 151,551 investment-linked policies were sold, down 52 per cent compared with 2008 and a drop of 64 per on 2007. In monetary terms, total sales of investment-linked policies last year amounted to HK$15.07 billion, down 57 per cent on 2008 and a drop of 75 per cent on 2007.

This trend is reflected in new product launches. HSBC, Hong Kong's largest deposit-taking institution and lender, last week launched a yuan insurance policy that is also a simple saving product with guaranteed returns. Fried said it was proving to be popular among customers who were expecting to gain from a rise in the value of the yuan.

'The insurance sector is now negotiating with regulators in Hong Kong and China to see how to further expand yuan insurance policies in Hong Kong,' Fried said.

HSBC in Hong Kong, as well as in its global operations, aimed to almost double the percentage of its banking clients that also took out insurance policies from a current level of 11 per cent to 20 per cent, Fried said.

The bank has four million individual customers and 300,000 corporate clients in Hong Kong.

Fried said future growth would come from Asia and other emerging markets that now represent 70 per cent of the group's total insurance profit. In Asia alone, pre-tax insurance profit stood at US$1.2 billion last year, out of US$2.5 billion worldwide. This was because these markets had a low penetration rate that allowed more room for growth than in the US and Europe, which were mature markets.

'Asia and the emerging markets have strong growing economies and ageing populations, which has led to an increasing demand for insurance and pension products,' Fried said.

'China, India and Vietnam will continue be a focus of our future expansion.'

HSBC opened an insurance joint venture on the mainland in August last year, seeking to tap the rising affluence of consumers in the world's third-biggest economy. It won approval from the China Banking Regulatory Commission in June to establish HSBC Life Insurance, which is initially allowed to sell life insurance in Shanghai.

Playing safe

Last year 151,551 investment-linked insurance policies were sold

Compared with 2008 this represented a drop of: 52%

Total sales amounted to HK$15.07 billion, a drop of: 57%