Hong Kong’s insurance industry plays a major role in the development of the country’s financial services. Despite the challenges of the global economic crisis, the insurance industry in Hong Kong recorded noticeable growth of 3.1% between 2007 and 2011. Following the crisis, demand for insurance products increased rapidly and is expected to continue to increase at a CAGR of 7.1%. Notably, the economic slowdown had no significant impact on the Hong Kong insurance industry as, instead of not purchasing insurance plans, consumers simply changed their insurance plan preferences. For example, those consumers who were reluctant to invest in unit-linked plans due to the poor performance of the global economy redirected their investment to traditional life insurance products.
Overall, the written premium of the Hong Kong insurance industry increased from HKD191.9 billion (US$24.6 billion) in 2007 to HKD216.8 billion (US$27.9 billion) in 2011, registering a CAGR of 3.1%. According to the IMF, Hong Kong’s GDP is expected to increase at a CAGR of 7.2% up until 2017, to reach a projected value of HKD2.7 trillion (US$344.8 billion) in 2016. This growth is expected to increase the income levels of the Hong Kong population, and result in increased sales of insurance products. By 2016, the written premium of the Hong Kong insurance industry is expected to have reached a value of HKD305.5 billion (US$39.3 billion), after recording a projected CAGR of 7.1%.
The insurance industry in Hong Kong is liberalized, with foreign companies allowed to enter the country’s insurance industry and carry out their business. Any foreign company that complies with the authorization requirements of the Hong Kong insurance regulatory authority is permitted to apply for a license to conduct insurance business in Hong Kong. Furthermore, Hong Kong entered into a Closer Economic Partnership Agreement (CEPA) with Mainland China in 2004, under which Hong Kong insurance companies who meet the required access conditions are permitted to conduct insurance business in Mainland China. Due to the rapid growth of the insurance industry in Mainland China, this agreement has created significant business opportunities for Hong Kong insurance companies. According to the Hong Kong Federation of Insurers (HKFI), clients from Mainland China are expected to drive significant growth in new insurance sales.
In terms of written premium, the life insurance segment dominates the overall Hong Kong insurance industry, with an 87.82% share of total industry premiums in 2011. It was followed by the non-life insurance segment, with a 7.64% share; and the personal accident and health insurance segment, with a 4.54% share. The written premium of the Hong Kong life insurance segment increased from HKD171.7 billion (US$22.0 billion) in 2007 to HKD190.4 billion (US$24.5 billion) in 2011, registering a CAGR of 2.6%. This growth was driven by favorable government regulations, and increased use of product innovations and marketing campaigns by life insurance companies operating in the country. However, the value of the individual unit-linked insurance category declined from HKD78.3 billion (US$10.0 billion) in 2007 to HKD48.6 billion (US$6.2 billion), registering a CAGR of -11.2%. This decline was primarily due to the reluctance of consumers to invest in policies whose value was highly dependent on overall economic performance during a period of global economic recession. However, the decline in the premium earned for these policies was offset by the robust sales growth in traditional life insurance policies. Specifically, the share of traditional life insurance products, including whole life, endowment and term life products, within overall life insurance premiums increased from 28.3% in 2007 to 47.7% in 2011. This growth in traditional life insurance products is expected to ensure the overall growth of the Hong Kong life insurance segment.
Driven by rising sales of motor vehicles, increased construction activity, and the introduction of mandatory insurance products, the written premium of the Hong Kong non-life insurance segment increased from HKD12.8 billion (US$1.6 billion) in 2007 to HKD16.6 billion (US$2.1 billion) in 2011, registering a CAGR of 6.7%. Notably, the Hong Kong insurance regulatory authority made employees’ compensation insurance and motor third-party liability insurance obligatory in Hong Kong, a development that was a key factor behind the growth in general liability and motor insurance premiums between 2007 and 2011. The growth of the Hong Kong non-life insurance segment is expected to be driven by an increase in the levels of construction activity in the country, with an increase in infrastructure construction expected to play a particularly important role in driving growth. Overall, the written premium of the Hong Kong non-life insurance segment is expected to record a CAGR of 5.3% to reach a projected value of HKD21.4 billion (US$2.8 billion) in 2016.
Furthermore, Hong Kong insurance companies are increasingly focusing on the development and expansion of alternative distribution channels across the country. For example, the bancassurance channel has been rapidly gaining popularity in the Hong Kong insurance industry, with a large number of insurance companies aggressively adopting this channel in order to take advantage of banks’ existing clients and branch networks and cross-sell their products. Consequently, the Hong Kong insurance industry is now dominated by companies with significant bancassurance operations. Some of the other popular distribution channels in the industry include direct marketing, insurance brokers, agencies, and e-commerce, while the expansion of distribution channels throughout the country is expected to help insurers operating in Hong Kong to reach a larger customer base and generate significant business.
The life insurance segment in Hong Kong recorded noticeable growth between 2007 and 2011. The segment grew from HKD171.7 billion (US$22 billion) in 2007 to HKD190.4 billion (US$24.5 billion) in 2011, after registering a CAGR of 2.6%. The segments growth was driven by rising consumer awareness with regards to life insurance coverage, favorable government regulations, and increasing product innovations and marketing campaigns. Although, weak economic conditions impacted Hong Kong’s economy in 2009, the country’s life insurance section remained largely unaffected with consumers simply changing their preference towards certain products. For example, the recession left many consumers reluctant to invest in unit-linked policies as these are exposed to market conditions. The individual unit-linked category declined from HKD78.3 billion (US$10 billion) in 2007 to HKD48.6 billion (US$6.2 billion), after registering a negative CAGR of 11.2%.
However, the decline in the premium for these policies has been offset by the robust performance in the traditional life insurance policies. The growth in the traditional life insurance products including whole life, endowment and term life ensured the robust performance of the segment. The share of traditional life insurance products including whole life, endowment and term life in terms of the overall life insurance premium increased from 28.3% in 2007 to 47.7% in 2011. The growth in the category was driven by the rising demand for these products among the consumers and strong marketing campaigns by the life insurance companies to encourage the customers to buy the products. The category is expected to follow a similar trend over the coming years. The contribution of traditional life insurance products is expected to remain high and reach 47.8% in 2016.
The government introduced a mandatory provident fund (MPF) system in December 2000 in order to provide retirement protection to workers and the self-employed through long-term savings. Under the system, employees and employers must contribute 5% of the employees’ monthly income as a mandatory contribution. Self-employed individuals must also contribute 5% of their income in order to avail the benefits of MPF scheme post-retirement. These provident funds are offered by licensed trustees, including banks and insurance companies.
The growth in the segment was also attributed to the various strategies adopted by life insurance companies to influence the buying behavior of the customers. The life insurance companies initiated various marketing strategies to cater to diverse customer segments according to their financial needs.
Life insurance companies have been relying on different distribution channels to reach out to a larger customer base and market their products. Bancassurance remained the most popular distribution channel in Hong Kong between 2007 and 2011, despite increasing competition from agencies and the direct marketing channel. Leading banks, including HSBC Insurance (Asia) and BOC Group-life Assurance Company, have established their own life insurance companies in Hong Kong, limiting the scope for independent life insurers to benefit from the bancassurance market. However, independent insurance companies also entered into the bancassurance agreement with the banks in order to cross-sell their products. For example, Prudential Corporation Asia has formed a partnership with Standard Chartered, one of the leading banks in Hong Kong. The popularity of the bancassurance business model has been increasing significantly and the life insurance companies are using this model to expand their market penetration. The channel is expected to remain the largest distribution channel over the coming years and account for the majority share of the new business written premiums in 2016.
The insurance industry’s regulatory environment is expected to drive the life insurance segment up to 2017. The country has liberalized FDI policies for life insurance companies with little restrictions, which is expected to encourage foreign companies to enter the market. Moreover, Hong Kong entered into the closer economic partnership agreement (CEPA) with mainland China in 2004, under which the Hong Kong insurance companies who meet the required access conditions are permitted to conduct business in China. However, life insurance companies must maintain the minimum capital according to solvency norms, which can be an entry barrier for new firms looking to invest in the segment.
Hong Kong is one of the most open insurance industries in the world, leading to a high level of development in distribution with the presence of a large number of domestic and international companies in the industry. The growth in the life insurance segment was supported by the rapid expansion of distribution channels in the country. Hong Kong life insurance companies generate the majority of their revenues from the domestic market. However, a small portion is also generated from mainland China. In mainland China, companies operate primarily through insurance brokers. However, in the domestic market, companies distribute policies though different channels including direct marketing, agencies, bancassurance, insurance brokers and e-commerce.
Bancassurance has been the preferred and dominant distribution channel in terms of Hong Kong life insurance products and accounted for 46.4% of the new business written premium in 2011, followed by insurance agents, which represented 22.3%, and the direct marketing channel which accounted for 20.5%. The life insurance companies entered into the distribution agreement with leading banks in order to cross-sell their products through the banks extensive branch networks. The bancassurance model helps insurance companies to reach out to a larger customer base and enables them to generate significant business.
Following this model, Prudential Corporation Asia, entered into a bancassurance agreement with Standard Chartered, one of the leading banks in Hong Kong. Leading banks such as HSBC Insurance (Asia) and BOC Group-life Assurance Company have established their own life insurance companies in Hong Kong, limiting the scope for independent insurers. Overall, the contribution of bancassurance in terms of new business premium is expected to increase from 46.4% in 2011 to 53.4% in 2016. The total number of policies sold through bancassurance is expected to grow from 506,000 in 2011 to 696,000 in 2016, after registering a CAGR of 6.6%.
Agencies remain the second-largest distribution channel in the Hong Kong life insurance segment and accounted for 22.3% of the new business written premium in 2011. Companies rely on their insurance agents to market their products across diverse customer segments and many have formed a strong network of agents. The number of agencies operating in Hong Kong grew from 28,407 in 2007 to 34,004 in 2011, after registering a CAGR of 4.6%. Despite the increasing number of agencies, the total new business written premium generated declined from HKD27.5 billion (US$3.5 billion) in 2007 to HKD15.7 billion (US$2 billion) in 2011, after registering a CAGR of 13.1%. The decline was attributed to the global economic crisis and the increasing popularity of bancassurance.
Similarly, the new business written premium from direct marketing also recorded a decline of -3.7% between 2007 and 2011. However, the channel is still preferred by the most of the life insurers in Hong Kong due to the lower marketing and administrative costs. On the marketing front, life insurance companies have adopted a number of marketing and product strategies to increase the awareness level of their products among the consumers through innovative advertisement campaigns while emphasizing on importance of financial planning. For example, AXA (Hong Kong) Life Insurance Co. introduced a financial needs analysis iPhone application, “Empower Me”, which enables the consumers to calculate the estimated amount they require at different stages of their life. These initiatives are expected to increase the consumer awareness and instigate new business for the life insurance segment. The new business written premium through direct marketing channel is expected to recover and grow at a CAGR of 6.7% up to 2017.
Insurance brokers accounted for 3.5% of the new business written premium in 2011. A number of life insurers partnered with several brokers to market their life insurance products in Hong Kong. International brokers are well represented with strong relationships with the life insurance companies operating in the country. International insurance broker, Aon’s regional headquarter is based in Hong Kong with 500 professionals providing life insurance services. Local insurance broker, Premier Insurance Brokers, operates in the life, non-life and personal accident and health insurance segments through its partners and broker companies. The life insurance companies also operate in mainland Chinese market through their network of brokers. The total number of insurance brokers operating in Hong Kong reached 540 in 2011. The number of policies sold through insurance brokers grew from 34,300 in 2007 to 38,200 in 2011, at a CAGR of 2.7%.
Although the e-commerce channel is in its developmental stage, it has emerged as one of the fastest-growing distribution channel in the Hong Kong life insurance industry. The rise in the number of internet users and the growing awareness of online transactions has driven the demand for online distribution. Many firms prefer this channel due to the potential to reduce distribution costs, which can be passed on to customers in the form of lower premiums. Some of the country’s leading life insurance companies have already started offering their products to their clients over the internet. The number of policies sold through e-commerce grew from 12,200 in 2007 to 17,400 in 2011, after registering a CAGR of 9.4%. In addition, insurance providers such as HSBC Insurance (Asia) adopted innovative distribution channel such as ATMs and inbound call centers. The rapid expansion of these alternative distribution methods is expected to help companies to further penetrate the segment.
June 2012: Aviva Hong Kong, the wholly-owned subsidiary of the Aviva plc, launches RMB Insurance Plan ‘Aviva WealthGrower RMB Insurance Plan II’ in response to the strong demand for RMB investment products. Apart from a guaranteed return, policyholders have the opportunity to earn the potential appreciation of RMB over time under this plan. ‘Aviva WealthGrower RMB Insurance Plan II’ is suitable for those who are looking for stable returns and potential appreciation in RMB. This plan also provides death benefit and additional cover against terminal illness so that life assured family members are protected with financial assistance at time of need. In addition to bancassurance channel, the company offers this plan through Aviva Advisors, direct sales force and selected independent financial advisory partners.
March, 2012: BEA Life Limited, the wholly-owned life insurance arm of The Bank of East Asia (BEA), launched WealthSaver RMB Insurance plan in response to the demand for Renminbi (RMB) insurance products. The plan is an RMB-denominated endowment plan for persons aged between 3 months and 65 years. The plan offers life protection for five years and guaranteed annual returns of 2.3% upon policy maturity, with guaranteed protection of up to 110.79% of the total premium paid. The plan allows customers to make premium payments and settle the policy in either RMB or HKD. The application process is simple and easy, and no medical examination is required for plans with an annual premium of RMB4,000,000 (HKD4,904,420) or less per insured person.