Recently, Hong Kong insurance has been exposed to the problems of unlicensed sales, corruption, bribery, and even rebates. A few days ago, the Hong Kong Insurance Authority (IA) and the Independent Commission Against Corruption (ICAC) raided the offices of a licensed insurance broker company and a referral company, resulting in the arrest of an individual broker and an introducer on suspicion of unlicensed sales and conspiracy to commit corruption and bribery.
The incident comes at a time when the mainland is ushering in a strong recovery in Hong Kong. According to the data, in 2023, the premiums of mainland insurance in Hong Kong will be about HK $59 billion, a year-on-year surge of 27 times, second only to the peak in 2016.
Previously, industry insiders reminded that Hong Kong insurance has advantages, but there are also problems such as investment returns falling short of expectations, exchange risks, and compliance risks.
Now, judging from the above-mentioned arrests, the risks related to salesmen may be greater than the product risks faced by policyholders.
To understand this incident, it is first clear that the referrer is reasonable and legal in Hong Kong, can introduce clients to brokerage firms, and earn so-called "consulting fees", but cannot engage in a series of regulated activities such as insurance sales and assistance in insurance application. According to an industry insider, in this case, compared with the "unlicensed sales" of the referrer, the bigger problem is corruption and bribery, that is, the funds of the insured customers who are connected with the referrals and brokers in the case are problematic, and they are suspected of falsifying assets and income, so the referrer and the broker are arrested. In addition, a series of penalties such as the recent regulatory penalties for agents misappropriating premiums and falsifying academic qualifications may point to the strong supervision of the Hong Kong insurance market.
Soar 27 times!
In 2023, Mainland visitors contributed HK$58.972 billion in premiums
Premiums contributed by Mainland visitors are a major part of Hong Kong's insurance industry. For the whole year of 2023, the total new business premiums contributed by mainland visitors reached HK$58,972 million, accounting for 32.56% of all new business premiums, a year-on-year increase of more than 27 times from HK$2,066 million in 2022, which is related to the overall low base in 2022.
In terms of specific insurance types, whole life insurance is still the main type of insurance insured by mainland customers, with new single premiums reaching HK$47.809 billion, accounting for 81.1%, an increase of nearly 27 times from HK$1.712 billion in the same period in 2022.
Unit: HK$ million
The new policy premium of endowment life insurance was HK$5,823 million, accounting for 9.9%, an increase of about 130 times from HK$440 million in the same period of 2022, the highest growth rate among all insurance types.
Other types of insurance, such as universal life insurance, medical insurance, critical illness insurance, and annuities, account for a relatively small amount, but they also increased significantly compared with the same period in 2022, of which annuities increased the most, nearly 40 times, and critical illness insurance increased by 21 times.
In terms of the number of policies, the number of new policies taken out by mainland visitors reached 195,400, a 33-fold surge from 5,752 in the same period in 2022. Among them, the number of whole life insurance policies reached 107,100, accounting for 54.8%, a surge of about 45 times from 2,342 in the same period in 2022.
followed by critical illness insurance, with 66,800 policies, accounting for 34.2%, a year-on-year increase of 35 times from 1,839 in the same period in 2022. The number of medical insurance policies was 8,467, accounting for 4.3%, an increase of 675.4% over the same period last year.
In terms of quarterly premiums, except for the increase in premiums of various types of insurance in the second quarter, the third and fourth quarters showed a downward trend. In the second quarter, mainland visitors contributed a total of HK$22.279 billion in new premiums, up 131.76% quarter-on-quarter, continuing the previous trend, while whole life insurance premiums were HK$17.948 billion, up 134% year-on-year, and savings life insurance premiums were HK$2.441 billion, up 155.07% year-on-year.
In the third and fourth quarters, Mainland visitors contributed a total of 32.87% and 18.95% to HK$14,957 million and HK$12,123 million respectively.
All types of insurance also declined. The premiums of whole life insurance in these two quarters were HK$11,843 million and HK$10,348 million respectively, down 34% and 12.62% year-on-year, while the premiums of endowment life insurance were HK$1,688 million and HK$746 million, down 30.85% and 55.81% year-on-year.
Unlicensed sales, corruption and bribery, Hong Kong insurance broke out a thunderstorm!
The risks behind the boom in Hong Kong insurance. Although industry insiders have previously reminded consumers that in the process of applying for insurance in Hong Kong, they need to identify risks related to insurance products such as protection and income, but now, the risks in the sales process seem to be more deadly.
Recently, the Hong Kong Insurance Authority (IA) and the Independent Commission Against Corruption (ICAC) executed search warrants at four locations on April 10 and 11, including the offices of a licensed insurance broker company and a referral company, resulting in the arrest of an individual broker and an introducer.
In this case, the insurance brokerage company and the relevant individuals were suspected of two charges: (1) unlicensed sales and (2) conspiracy to commit corruption and bribery.
Related to the first allegation is that the insurance brokers and individuals involved paid high fees to their referrals to encourage them to provide regulated insurance activities such as insurance consulting and selling insurance to clients from Chinese mainland, but these referrals did not have the legal licenses required to conduct business.
According to an industry insider, there are currently four channels for mainland consumers to buy Hong Kong insurance, namely licensed agents of Hong Kong insurance companies, salesmen, ToB channels and customers themselves.
The first is for the licensed agent to ask the customer to go to the company and sign the order; the second channel is for the unlicensed salesman to introduce the customer to the brokerage company, and then the brokerage company will sign the order; the third is for some B-end channels, they introduce the customer to Hong Kong; and the fourth is for the customer to go to Hong Kong to sign the order.
The channel involved in this illegal sale is the second type, that is, unlicensed salesmen. In Hong Kong, it is reasonable and legal for the referrer of this channel to charge a consultation fee by referring clients, but it is not reasonable if the commission is paid directly by the insurance company.
In terms of behavioral regulations, the referrer can only carry out advertising, and cannot provide professional answers and services. In this case, the brokerage company allegedly engaged and encouraged a referrer to carry on regulated activities on behalf of the company, including advising on insurance policies and selling insurance policies, but the referrer did not have the required licence to engage in such activities. In this case, the brokerage also pays a hefty referral fee for policies that are successfully sold, and in some cases, the referrer receives more than 90% of the commission that the brokerage receives.
Source: Dawantong a peak fire source
In the eyes of regulators, the large remuneration paid by insurance broker companies to referrals is an incentive for referrals to induce Chinese mainland customers to purchase long-term insurance policies from Hong Kong insurers. In addition, although the final insurance application form is submitted by the brokerage company to the insurance company, the referrer has already carried out a substantial amount of regulated activity before the client has any business dealings with the brokerage firm.
However, it has been revealed that in general, the boundaries between referrals and the remuneration they receive are blurred, and Hong Kong regulators are not particularly strict in regulating this. This time, it was revealed that it was more related to corruption.
In terms of the second point of corruption and bribery charges, the above-mentioned individual brokers and referrals are also suspected of conspiring to offer bribes and providing false information in the application form submitted to a Hong Kong insurance company, including providing false annual income and the amount of assets held by mainland customers, etc., which involves the source of funds and the security of funds of customers, which is also a relatively sensitive point, so it has become a key point exposed in this incident.
On the issue of the risk of Hong Kong insurance, the above-mentioned person said that overall, the product risk faced by customers is not too much, and it is important for the salesman to explain clearly in terms of exchange rate and product protection. In contrast, the risk is greater for the salesman and the brokerage company, because they need to review the client's funds to confirm that there is no problem with the funds and that there is no fictitious income.
Commenting on the incident, Mr. Peter Gregoire, Head of Market Conduct and General Counsel of the Insurance Authority, said: "Our joint operation with the Independent Commission Against Corruption demonstrates our shared determination to uphold the right sales practices in the insurance industry and ensure that the market is built on trust and integrity, thereby providing confidence to all those who wish to meet their insurance needs through the Hong Kong insurance market. This close cooperation will continue not only through joint enforcement measures, but also through industry training through the Hong Kong International Anti-Corruption Academy to improve corporate governance standards and public education and empower consumer rights. ”
"The Memorandum of Understanding (MoU) signed between the ICAC and the IA last year strengthened co-operation in the areas of case referral, joint investigation, training and information exchange. Last month, IA representatives attended a three-day joint operations training organised by the ICAC for local regulators to enhance officers' capability in combating financial crime and corruption. This joint operation demonstrates our common goal of upholding integrity in the insurance industry. The ICAC will continue to work closely with the IA and other financial regulators to combat corruption, illegal activities and misconduct related to the financial sector. We will strive to maintain a fair business environment in Hong Kong, maintain Hong Kong's status as a clean international financial centre, and ensure the trust of stakeholders in the financial system. ”
punish agents for misappropriating premiums and falsifying academic qualifications,
Hong Kong insurance ushered in strong supervision
In fact, this incident has also uncovered a series of strong regulations on insurance in Hong Kong. Prior to this, the regulator also took penalties for the misappropriation of premiums and falsification of academic qualifications by agents.
According to information released by the Insurance Authority in early April, the Hong Kong Insurance Authority has issued a three-year injunction against a former insurance agent for mishandling premiums, setting a precedent for strict supervision of the insurance industry.
In June 2019, the person involved in the case and the policyholder had known each other since their secondary school days, and advised the policyholder to deposit the renewal premium into his personal bank account for transfer to the insurance company. Upon this advice, the policyholder transferred HK$33,835 in July 2019 and the agent subsequently misappropriated the money, resulting in the policy lapsing in August 2019. The agent finally admitted to the misappropriation of the funds in December 2019 and repaid the misappropriated funds in installments the following year. The insurer reinstated the policy in October 2020.
The IA's investigation into the matter revealed that the agent not only breached the trust of policyholders, but also violated the internal guidelines of major insurers and the regulatory standards in force before the implementation of the new insurance intermediary regulations on 23 September 2019.
According to the IA, the ban aims to send a strong signal against unethical behaviour in the industry, ensure that the interests of policyholders are protected, and uphold the integrity of Hong Kong's insurance industry.
In addition, in March, the Hong Kong Insurance Authority (IA) disciplined three former insurance agents for failing to comply with the standards of conduct and appropriateness required for the issuance of insurance intermediary licences.
In two related incidents, the individuals involved were found to have submitted forged academic documents in accordance with the guidelines of the self-regulatory framework previously in force, meeting the educational prerequisites for becoming insurance agents. This misconduct resulted in the individual being barred from reapplying for an insurance intermediary license for three years.
The third disciplinary action involved a former agent who was also registered as a subsidiary intermediary under the Mandatory Provident Fund Schemes Ordinance. The agent was penalised for engaging in activities that contravened the Mandatory Provident Fund Schemes Authority (MPFA) Code of Conduct, including unauthorised transfer of client benefits and impersonating someone else to obtain client account details.
In contrast, the arrest of referrals and insurance brokers raises the level of punishment and extends to the entire Hong Kong insurance industry. At present, many brokerage companies operating in Hong Kong have been greatly affected, and some of them have come forward to speak out, saying that they will strictly abide by the regulatory regulations on referrals and agents and conduct business in accordance with the law.
However, judging from the overall situation, this incident comes at a time when insurance premiums for Hong Kong insurance are soaring, or it may convey the measures taken by Hong Kong regulators in response to the Hong Kong insurance fire.