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China’s demand for insurance products in Hong Kong reflects asset diversification need

Growing mainland Chinese interest in buying insurance products in Hong Kong reflects an asset diversification need from wealthy individuals and highlights the need for domestic insurance reform, participants told a symposium in Shanghai on Monday.

Hong Kong life insurance products are gaining popularity among mainlanders due to their availability in foreign currency settlement, lower premiums than similar mainland policies, and more flexible longer-term “free coverage” marketing gimmicks, participants told a Shanghai Insurance Institute symposium.

“There are signs mainland buyers of Hong Kong insurance policies are expanding from high net worth individuals to a vast group of middle class clients,” said Chen Qian, vice general manager, actuarial division at China Pacific Life Insurance Co, adding that regular premium products are gaining popularity in Hong Kong.

Mainland insurers are under pressure to fight Hong Kong rivals for similar insurance products, by trimming premium charges by 40 per cent to become more competitive, he said. This has pushed them to increase their assets management capability, adopt better risk control, and cut their costs, he added.

He also argued that it may trigger reform support from the industry watchdog, such as gradually loosening a more-than-decade-old ban on offering investment returns to critical illness insurance policyholders, noting that such loosening could be done step by step as trials in some cities.

It is also arguable whether the China Insurance Regulatory Commission would lift its ban on long-term free coverage in the mainland to make it more flexible for mainland insurers to sell products, he noted, admitting that such loosening, if not properly managed, could lead to disruptive price wars.

Chen Dongmei, a Fudan University insurance associate professor, said the middle class running to Hong Kong to buy insurance products reflected a growing need to diversify assets and the passing on of wealth amid rapid wealth accumulation.

It pushed domestic insurers to develop better products with more innovation, she said, noting that the mainland is growing as a major player in the insurance sector with its rising premiums but is far from being a strong player in the segment.

China is expected to surpass Japan to become the world’s second largest insurance market this year, following the United States in No 1 spot.

In the period from 2010-2015, insurance premiums on the Chinese mainland grew at a compound annual growth rate of 13 per cent, while life insurance premiums collected from mainlanders in Hong Kong jumped 48 per cent in the same period, according Pacific Life’s Chen.

Pei Guang, head of the Shanghai Bureau of the China Insurance Regulatory Commission, said at the symposium that it was inevitable for China to invest in overseas markets as the country shifts from a “capital importer” to “capital exporter”, triggering more demand for offshore insurance products.