After lengthy negotiation and planning, the Fire Insurance Association of Hong Kong, the Accident Insurance Association of Hong Kong, and the Marine Insurance Association of Hong Kong were brought into the HKFI secretariat��s fold on 1 April 1990. Later, representatives of the Medical Insurance Association of Hong Kong, established in 1984, were admitted. All the various technical associations, including the General Insurance Council of Hong Kong and the Life Insurance Council of Hong Kong, eventually merged into the incorporated HKFI on 29 December 1994.
In HKFI��s fledgling years, it was actively involved in the government��s plan to establish the Office of the Commissioner of Insurance by recommending a division of labour. To wit, the OCI supervised the financial viability of insurance firms but entrusted the federation with matters concerning policyholder interests. Stephen Glanfield, the HKFI chairman from 1988 to 1989, summed up the organization��s rationale this way:
On balance I favour self-regulation where the public interest requires it, but it needs
to be remembered the ultimate costs are for the account of the consumer. A proper
balance must be maintained.6
The HKFI and its Insurance Agents Registration Board (IARB) were given statutory recognition on 30 June 1995. The HKFI would operate as a limited liabilities company. By law, the HKFI is entitled to membership dues and it is authorized to spend the dues only on activities related to goals set out in its articles of incorporation but not on any individual member.
The HKFI is comprised of a governing committee, the IARB, and an appeals tribunal, the last added later to perfect the disciplinary mechanism in place since January 1993. The governing committee is made up of five members each from the General Insurance Council and the Life Insurance Council, and it is chaired alternately by a candidate from each council. The seventeen-member General Insurance Council includes the AIA, the FIA, the MIA, the Medical Insurance Association and the Reinsurers�� Forum, as well as working groups on legal and other matters. The twelve-member Life Insurance Council includes working groups on actuarial work, legal affairs, life risk management, professional standards, and retirement schemes.
The IARB was established on 1 January 1993 and tasked with registering qualified insurance agents, responsible officers, and technical representatives and handling complaints against them. The board provides recourse for insurers and policyholders alike when they feel aggrieved by malpractice. The law requires that all insurance agents register with the IARB.
In its early years, the board was headed by a Legislative Council member, including Elizabeth Wong and Andrew Wong, with the other four members drawn from the Consumer Council, the General Insurance Council, the Life Insurance Council and the Life Underwriters Association of Hong Kong. By 1998, to boost the board��s credibility and independence, two members�Xa barrister and a chartered accountant�Xwere added.
Table 5.2 Chairpersons of the Insurance Agents Registration Board
Michael Thornhill 1993�V1995 Elizabeth Wong 1995�V1997 Andrew Wong 1997�V2005 Ambrose Cheung 2005�Vpresent
Source: Hong Kong Federation of Insurers
Fig. 5.6
Elizabeth Wong, chairperson of the HKFI��s Insurance Agents Registration Board, shows off the new, computerized agents registration system, 19 December 1995.
Development in the 1980s
(1) Internationalization by foreign insurers
Tighter supervision notwithstanding, foreign insurers kept flocking to Hong Kong in the 1980s, mostly because of the market saturation in Western Europe and North America and untapped potential in the city as a rising financial centre in Asia. Plus, the city��s laissez faire economic policies, the absence of currency control, low tax rates, and developed telecommunications infrastructure all made it attractive to foreign firms.
Between 1983 and 1988, each year saw an average of a dozen or more new foreign insurers applying for authorization from the OCI. By the end of the decade, there were
Fig. 5.7
One of the remaining factories in Kwai Chung,
c. 1980s. As manufacturers decamped for the mainland, insurers suffered a loss of business.
altogether 273 authorized insurers in the city, more than half of which�X147 to be precise�Xwere foreign firms. They also were the dominant, best-endowed players in the market. Roughly 50 were British firms and 80 American.
To compete better in the global market, in April 1983 Hong Kong��s insurers began to adopt the new marine policy language in use in London��s insurance market as of the previous year, jettisoning a policy of nearly two centuries old. Not only is the language up-to-date, but the terms are also drastically different.
(2) More products, more training
In an effort to compete in an increasingly cut-throat marketplace, even the more established firms were looking to mine their untapped potential. Introducing new, innovative products and services was one way they sought to maintain market share.
Some insurers tailored new products for specific clienteles, such as mortgage insurance for the growing throng of first-time homebuyers; comprehensive coverage for mom-and-pop business owners, and even personal-safety products for schoolchildren. Other insurers also broke the mold of indemnifying one risk with each policy at a time; they now would offer comprehensive coverage for a range of risks.
Another strategy was to expand avenues for marketing. Firms affiliated with banks would piggyback on their credit-card issuing arm to market insurance products.
The emergence of new products and services called for a better-trained sales force. A new Insurance Training Centre was set up by the government-run Vocational Training Council to expand the council��s offerings for the sector��s practitioners. Courses were free and of short-term duration, catering to practitioners of different levels of experience and expertise.
(3) Fire margins swell
Throughout the 1980s, fire products remained the bread and butter for most firms. Inflationary pressure helped lift the tariffs and hence swell the margins. At most firms, fire products remained the most lucrative. Helping the bottom line also was the expanding scope of fire coverage, which came to include earthquakes, typhoons, floods, or any post-disaster losses.
Of all fire products, industrial coverage commanded the steepest rates, followed by commercial, with residential the lowest.
The 1980s saw the idea of insurance taking deeper root within the manufacturing and commercial sectors and a higher level of vigilance toward fire prevention. Margins rose as claim rates fell. Still, spectacular damages were inevitable. In 1987, a fire at the Asia TV broadcast building caused damages of $10 to $15 million.
(4) Life products lead the growth
In the early 1980s, only 4% of the population had life insurance, a paltry proportion, comparatively: one in five Singaporeans had some kind of life coverage at this time, and seven in ten Britons. Besides, 90% of the 100,000 businesses in Hong Kong did not offer any kind of retirement plan. Hence, the room for growth proved enormous.
Many firms therefore introduced a whole host of term-life and pension products, targeting mostly the more Westernized postwar generation, people who had the purchasing power and cultural awareness to buy into the insurance market. These customers were much sought after in those days. This kind of intense marketing paid off: The decade added more than half a million new policyholders, and market penetration had risen to 10% by 1989.
The Founding and Operation of the Motor Insurers�� Bureau of Hong Kong
In November 1951, as we have previously noted, Governor Alexander Grantham signed into law the Motor Vehicles Insurance (Third Party Risks) Ordinance, requiring all drivers be insured against any claim for third-party bodily injuries or deaths in case of an accident. Yet, there remained cases aplenty in which victims were unable to receive compensation; such cases soared especially with the rapid increase in car ownership in Hong Kong in the late 1970s and early 1980s. This happened when the drivers involved flouted the law and neglected to take out a policy, or when some material breach of policy conditions enabled the insurer to repudiate the drivers�� liability. Or, sometimes, the vehicle or driver was plainly untraceable. All this weakened the effectiveness of the ordinance.
Seeing that something needed to be done, the Accident Insurance Association of Hong Kong set about founding an organization similar to the Motor Insurers�� Bureau operating in parts of the British Commonwealth. The idea won support from the government, and by late 1979, principles and logistics were agreed upon and the scheme was taking a clearer shape.
Finally, on 27 June 1980, all authorized motor insurers in Hong Kong entered into a ��Principal Agreement�� with the government, so committing to establishing the Motor Insurers�� Bureau of Hong Kong (MIB) in six months�� time.
On 10 December 1980, the MIB was incorporated as a non-profit, limited liability company by government guarantee, thanks to the efforts of 102 motor insurers. But the newly founded entity could not carry out its work until the signing of the First Fund Agreement in February 1981, which gave the MIB the requisite resources and defined its duties. This agreement held the bureau responsible for settling all claims for bodily injury or death as a result of motor vehicle accidents, if the claim was not settled within twenty-eight days from the time of judgment. But the agreement specifically excluded the MIB from liability in judgments that remained unsettled due to the insolvency of an insurer. The First Fund was gradually built up, with a 0.5% to 1% levy on all motor policy premiums.
In addition, the MIB also pledged to abide by the ��Insurer Concerned Principle��, which specified that even in cases where there was a breach of the insurance policy conditions, claims for bodily injury or death would still be honoured.
All insurance firms authorized to partake in motor vehicle insurance business in Hong Kong, along with Lloyd��s underwriters that were so authorized, had to join the MIB and were bound by this agreement. The government also made MIB membership a condition for any company seeking authorization as a motor insurer. By becoming members,
Fig. 5.8
Brochures published by the Motor Insurers�� Bureau of Hong Kong.
insurance firms have essentially entered into an agreement with the bureau to contribute to the fund. New members were required to provide a deed of undertaking to confirm compliance with the domestic agreements upon applying for MIB membership.
A council of seven to eleven members elected from the registered representatives of the membership was to manage the MIB��s affairs. They were to meet regularly at the bureau��s secretariat at Prince��s Building in Central.
Shortly afterwards, in 1983, five motor insurers had their assets liquidated, leaving unsatisfied claims from traffic-accident victims. The government had to deploy public funds to settle these claims.
These incidents prompted the MIB to set up a second fund to meet claims left unsettled by insolvent insurers. The agreement on the insolvency fund was signed with the government on 1 November 1985. It required the MIB to satisfy judgments left outstanding by motor insurers going bankrupt after that date. The fund grew on a 2.5% levy on all motor policy premiums. In 1995, this levy was changed to 2%.
Under English common law, death or bodily injury victims may seek unlimited damages against the wrongdoer, at least theoretically. For many years, motor insurers in Hong Kong had been providing unlimited cover on third-party risks, with help from the re-insurance industry, which offered unlimited protection to the insurers.
By 1994, re-insurers found this kind of unlimited protection unsustainable and informed all insurers that unlimited re-insurance would be discontinued in 1995. This move set off a chain reaction. After rounds of discussion among the government, insurers, and re-insurers, the Motor Vehicles Insurance (Third Party Risks) Ordinance was amended to allow motor-insurance policies covering at least $100 million per event on third-party risks.
However, in the event of an award exceeding the policy��s stated limit, the MIB would step up and pay the uninsured portion of a judgment exceeding the policy cover. On 29 June 1995, the bureau provided an undertaking to the government to enhance the First Fund Agreement and take up this new obligation of being the insurer of last resort.
Chapter 6
Changes and Innovations in the Market
In the late 1980s, Hong Kong��s economy underwent structural transformation, resulting in the rapid development of the service sector. The insurance industry also entered a period of high growth as insurance gradually became familiar and acceptable by the public. To protect policy holders through effective supervision of the industry, the Government decided to set up a new office with reinforced staff establishment under the then Monetary Affairs Branch to take over from the Insurance Division of the then Registrar General��s Department. On 8 June 1990, the Office of the Commissioner of Insurance (OCI) was established.
The past decade witnessed the continuous development of the insurance industry. Premium income increased more than double in ten years, the number of insurance practitioners kept increasing and insurance products became more and more sophisticated and diversified. The OCI has been constantly updating the legislation and introducing appropriate regulatory standards in the light of changes in the market conditions. It has also worked closely with industrial bodies and implemented a series of self-regulatory measures, thus laying a solid foundation for the prudential supervision of the insurance industry.
In the past ten years, Hong Kong experienced many important events, for instance, the return of Hong Kong��s sovereignty to China, the Asian financial crisis and the advent of the 21st Century. Of these, the Asian financial crisis has dealt a severe blow to Hong Kong��s economy. In a period when the economy experienced a negative growth and a high unemployment rate, the insurance industry was no exception. Nevertheless, our insurance industry as a whole remains financially sound and stable. This is attributable to the effective regulatory system which is the result of the wholehearted collaboration between the industry and the OCI.
�X Hong Kong��s Commissioner of Insurance, June 20001
Market Transition in the 1990s
(1) Long-term-products earnings beat general
The shift of Hong Kong��s economy from manufacturing to services started in the mid-1980s and continued apace into the 1990s. In 1986, the services sector already accounted for nearly 70% of the city��s GDP; in 1997, it rose to 85%. By then, the shift was almost complete.
The impact on the insurance sector could not have been more direct. The traditional general products such as marine and employees�� compensation, all associated with manufacturing, no longer brought in the most premium. In their stead, long-term products such as life coverage began to rake in increasing revenue. In 1987, general insurance still accounted for two-thirds of the $10 billion in premium income, but its percentage had plunged to 37% by 1997, with life premiums more than picking up the slack. Of the $52 billion in total premium income in 1997, 63%, of $32.5 billion, was generated by life or other long-term policies.
(2) Global firms enter the local life market
Naturally, the booming life market in Hong Kong caught the attention of many global players. Some of them quickly poured in capital and human resources to get a piece of the action. Here we will review four of these new global entrants:
�E
The Union des Assurance de Paris-Vie, Europe��s second-largest insurer, was already offering general coverage in Hong Kong. But in 1991 it made its foray into the life market by focusing on group life and medical insurance products. This yielded remarkable results. In 1994, the company brought out a personal-life and savings product as well as a slew of investment-linked products.
�E
The National Mutual Life Association of Australia, that country��s second largest insurer, raised capital in Hong Kong��s stock exchange to expand its operations significantly. As
early as in June 1986, Melbourne-based National Mutual acquired the local interest of Sentry Life Insurance (Asia) Ltd. for AUD$58 million and changed its name to National Mutual Asia Ltd. After the takeover, the firm grew from 800 agents to 3,400.
�E
The Transamerica Occidental Life Insurance Co. traces its roots to Shanghai in 1933. But while the Japanese invasion had scattered Transamerica��s policyholders, its staff painstakingly looked for them after the war and carried on with coverage. In 1992, Transamerica built upon this history and its Hong Kong branch to explore markets in the major mainland cities, such as Beijing and Tianjin, as well as Taiwan.
�E
In January 1995, the Indonesia-based Lippo Group entered the Hong Kong market with the Lippo Reliance Insurance Co. Ltd (formerly the Hong Kong Chinese Insurance Co.), jointly owned by the Hong Kong Chinese Bank and the U.S.-based Protective Life Corp. In addition to conventional life and medical insurance products, Lippo also introduced new investment-linked products to cater to the clientele��s needs.
(3) Rampant headhunting in a cut-throat sector
With many foreign insurers flocking to Hong Kong, the already cut-throat sector was getting even more so. As one observer said, historically over half of the insurance market was dominated by a handful of established firms, but as more well-capitalized insurers entered the fray, they were gaining market share by way of financial prowess and marketing strategies. Even so, small and medium-sized operators were digging in and carving out a niche with their diligence and marketing genius. All this made the fight for talent fiercer.
An inevitable outcome was frequent and massive ship-jumping moves, often involving high-level executives decamping to competitors with agents in tow. One such case involved Andrew Yang, who was recruited from National Mutual Asia by Francis Yuen to be executive director of Top Glory Insurance (Bermuda) Ltd. Within two months of Yang��s
Fig. 6.1
The staff of National Mutual Asia Ltd. assembled on 8 August 1999 to spell out the insurer��s new name since 1999: AXA.
departure, nearly 900 agents from his former firm joined him at the new shop�Xas well as tens of thousands of policyholders. Before this, Top Glory (formerly New Zealand Life) had but five or six agents and an unimpressive performance record.
This remains the largest-scale personnel move the sector has ever seen. But it did not stop there. Three years later, a twenty-three-year AIA veteran left for Top Glory with more than 140 agents in tow. All this heralded a headhunting trend in the industry.
Andrew Yang Chairman, the Freeman Corp. Ltd. Joined the industry in 1957
The dawn of headhunting season: I had bosses who would never hire any agent who ever jumped ship, but I beg to differ. I feel that we live in a free society and, rather, the onus is on the insurance company to hold on to its agents. Not only did I hire agents away from other firms, I also started the practice of transplanting policies from one firm to another.
The way this works is that when agents jump ship to another firm, they take the policies with them. Say, if you��ve taken out a policy from Company A with an agent who is joining Company B, your policy can be transferred to that company for the same plan and the same cash value. Of course this is bad for Company A and will cause it to lose business, but this cautions companies to treat their people better so as to retain talent and business.
M. K. Cheng Former Country Manager, ING Asia Pacific Joined the industry in 1973
The small ups and small downs in life: The funny thing about the life market is that there never are huge swings, be it up or down. When times are good, it does well. Even when times are bad, business still wouldn��t be too bad, so many unemployed would enter the field during economic downturns. If memory serves, premium income for life has been going up every year. The only exception was 2003.
(4) Survival of the fittest
As competition in the life sector grew fierce, it was inevitable that some weaker, smaller firms would feel the squeeze and eventually go out of business. According to data from the Registrar General, the number of authorized insurers gradually shrank from 273 in 1989 to 215 in 1997. That amounts to a 21% drop.
The reasons behind the decrease are many and varied. One reason is that once the foreign firms have gained a foothold in the local market, they sought to consolidate their subsidiaries through mergers. Another is the OCI��s tighter supervision.
In April 1992, the OCI notified all authorized life insurers that to keep doing business in Hong Kong they must set up full-service local offices. These had to include executive directors who directly oversaw local operations; a service centre for policyholders to handle matters related to their contracts, and a register of all clients�� files. Furthermore, in May 1992, the OCI issued guidelines to life insurers requiring them to document the duties of staff actuaries and actuarial firms under contract. All this served to strengthen the OCI��s ability to protect policyholders�� interests.
Allan Yu Director of General Business, The Zurich Insurance Co. Ltd. Joined the industry in 1969
The Evolution of a European insurer: Founded in 1875, the Winterthur Swiss Insurance Co. was one of the two major insurers in Switzerland. In the 1970s, Winterthur merged with Britain��s Norwich Union and became Norwich Winterthur Insurance, targeting the Asian and African markets. In 1977, Norwich Winterthur Insurance (International) Ltd. was established in Hong Kong, followed by the Winterthur Life Insurance Co. in 1988.
But the Swiss-Brit marriage did not last. By 1991, Norwich Union wanted to quit Asia
and sold its stakes in Norwich Winterthur to the Swiss. Winterthur Insurance (Asia) Ltd.
thus emerged from this divorce.
Winterthur spared no effort in expanding its Hong Kong operations. In 1992, it acquired
Ka Wah AMEV Insurance Ltd. Soon enough, Winterthur cracked the city��s list of top ten
general insurers.
The Life Market: Innovations in Products, Services, and Sales Strategies
Facing pressures from inflation, government supervision, and competition both internally and externally (from banks branching out into insurance), many life insurers sought to stand out by introducing innovative products and expanding the scope of services.
The following are some of the market innovations that emerged in the 1990s:
(1) Savings and dread disease products
This product line offered the twin benefits of a protection scheme and a flexible savings plan. By making regular premium payments towards this kind of fixed-income investment product, policyholders could build nest eggs and, in the event of an accident, a buffer of protection. They could not only recoup the total amount of premiums but also receive a certain rate of return.
Beginning in the late 1980s, firms such as AIA, Manulife, and National Mutual all marketed a new, terminal illness product. The way it worked was that, unlike traditional life products, which satisfy claims only after the death of policyholders, this product paid out as soon as policyholders were diagnosed with a dread illness. That way the policyholders could use the payout on medical treatment or anything else that might improve the quality of life.
Figs. 6.2 & 6.3
Advertising brochures of Dah Sing Life Assurance and Manulife International.
When it was first introduced, this product line covered only five conditions: cancer, heart attack, coronary artery heart disease, stroke, and kidney failure; later it was expanded to thirty-five to forty more illnesses. In addition, some insurers even paid out dividends more frequently�Xsay, every five years. Others had products with inflation-indexed coverage.
(2) All-in-one coverage
Among the dizzying array of innovative new products, most noteworthy was the all-in-one composite-coverage product. For a single premium, policyholders could enjoy life coverage, protection against illness and accidents, and a premium waiver. And it would be renewable after the customary ten-year term.
In early 1990s, National Mutual rolled out its ��Smart Lady�� plan, with life and illness coverage, as well as investment, all in the same package. This was the first-ever product targeted especially towards women in their fertile years. It covered miscarriage, fetus abnormalities, entropic pregnancy, and other conditions associated with pregnancy, and it did not exclude anyone with pre-existing conditions, including cancer. It proved to be a hit with women and at the time was touted as the best product in Asia. Later, other insurers appealed to a broader clientele by creating coverage for men, women stricken with cancer, and twenty-eight other critical illnesses. The American International Underwriters (Hong Kong) Co. Ltd. even rolled out one single product that covered everything, from emergency care and hospitalization to lost luggage and cash, child care, and personal accidents.
Alvin Li Chief Executive, The Hang Seng Insurance Co. Ltd. Joined the industry in 1985
On insurance products: I recalled life insurers introducing dread disease products from South Africa. This product pays out when policyholders are diagnosed with a catastrophic illness pre-defined in the policy. The policyholders can use the payout on medical treatment, to fulfill their lifelong dreams or settle their families financially during the difficult times.
On distribution channels: By the mid-1990s, insurers began to tap into telemarketing. For instance, American International Underwriters (Hong Kong) Co. Ltd. launched its AIU direct initiative to give quotes and sell policies, mostly motor, over the phone. Insurance companies would entice more people to pick up the phone token gifts, such as coupons for baked goods or gasoline.
(3) Combining coverage and investment
In the 1990s, just when the interest rate was lingering on the low end and the government was laying the groundwork for the Mandatory Provident Scheme, a pension fund of sorts, the time for investment-linked insurance products was ripe. Most of these are annuities, but with an added investment component to offset inflation.
The life business remained competitive through the 1990s. Since most insurers found that lowering premiums alone did not do the trick of attracting new clients, they had to stand out of the crowd by doing more. Some did so by expanding their scope of work to insurance counseling, risk management, and investment services. Others even included services totally unrelated to insurance, such as locksmithing, plumbing, housekeeping, and nursing. Most insurers also set up a twenty-four-hour manned hotline to assist policyholders.
And that was not all. Insurers also competed in exploring new sales avenues. One tried-and-true way was telemarketing. This was more than mere cold-calling; it involved a methodical follow-through. Insurance firms would target holders of credit cards issued by banks with which they had a working relationship. After the initial phone call to potential customers, insurers would then mail out brochures and materials detailing insurance product choices. Next, they would follow up with another call to field questions and prompt potential customers to make a decision. This direct mail and telemarketing strategy could yield a positive response rate upward of 25%.
Efforts to seek out more policyholders also prodded more insurers to forge a closer working relationship with banks, especially the few banks that did not have insurance arms. For instance, the Insurance Co. of North America entered into partnerships with Citibank, Standard Chartered, the Bank of China, and others to provide insurance to the banks�� customers.
This kind of offering not only benefited the banks but also pleased customers. Since, by law, insurers can partner with a maximum of four banks, they strove to sustain partnerships with superior services.
This sales strategy resulted in simplicity of coverage and ease of payment for policyholders. It also forged symbiotic yet mutually beneficiary relationships between banks and insurers. A further integration of these ties over the 1990s eventually gave rise to a new trend: bancassurance.
Table 6.1 Major Insurers and Partner Banks as of 1990
The Hongkong & Shanghai Bank Carlingford Bank of China Ming An, China, and Tai Ping Hang Seng Bank Associated Bankers and Union Ins. Standard Chartered Bank AIU and Cigna Bank of East Asia AIU, Lombard, and Ming An Dao Heng Bank Group Dao Heng Insurance Overseas Trust Bank OTB Assurance Shanghai Commercial Bank Paofoong Insurance Bank of Credit & Commerce Commercial Union Dah Sing Bank Tugu Citibank Eagle Star Liu Chong Hing Bank Liu Chong Hing Insurance Kwong On Bank Sumitomo Insurance Ka Wah Bank Ka Wah Amev Insurance First Pacific Bank Far East Insurance
Source: ��A Strategic Study of the General Insurance Industry in Hong Kong��, Terry C. S. Yeung, Hong Kong University, unpublished MBA Thesis, 1990, p. 175
Fig. 6.4
A 1993 press conference of the Insurance Claims Complaints Bureau��s Complaints Board, convened by Simon Li, the board��s first chairman.
Reforms in the Sector��s Self-Regulatory System
Since the 1980s, as the supervision regime gradually evolved and matured, professional standards among practitioners improved apace. However, the occasional bad apples, especially in the ranks of agents and brokers, continued to tarnish the hard-earned reputation of the industry.
As early as January 1986, a government-appointed insurance law subcommittee of the Law Reform Commission had already sounded an alarm in a report that explored the feasibility of a system of control for the activities of insurance brokers and agents. The commission recommended that ��anyone seeking to carry on business as a broker be required to register with the OCI. Broking associations would also be entitled to apply for registration, and membership of a registered broking association would automatically satisfy the requirements for insurance registration.
��At the time of the report��s publication there was no statutory regulation of the activities of insurance brokers or insurance agents, though insurers themselves were regulated by the Insurance Companies Ordinance. Detailed provisions are also suggested for the registration of broking companies or partnerships, modelled in part on measures contained in the Companies Ordinance.��2
Facing a proposal calling for tightening legislation on the sector, industry practitioners submitted a counter-proposal of self-regulatory measures, which was accepted by the government. In fact, the Hong Kong Insurance Brokers Association was very much at the table with the commission beginning in the early 1980s. The Insurance Companies (Amendment) (No. 3) Ordinance, of 1994, reflected the report��s recommendations.
Going into the 1990s, and facing mounting pressures from both the public and the legislature, the HKFI was pro-active in building a self-regulatory regime. It sought to phase this in by front-and back-end measures. On the front end, the HKFI asked all insurers to explain clearly to policyholders the terms of the policies they underwrite and make sure customers
receive fair and reasonable coverage. To that end, in 1990 the HKFI released statements as to the general insurance practice and life practice for all members to abide by.
On the back end, on 20 February of that same year, the HKFI set up the Insurance Claims Complaints Bureau, the first-ever self-regulatory body in the sector, to resolve all claim-related disputes between the policyholder and the underwriter. D. A. C. Nendick, then the financial secretary, touted its founding as a significant step forward in safeguarding consumers�� rights and compared it with the insurance ombudsman in the United Kingdom. Nendick said he hoped all registered underwriters would become members of the bureau.
The bureau set up a separate Insurance Claims Complaints Panel (formerly known as the Insurance Claims Complaints Board) to provide independent and impartial adjudication of complaints between insurers and their policyholders or their beneficiaries and rightful claimants. The five-member complaints panel was led by a chairman appointed by the financial secretary. Its four other members included two from within the insurance industry and two from outside.
However, the bureau stipulated that it handled disputes related only to personal insurance contracts but not industrial, commercial, or third-party insurance. And the object of the complaint must be a member. In the beginning, the complaints panel��s jurisdiction limit was $250,000. It was repeatedly raised until it reached $800,000 in 2006.
In its early years, only 27 insurers signed on to be members of the bureau. But by 1994, its membership had expanded to a 154 firms, encompassing more than 90% of personal-policy sales value. Later, the bureau made membership mandatory for all registered insurers. Firms could choose to be voting and dues-paying members or opt for a subsidiary and free, non-voting, membership.
Table 6.2 Chairpersons of the Insurance Claims Complaints Bureau
Simon Brett 1990�V1992 Elvon Harris 1992�V1994 Alex Wong 1994�V1995 Stephen Moffatt 1995�V1998 Terry Smith 1998�V1999 Stephen Moffatt 1999�V2001 Roddy Anderson 2001�V2007 Michael Huddart 2007�Vpresent
Source: Insurance Claims Complaints Bureau
Table 6.3 Chairpersons of the Insurance Claims Complaints Panel
Simon Li 1990�V1994 Henry Wong 1994�V2000 Michael Tsui 2000�Vpresent
Source: Insurance Claims Complaints Bureau
However, a high-profile case involving an employees�� compensation dispute invited the court to challenge the powers of the complaints panel.
In April 1997, a server at a seafood restaurant, Tsoi Hau Ling, took out a policy with Pacific Century Insurance. Ten months later, in February 1998, she slipped and fell at work, injuring her back.
Tsoi suffered back pain but no external signs of injury. But since her Pacific Century policy ��restricted claims for compensation to those where the injury was evidenced by some external manifestation��, her claim for $18,000 was rejected.3
Aggrieved, Tsoi lodged a complaint with the bureau. The panel ruled in her favour and ordered the insurer to pay the disability benefit she was entitled to under the policy. Pacific Century sought a judicial review of the case.
In its ruling, the court found that the panel��s decision went ��behind the terms of the insurance contract��. And in doing so, the panel ��settled upon a policy independent of the terms of contract and/or sound insurance practice, a policy that is founded instead on ��sympathy�� for claimants who have suffered genuine injury albeit not of the kind allowed for in their insurance policy. . . . Having settled on this policy the Board has then proceeded to incorporate it into its decision-making function��. The court reversed the panel��s decision and sided with Pacific Century because it found ��no basis upon which the [panel] could legitimately incorporate such a policy into its function of adjudicating upon current disputes��.
Ultimately, Pacific Century gave Tsoi the full compensation of $18,000, but the ruling alarmed both the OCI and the Consumer Council. The two organizations amended the guidelines to empower the panel to consider other factors besides the policy terms in protecting the interest of policyholders.
The other significant self-regulatory move by the HKFI was to establish a code of conduct for the intermediaries. That became known as the Code of Practice for the Administration of Insurance Agents.
According to the code, ��a person shall not act as an insurance agent for more than four [firms], of whom no more than two shall be long term insurers. If a person acts
Fig. 6.5
Insurance executives at the signing of an agreement on 16 December 1992 to abide by the Code of Practice for the Administration of Insurance Agents.
as an insurance agent for any insurer, he shall notify the insurer prior to accepting an appointment to act as an agent for another [firm]. An [insurer] shall obtain the confirmation of the IA [Insurance Authority] in accordance with the code before confirming the appointment of any person as its agent and give the IA details of the registration and cancellation of registration of insurance agents��.
The code was widely regarded as a feat for the sector in championing the rights of policyholders. On 16 December 1992, the HKFI rallied more than 100 members from its subsidiary life-insurance council and general-insurance council to sign an industry agreement to abide by the code. At the time, HKFI Chairman Edmund Tse lauded the agreement as the fruit of three years of hard work in devising self-regulatory measures and a milestone in achieving higher management standards for the industry.
With the agreement signed, the code went into effect in January 1993, and, along with it, so did the new Insurance Agents Registration Board (IARB) under the HKFI. All practising agents had to register at the newly established board by June of the same year but had up to two years to fulfill the minimum requirements. All newcomers, however, had to meet the requirements before entering the industry.
It is estimated that 3,379 general agencies and 22,161 individual agents had registered by the end of 1995.
The IARB also provided for a protocol to handle complaints against agents. Once a complaint had been substantiated by the IARB, the insurer was asked to discipline the agent in question, either by sending a warning letter or by way of license revocation. In 1995, the IARB received 122 complaints involving range of offenses, from providing sub-par service and misleading information to embezzlement and forgery. Of these cases, 48 resulted in the revoking of licenses and 8 in a verbal warning. Considering that there were nearly 30,000 agents, the relatively small number of complaints reflected a high level of self-discipline among the practitioners.
On 18 February 1993, the two trade groups representing brokers�Xthe Hong Kong Insurance Brokers Association, established in 1979, and the Hong Kong Society of Insurance Brokers Ltd., established in 1985�Xmerged, at the government��s behest, into The Hong Kong Confederation of Insurance Brokers. With thirty-eight founding members, the confederation��s inaugural chairman, Adrian King, welcomed all agencies and individual agents to join, provided that they meet the minimum professional standards. To wit, they had to possess either professional qualifications or years of industry experience, a paid-up capital of $100,000 or more, and professional liability coverage of $2 million or more.
Just when the sector was in full force with its self-regulatory drive, the government also amended regulations to tighten its supervision of intermediaries. The Insurance Companies (Amendment) (No. 3) Ordinance, effective as of June 1995, made a clear distinction between agents and brokers and required each group to get authorization based on applicable regulations.
Under Section 65 of the ICO, ��a person is prohibited from holding himself out as an insurance agent or an insurance broker unless he is properly appointed or authorized. A person is also prohibited from holding himself out as an appointed insurance agent and an authorized insurance broker at the same time. It is an offense under the ICO for an insurer to effect a contract of insurance through, or accept insurance business referred to it by, an insurance intermediary who has not been properly appointed or authorized��.4
Other stipulations of the ordinance regarding insurance brokers include these:
�E
��A person intending to act as an insurance broker shall either seek authorization from the IA or apply to become a member of a body of insurance brokers approved by the IA.��
�E
��An insurance broker who is directly authorized by the IA or is a member of an approved body of insurance brokers is subject to the same statutory requirements.��
�E
��For an insurance broker who is a member of an approved body of insurance brokers, he is also subject to the membership regulation of his own professional body which is approved by the IA.��
�E
��In order to be authorized as an insurance broker or be admitted as a member of an approved body of insurance brokers, a person, apart from being fit and proper to be
Fig. 6.6
Dennis Pedini, chairman of the HKFI��s Life Insurance Council, unveils the Code of Practice for Life Insurance Replacement in September 1994.
an insurance broker, has to satisfy the minimum requirements specified by the IA with regard to: qualifications and experience; capital and net assets; professional indemnity insurance; keeping of separate client accounts; and keeping of proper books and accounts.��
�E ��The detailed requirements on qualifications and experience are set out as follows:
�X
have attained the age of 21; to be a Hong Kong
Permanent Resident or a Hong Kong Resident whose employment visa conditions, if any, do not restrict him from being engaged in insurance broking business and to have minimum education standard of Form 5 or equivalent.
�X
possess an acceptable insurance qualification and a minimum of 2 years�� experience in the insurance industry occupying a management position, or a minimum of 5 years�� experience in the insurance industry of which 2 years is at management position.
�X
maintain a minimum capital and net assets value of not less than $100,000.
�X
maintain a professional indemnity insurance with a minimum limit of indemnity for a minimum of $3 million and a maximum of $75 million.
�X
keep client monies in a designated client account separate from his own monies.
�X
keep proper books and accounts and other records as will sufficiently explain the transactions and enable a proper audit to be made.��
In response to the amendment ordinance, the HKFI revised its guidelines to familiarize members with the new authorization regulations for agents and brokers, minimum requirements for each group, and principal firms�� disciplinary power. That way, the HKFI could also cement its self-regulatory infrastructure with a legislative foundation.
On 28 September 1994, the HKFI��s Life Insurance Council announced that, beginning 1 December 1994, the Code of Practice for Life Insurance Replacement would be implemented to control the inappropriate replacement of life insurance policies�X i.e., ��twisting��.
The code provided an unambiguous definition of twisting and introduced controls at point of sale by requiring a ��customer protection declaration�� to be completed before the client decides to purchase a new life insurance policy. The CPD ensured that the agent had explained to the client all the important consequences, or disadvantages, which were to be put on record in writing for the protection of both the client and the agent.
The code also provided a process, for both the client and the insurer, to assist them in identifying twisting, and to take the necessary action when twisting is identified.
Once it was agreed that twisting had occurred, the selling office had to impose sanction on the agent and reinstate the policy of the client if he so wished. If no agreement was reached, the case was to be referred to the IARB for a ruling.
The LIC��s Professional Standards Committee is responsible for monitoring the process and, in extreme cases, can recommend termination of membership.
Dennis Pedini, who chaired both the LIC and its Professional Standards Working Group, said in 1994, ��The code is an extension of the insurance industry��s self-regulation. We at the Life Insurance Council will continue our efforts in protecting the rightful interests of the insuring public.��5
Then, on 27 June 1996, the LIC announced a cooling-off period of fourteen days following the issuance of a new policy, or twenty-one days following the completion of the application form, whichever was later, to allow a purchaser to re-think his or her decision. If consumers wished to go against the original decision, their policies could be cancelled and they would be entitled to a refund of the premium paid.
For most plans, a 100% refund of premiums would be made to a consumer who exercised the rights within the cooling-off period. No administrative charges would be imposed. For single-premium or unit-linked policies, a market-value adjustment might be applied in the event that the value of the policy has decreased during the cooling-off period.
��The offer of cooling-off rights to consumers is the latest initiative of the Life Insurance Council��s self-regulatory programme aiming to give consumers a reasonable period to reflect on their decision before committing to long-term financial plans,�� Frank Chan, the LIC chairman, said in 1996. ��I��m very heartened to see that all of our life members have signed the Undertaking to introduce the cooling-off initiative recommended by the Life Insurance Council.��
Ros Lam, the acting commissioner of insurance; and Deborah Glass, senior director of investment products at the Securities & Futures Commission, praised the effort in 1996 as a positive step forward for better consumer protection.6
��The standardization of sales illustration for non-unit-linked products coupled with the revised CPD Form demonstrates the LIC��s unfailing commitment to develop and support practical consumer protection,�� said Alan Wong, the commissioner of insurance, in support of the LIC��s initiatives.7
��The Consumer Council welcomes the HKFI��s adoption of the Code of Conduct for Insurers,�� said Anna Wu in 1999, then council chairperson. ��Through the promotion of good insurance practices and market discipline, we believe that the competitiveness of the insurance industry will be geared towards the provision of quality service to the advantage of the insuring public.��
On 7 January 2002, the LIC introduced ��needs analysis initiative�� to assist consumers to better understand and evaluate their insurance needs through systematic financial analysis to select insurance products best suited to their needs. By going through the needs analysis exercise, prospective policyholders would be able to prioritize their needs�X e.g., future retirement saving vs. current insurance protection, mortgage liability vs. education expenses for children, and so on. Thus, insurance intermediaries would be in a better position to advise prospective policyholders to select the suitable type and level of insurance required.
The LIC��s chairperson at the time, Sarah Ho, said in 2002, ��The needs analysis initiative strives to provide a tailor-made service. It is a more customer-oriented approach when compared to the traditional selling approach, which focuses more on the advantages of various insurance products.��
Development and Changes in Hong Kong��s Reinsurance Market
The reinsurance business, nearly as old as the insurance industry, got its start in the fourteenth century. Its beginnings can be traced to a 1370 policy issued by an Italian marine insurer to transfer risks to another insurer. A reinsurer is thus, in essence, an insurer��s insurer. A reinsurance deal is struck when a reinsurer agrees to compensate an insurer, in part or in whole, the coverage it has extended in underwriting a policy.
The reinsurance business transcends borders. To lower risk, an insurer is free to enter into agreement with reinsurers anywhere in the world. Reinsurance grew briskly from the late 1980s to the late 1990s. Worldwide, net reinsurance premiums jumped from US$29.4 billion in 1988 to nearly US$90 billion by 1997, an average annual increase of 15%.
Also in 1997, reinsurance business coming from direct insurers amounted to US$124 billion, of which 83% was general insurance and the balance life and health.
In the insurance sector of the 1990s, when mergers and acquisitions ruled the day, reinsurance was no exception. Many insurers sought to globalize their operations through takeovers, thus ramping up competition and market dominance. The world��s top five reinsurers carved out 43% of the market in 1997, compared with 36% in 1987. Nowadays, some of the most active reinsurance markets are London, Munich, Paris, Zurich, New York, Tokyo, Singapore�Xand Hong Kong.
Piggybacking on the rapid growth in the insurance sector, reinsurance, too, has found tremendous room for growth in Hong Kong. But its development has not been without challenges.
In the mid-1990s, international disasters and accidents plagued the world, and inflationary pressures bedeviled Hong Kong; claim amounts went up and up. All this made for tough going for the global reinsurers. Some even called it quits; others tried to pull through by raising premiums, being more selective, and shrinking their scope of coverage. It did not help that auto theft and employees�� compensation claims both rose at an alarming rate during those years.
So, beginning in 1995, some reinsurers no longer accepted unlimited-liability employees�� compensation and motor policies for coverage. By some estimates, the total gross and net premium revenues for reinsurers in 1994 were $2.51 billion and $2.19 billion respectively. In 1998, those figures plunged to $1.75 billion and $1.57 billion respectively.
With contraction came concentration. In 1998, Hong Kong��s top ten reinsurers captured a 45% market share. By 2005, the top five�XChina International, Munich Re, Swiss Re, Toa,
and Transatlantic�Xswallowed 82% of the market. Munich Re and Swiss Re are among the world��s largest reinsurance firms.
Against all odds, Hong Kong has emerged as a reinsurance centre. By the end of 1998, it had twenty-eight authorized reinsurers, according to data from the OCI and Standard & Poor��s. This put the city in second place in Asia, behind Singapore.
In terms of types of coverage, property loss accounted for 48% of total net premiums, followed by proportional/quota share (19%), motor vehicle (7%), freight, and medical (6% each).
The potential for development in Hong Kong��s reinsurance market remains robust. On its side are advanced transportation and telecommunications infrastructure, the relative abundance of talent, and proximity to Chinese Mainland, Taiwan, and Japan�Xthe three large markets. The only downsides are the high cost of operations and the 16.5% profit tax levied on all reinsurance revenues.
Beginning in the mid-1990s, the government stepped up its drive to turn the city into a global reinsurance centre. In his 1996 budget speech, Donald Tsang, then the financial secretary, articulated the government��s desire to diversify the city��s insurance interests. To that end, a working group was convened to explore the possibility of making Hong Kong the Asia-Pacific region��s reinsurance centre and fostering captive insurance business.
Captive insurance refers to an insurer established by its parent company for the sole purpose of underwriting exclusively the insurance business of the parent or all its affiliates. According to the Insurance Companies Ordinance (Cap. 41), a captive insurer can indemnify its parent, subsidiaries, and all affiliates and can also take its business to outside insurers.
Andrew Chow General Manager and Chief Underwriting Officer, The Hang Seng General Insurance (HK) Co. Ltd. Joined the industry in 1982
Captive fight: Although, by the mid-1990s, both Hong Kong and Singapore were vying to be the captive-insurance centre of Asia, ultimately the Labuan federal territory of Malaysia came out a winner. That was mostly because in October 1990 Labuan was officially established as an international offshore financial centre�Xor, more bluntly and plainly put, a tax haven.
The concept of captive insurance dates back to the early 1950s. Subsequently, and until the mid-1990s, the number of captives in the world grew to more than 4,500.8
Captive insurance offers firms many advantages. Chief among them are that firms can keep the premium income within the family and control the risks. Compared with regular insurers, captive insurers enjoy lower administrative and operating costs and other overheads, which translate into a lower cost of coverage. Most important, captive insurers often wield significant bargaining power in the reinsurance market because they hold a large volume of contracts. This helps firms cut down on reinsurance costs. Some firms also prefer to deal directly in the reinsurance market because of its greater flexibility and risk tolerance. So setting up captive insurers was the way to go.
With all these advantages in mind, many multinational groups and conglomerates began to explore captive insurance. They were prodded along in the 1990s by the new government incentives to turn Hong Kong into a captive insurance centre.
In the Insurance Companies (Amendment) Ordinance 1997, effective 1 May 1997, a number of concessions were put in place. Table 6.4 indicates them.9
Table 6.4 Selected Requirements in 1997: General Business Insurer vs. Captive Insurer
Item Minimum Capital Requirement: Solvency Margin: Valuation Regulation: General Business Insurer HK$10 million The greatest of: a. generally 20% of the relevant premium income; or b. generally 20% of the relevant claims outstanding; or c. HK$10 million The greatest of: a. 5% of the net premium income; or b. 5% of the net claims outstanding; or c. HK$2 million Requirement for Assets in Hong Kong: Assets and liabilities to be valued on statutory basis as prescribed by Valuation Regulation Captive Insurer HK$2 million To maintain assets in Hong Kong of an amount not less than 80% of its Hong Kong liabilities plus solvency margin Assets and liabilities to be valued on the basis of Generally Accepted Accounting Principles
Source: Insurance Company (Amendment) Ordinance 1997
The annual fees and authorization fees for a captive insurer together are $22,600, one-tenth of the fees paid by other authorized insurers. The IA, subject to the sufficiency of the information submitted, is committed to dealing with an application within two months.
At the time of Hong Kong��s return to Chinese sovereignty, on 1 July 1997, the SAR was already ranked as a global player in terms of the number of insurance firms in operation. Among 215 firms, 151 were in general business, 45 in life, with the balance being composites. Of these, only 29 were authorized reinsurers. Slightly less than half of all firms were incorporated locally; the rest hailed from 27 countries; British firms, which numbered 25, accounted for the most from any one nation. Five of the top ten insurance giants had a branch in Hong Kong, a sure sign that the city met or surpassed international standards.
Chapter 7
The Development of Life Insurance and Bancassurance in the Post-Handover Decade
The global rise of bancassurance in the last thirty years had Hong Kong the international financial centre following the fad and catching up with the world. Over the past five years, Hong Kong��s insurers formed strategic alliances with domestic banks to build up insurance sales pipelines and get a piece of the action. This set off a re-alignment of retail banking and a demand for financial planning services. This chain of events spurred on a diversification of the local insurance industry.
�X Insurance Professionals, July 2002
The handover on 1 July 1997 made Hong Kong a Special Administrative Region (SAR) within China. Around that time, the provisional government set about adding seats in the Legislative Council to represent such specific industries and other ��functions��, such as finance, insurance, real estate, and commerce; hence these members were representatives of ��functional constituencies��. On 24 March of the same year, the HKFI��s special joint session submitted a proposal to the preparatory committee of the SAR government, pointing out that insurance has a crucial role in Hong Kong��s financial market. The proposal also stressed that the sector already satisfied the four criteria used to designate functional constituencies in the SAR��s first Legislative Council. The HKFI actively encouraged industry practitioners to register to vote and run for office.
Finally, in 1998, the HKFI was assigned the first-ever functional seat in the Legislative Council. Bernard Charnwut Chan, now president of the Asia Insurance Co. Ltd., won the election. At the time those vying for the seat included AIA��s Deputy Managing Director Alex Wong; Union��s General Manager Steven Lau, and National Mutual��s Y. K. Chan.
Fig. 7.1
Members of the HKFI��s special joint session travel to Beijing to lobby for a functional seat on Hong Kong��s Legislative Council, March 1996.
Three Crises
(1) The impact of the financial crisis
A few months after the handover, Hong Kong was swept up in the region��s much-noted financial crisis. Within a year the Hang Seng Index had plunged by 60%, from the 7 August 1997 high of 16,673 to the nadir of 6,600 on 13 August 1998. Property prices dropped by more than half, pushing many homeowners into negative equity territory. Beginning in September 1997, the GDP slipped for five consecutive quarters. In 1998, the economy contracted by 5%, the worst performance since World War II.
Needless to say, the insurance sector suffered. Both premium revenues and income dropped precipitously. There was a surfeit of insurers, resulting in over-capacity and ruthless rate-cutting. In 1999, gross and net premium revenues decreased, respectively, by 8% and 9% from the previous year. The sector reported a loss of $1.38 billion.
But by 2000 the downturn had reversed. Gross and net premiums for general insurance showed growth of 7% and 9% respectively. But in March 2001, HIH Insurance Ltd. and its seventeen entities in Australia were ordered by the Australian government to liquidate. HIH��s three subsidiaries in Hong Kong were taken into receivership by the OCI for failing to meet the capital requirement necessary for claims compensation.
In light of this, in early 2002 the OCI tightened the captive-insurance ceiling for all general insurers by limiting it to no more than 10% of the company��s share capital.
(2) The impact of 9/11
On 11 September 2001, the twin towers of the World Trade Centre in New York were destroyed by two hijacked commercial airliners. It was an enormous blow to the general insurance sector globally. By some estimates, the industry suffered a loss of US$50 billion to US$70 billion worldwide; the bulk of the burden fell on re-insurers. Because most local insurers were not exposed to risk coverage in the United States, only five firms posted losses (totalling roughly $60 million) directly related to 9/11. The indirect impact on the local sector, however, was substantial. On the day following the catastrophe, stock prices for publicly traded insurers such as Manulife, Chinese Life, and Pacific Century all plunged by more than 20%, even though the latter two firms do not count the United States as their primary markets. A small Japanese-owned firm in Hong Kong sustained such heavy losses that it had to apply to the court for reorganization. The OCI took appropriate measures to shield its local assets.
Losses aside, 9/11 reshaped the global insurance sector in other significant ways. For one, many insurers no longer covered terrorism risks and at the same time also drastically raised premiums on political-risk coverage. The aviation industry was dealt the biggest blow of all. On the one hand, insurers demanded that airlines expand their coverage, but, on the other, capped the maximum claim per flight at US$50 million. Some insurers unilaterally cancelled coverage for political and terrorism risks for airline companies. All this threatened the viability of the airlines in case of an accident, because they would not receive adequate compensation to cover the losses. As a stop-gap measure, the U.S. Congress approved a bailout of US$18 billion to keep American carriers aloft.
The Hong Kong government took a similar tack. On 24 September 2001, the Legislative Council finance committee approved a motion to offer the three domestic airlines (Cathay Pacific, Dragonair, and Air Hong Kong), the Airport Authority, and all allied service providers third-party risk coverage pertaining to war, hijacking, and related hazards. The coverage, with a limit of $62 billion per incident, was good for one month. With this government backing, Cathay Pacific and Dragonair were able to reach an agreement with their insurers to cover war risks and pre-empt any service interruption. Ten days later, on 4 October, the Aviation Authority approved a surcharge of $10 to $47 per flight to be levied by fifteen airlines to cover war risks.
The retrenchment of terrorism risk coverage affected many segments of the insurance industry. From late 2001 to early 2002, many re-insurance contracts were successfully renewed only after coverage for terrorism was dropped. This set up a chain reaction that jeopardized even run-of-the-mill employees�� compensation and motor policies. Most of these policies did not cover war risks but implicitly covered terrorism. But since re-insurers reneged on terrorism coverage, many such policies had to be revised.
By law, employers are required to take out comprehensive coverage for their workers, without which as many as three million workers may not legally report to their workplaces.
The withdrawal of terrorism coverage also threatened the legality of all existing motor vehicle (third-party risk) policies. Ultimately, the government came to the rescue by earmarking $10 billion for insurers to underwrite losses in cases of terrorist acts. Insurers were required to pay a 3% levy on their premium revenues to subscribe to this government-backed protection.
The 9/11 ripple effect did not stop there. Premium rates for cargo transport, tourism, accident, and other coverage all shot up. War coverage rates for cargo soared more than tenfold, while premiums for jewellery coverage also spiked up by several magnitudes. In about a year, rates for employees�� compensation policies increased by anywhere from 20% to 175%.
To be sure, the terror attacks hammered home for the people of Hong Kong the fragility and the vagaries of life. Many turned to life coverage as a safeguard. In 2001, new life contracts (excluding retirement coverage) totalled $17 billion, a 48% increase from the year before.
(3) The impact of Severe Acute Respiratory Syndrome
In 2003, SARS ravaged Hong Kong, sickening more than 1,750 people to the point of hospitalization and killing 300. By the end of May 2003, the industry had satisfied nearly 500 SARS-related claims and paid out a total of $105 million. Needless to say, premium rates went up, especially for hospital and medical personnel. However, later that year, more than a dozen private hospitals were refused SARS coverage when they negotiated their insurance contracts. Some insurers even went so far as to express their desire to decline employees�� compensation coverage for the medical field in the next year. This, of course, troubled not just the medical sector but also the public at large.
After much government effort, the insurance and medical sectors reached an agreement, with ten or so insurers stepping up to cover SARS. This came at a cost�Xof four to six times the prevailing premium.
Fig. 7.2
Severe Acute Respiratory Syndrome ravaged Hong Kong in 2003. By May, insurers had satisfied nearly 500 SARS-related claims and paid out a total of $105 million.
In the wake of SARS the general public��s interest in medical coverage swelled, while more insurers were making liability coverage more affordable to doctors. By law, liability coverage was solely voluntary, so when uncovered doctors got sued for compensation they often had to pay out of their own pockets. Not a few went bankrupt as a result. Coverage was made available to both Western-trained doctors and practitioners of traditional Chinese medicine.
Following the 9/11 terrorist attacks and the SARS outbreak, the public voiced its concern about the lack of employees�� compensation insurance coverage for certain high-risk
Fig. 7.3
A ceremony marking the opening of the Employees�� Compensation Insurance Residual Scheme Bureau, 18 April 2007.
trades. The HKFI responded by advocating an employees�� compensation provision as a last resort for employers who could not otherwise secure coverage in the marketplace. An Employees�� Compensation Insurance Residual Scheme Bureau was soon formed to take over administration of the residual scheme, with the HKFI serving as the administrator. Participation in the residual scheme was mandatory for all employees�� compensation insurers, each bearing a slice of the accepted risk derived based on its market share.
The Development of Long-Term Insurance in the Post-Handover Decade
As previously noted, at the time of the 1997 handover Hong Kong had one of the world��s highest concentrations of insurance companies per capita. However, the proportion of the population with life coverage, at 53%, still lagged behind that of the developed world. In Europe and North America, 80% of people had coverage; in Japan, 90%. Needless to say, the untapped local life market remained vast. The Mandatory Provident Fund that was then to be instituted by the government was a sure promise of more growth. Global insurers also saw Hong Kong as the future gateway to the mainland market, which China was required to open up as a member of the World Trade Organization.
Shortly after the financial crisis of 1997, the life market already achieved record growth. In 1999, new long-term policy sales clocked in at $11.4 billion, a 33.4% increase from the previous year. More than 60% of the increase came from life products. Part of the growth may have been encouraged by the government��s decision in 1999 to eliminate the estate duty on all contracts denominated in Hong Kong dollars.
Finally�Xand it had been a long time coming�Xin February 2000 the government rolled out the Mandatory Provident Scheme and accepted applications from all those who were eligible. By October, all employees and employers were required to begin contributing to the scheme. The launch provided tremendous business opportunities for participating insurers. By some estimates, about $20 billion of the pension fund would be managed by either insurance firms or bank-affiliated trusts.
This also helped give insurers a solid footing to sell to new clients, especially those whose pension funds were managed by them. Meanwhile, some insurers resorted to more unconventional marketing, such as holding travelling exhibitions and carnivals to attract customers. Others appealed to clients by offering customized coverage, which allowed them to pick whatever risks against which they would like to be insured.
All in, the post-handover decade saw exponential growth in the life sector. From 2000 to 2007, non-linked personal-life premium income doubled, to $20.3 billion, while premium revenues for investment-linked life policies expanded by 12.5 times, to $60 billion. The top five firms took nearly 60% of the market, as Table 7.1 indicates.
Table 7.1 Top Five Life Insurers in Hong Kong, 2007
Manulife 25.4 14.4
AIA 24.8 14.1
HSBC 24.7 14
Prudential 15.7 8.9
Hang Seng 9.5 5.4
Source: Hong Kong Commissioner of Insurance
Supervising Insurance Intermediaries: Review and Improvement
In post-handover Hong Kong, life products gained popularity, as did insurance agenting as a profession. In 1997, there were 31,200 agents; that figure jumped to 48,500 two years later, a 55% surge. During the same period, the number of life contracts rose from 3.4 million to nearly 5 million.
As products became increasingly sophisticated and the supervision process more complex, intermediaries needed to meet higher professional standards to protect policyholders�� interest. With that in mind, in July 2001 the OCI published a consultation document, ��Review of Regulatory System for Insurance Intermediaries��, which examined the self-regulatory system that had been in place since 30 June 1995 and in accordance with Part X of the Insurance Companies Ordinance (Cap. 41).
This was especially timely in light of the growing volume of complaints. From 1998 to 2000, the number of complaints lodged against agents and brokers more than doubled, from 208 to 459.
��There has been growing public concern over the professionalism and conduct of insurance intermediaries, as evidenced by the increasing number of complaints received,�� the consultation document said. ��The aim of the review is to identify areas for improvement of the existing self-regulatory system.��
The document continued:
�K since the [various] codes [of practice] are self-regulatory in nature, legal sanctions are not applicable for non-compliance and lacks legal backing. They do not specify requirements or good practice on certain major operations areas such as remittance of premiums and notification of claims; there is inadequate practical guidance to agents to ensure that relevant information is properly disclosed and explained to their clients; no effective measures in addressing the poaching of agents and replacement of polices among insurers.
The two approved broker bodies, the Hong Kong Confederation of Insurance Brokers (CIB) and Professional Insurance Brokers Association Limited (PIBA), are not affiliated with each other, so inevitably there are some disparities in interpreting and implementing the requirements on admission and on-going supervision of members. . . . That fact that all their executive committee members come from broker companies also [reflects] an apparent lack of independence in performing their self-regulatory functions and presents a potential conflict of interest. . . . The existing regulations on brokers are relatively less stringent in Hong Kong. . . . The IA has limited sanction power over unethical conducts of broker members of the approved broker bodies.1
Fig. 7.4
A seminar organized by the Office of the Commissioner of Insurance, the Insurance Intermediaries Quality Assurance Scheme, 7 May 1999.
The review thus concluded that there was a need to tighten supervision of intermediaries, and to do so it suggested borrowing a strategy of the Securities & Futures Commission.
In Hong Kong, the ��Securities and Futures Bill�� was gazetted on 24 November 2000 to provide for the regulatory framework for investment intermediaries. The SFC will conduct background vetting on their intermediaries to ensure that they are fit and proper. This background vetting procedure is currently not adopted by self-regulatory organizations in the licensing of insurance intermediaries. Besides with the proposed expansion of the definition of ��securities�� to include ��interests in a collective investment scheme��, insurers and insurance intermediaries dealing in or advising on insurance products that are interests in a collective investment scheme will fall within the regulatory regime of SFC and need to be licenses to do so. Insurers and insurance intermediaries will then be regulated by two regulatory authorities over their investment-linked long term business.
In January 2000, in its continuing efforts to raise professional standards among insurance intermediaries, the IA introduced the Insurance Intermediaries Quality Assurance Scheme to require insurance intermediaries to pass qualifying examinations. All insurance intermediaries, chief executives or responsible officers, and technical representatives were required to pass the test, the Insurance Intermediaries Qualifying Examination, which was conducted by the Vocational Training Council, to receive their licenses. The examination consisted of four papers, including a compulsory one on the principles and practice of insurance; the others were a qualifying paper each on general insurance, investment-linked long-term insurance, and long-term insurance. A separate paper for travel insurance agents was introduced in May 2006, as was, later on, one for agents offering products related to the Mandatory Provident Fund.
All practicing intermediaries had to pass the exams by the end of 2001 and be registered to conduct business. All those who entered the industry from 2000 onward were required not only to pass the exams but also to comply thereafter with the requirements of a continuing professional development programme. Fully 86% of practitioners passed the exams when the two-year transitional period ended on 31 December 2001 and obtained the licenses necessary to stay in business; there was an overall 47% passing rate for the papers. The qualifying exams, we can say without a doubt, served dramatically to improve the quality of intermediaries.
Peter Tam Chief Executive, The Hong Kong Federation of Insurers Joined the industry in 1990
Hongkongers are known globetrotters, so insurers are constantly trying various avenues to sell them on the importance of travel coverage. With such coverage, in event of accidents, policyholders are entitled to not only death, injury, and medical benefits but also emergency assistance. Still, many people shrugged that off. It wasn��t until the Southeast Asia tsunami and the Egypt bus crash brought the inherent risks of travel close to home that many minds were changed.
I still remember getting the word on the bus crash as soon as I got up. It was on the third day of the Chinese New Year in 2006. A Hong Kong tour group had a serious accident in Hurghada, Egypt. Fourteen dead, nine injured. The HKFI immediately set up an ad hoc emergency committee. We called the Travel Industry Council of Hong Kong (TIC) and got the confirmation that all tour group members were covered by travel insurance. Next, we got in touch with the eight insurers who offered the coverage; two of them, through their international partners, dispatched a medical team to Hurghada within a few hours. The Cairo-based team spoke the local dialect and was great help. A Hong Kong team later arrived to stabilize some of the wounded.
On our end, there was a lot to be done within the first twenty-four hours. We set up a hotline to field the public��s questions on insurance benefits and the progress on the rescue. We called a meeting with the tour company, the TIC, and all the insurers and emergency rescue service companies involved. We worked with the OCI, the Home Affairs Office, Immigration Department, and the Security Bureau in arranging for the wounded and the remains of the dead to come home.
Some of the more seriously wounded were diverted to Paris and Zurich for their more advanced medical infrastructure. Those with less severe injuries flew home in the company of family members or medical personnel. All of the remains arrived two days after the accident and the wounded came home within the week.
The aftermath of this tragedy�Xhappening eight thousand miles away with considerable casualties�Xwas proficiently handled through the seamless coordination of various industry parties and practitioners. This boosted Hong Kong people��s confidence in travel-insurance coverage. The number of policyholders was on the rise ever since.
Industry Groups and Professional Organizations
As the sector continued to expand in the past decades, the ranks of practitioners swelled accordingly. Myriad industry groups and professional organizations therefore came into being.
(1) Trade groups of intermediaries
Among the intermediaries�� groups, the Hong Kong Insurers�� Club is the oldest. Back in the 1960s, social events for practitioners were few and far between. Yet, a smattering of expatriates and high-level local executives tended to socialize with each other privately. As such gatherings became a monthly routine they attracted more and more participants. Thus, in 1964, the Hong Kong Insurers�� Club was formed, but it admitted only management-level practitioners. Formal luncheon seminars, not relaxing social activities, formed most of the club��s programme. Membership was predominantly non-Chinese, and the lingua franca was English.
Feeling left out of the social circle, a dozen like-minded local practitioners founded the Chinese Underwriters Club (CUC) in 1976. The CUC��s members met over informal dinners every other month and conversed primarily in Cantonese. Even so, the CUC started out with an air of exclusivity, limiting membership to a hundred. But the quota could not be maintained, given the number of practitioners clamouring to join. At its peak, the club boasted more than a 1,000 members. As of 2008, the membership exceeded 300, the majority being Chinese.
On 29 March 1973, the Hong Kong Life & Pension Society was founded with fifty-two members to focus on professional development and training as well as to establish and implement professional standards. The inaugural chairman, Y. K. Chan, recalled that at its founding, members were all passionate practitioners in the fledgling life sector. By July 1980 it was renamed the Life Underwriters Association of Hong Kong. As of 2010, it had around 8,500 members.
The Hong Kong Confederation of Insurance Brokers was formed by the merger, in 1993, of the Hong Kong Insurance Brokers Association and the Hong Kong Society of Insurance Brokers. Its formation was prompted by the government��s desire to consult a more representative and unified brokers�� group as it moved toward regulating their professional standards, according to Adrian King, the founding chairman. The confederation was active in submitting its input to the government��s ordinance reform committee and the OCI. And when the amended Insurance Companies Ordinance went into effect in June 1995, its section empowered the confederation to devise self-regulatory measures.
Yet, another brokers�� group, the Professional Insurance Brokers Association, was founded in January 1988, with twelve corporate members. But now it boasts more than 280 corporate members and 3,000 registered chief executives or company representatives. From the very beginning, the association has honed in on its members�� professional ethics and conduct. Regular panels and special seminars were organized to enhance members�� knowledge. These efforts paid off when the association got the government��s nod to be the official body overseeing members�� conduct.
And on 4 February 1994, after more than a year of ground work, the Hong Kong Chamber of Insurance Intermediaries (HKCII) was founded to represent agents and brokers serving life and general insurers. Inaugural chairman Gregory Fong explained that HKCII was established primarily to foster the collaborative spirit among insurance intermediaries with an eye toward ensuring fair competition. This, Fong hoped, would result in a win-win-win situation for customers, insurers and intermediaries. In 2010, the organization had 378 members.
The General Agents and Managers Association of Hong Kong (GAMA) was ��imported�� from the United States in 1994 to be the city��s only organization of life agents. Its mission is to raise management skills, such as in recruiting, training, supervision, and workforce motivation. Every year, GAMA would organize conferences, bringing together industry veterans as well as outsiders to share their wisdom and experience and thus raising the industry��s profile. In 2006, a professional development centre was established to enhance teaching and research in the life sector as well as related qualifications in financial management. Within the first few months of its founding, the local GAMA became the overseas branch that boasted the most members under the U.S. umbrella organization.
The Hong Kong General Insurance Agents Association was founded in 1997 to represent the interest of general agents. With roughly a hundred members at its founding, the association saw its membership dwindle to eighty by 2010, due to a decrease in the general number of insurance agents.
Later, the Hong Kong Insurance Practitioners General Union was established, in January 2003, to resolve the grievances of brokers, agents, and salaried professionals. With its emphasis on solidarity, justice, and professionalism, the union purports to fight for its members�� rights to fair treatment.
(2) Professional associations
Besides the trade groups for intermediaries, the sector also has a number of professional associations. The oldest among them is the Insurance Institute of Hong Kong (IIHK). Founded in 1967, the IIHK is known for its role in raising professional standards within the sector and competitiveness amongst practitioners. Through the years, the institute has organized training courses and specialized seminars for its members.
Formed in 1967, the Actuarial Association of Hong Kong began with five members. In 1972, Peter Luk became the first local actuary and Fellow of the Institute of Actuaries of English (FIA), and Che Lam was made a Fellow of the Society of Actuaries of the United States of America. Three others followed in Luk��s footsteps by the late 1970s.
Renamed the Actuarial Society of Hong Kong in 1994, it brought in more members beyond the insurance sector, from consultancies, finance and investment firms, the government, and educational institutions. Still, the sector accounted for nearly 70% of the membership. By 2010, the society had more than 750 members on its rolls.
The LOMA Society of Hong Kong was formed in 1978 by a handful of insurance executives who had been made Fellows of the Life Management Institute (FLMI). When the FLMI examinations were first introduced in Hong Kong, in 1970, only fifteen sat for them. But now at least several hundred people, most of them working in the back office or in administrative positions at insurance firms, will take the examinations every time they are offered.
The Hong Kong Society of Certified Insurance Practitioners was established in August 1998 and began admitting members with five or more years of management experience. All of its members obtained their professional qualifications in Britain, the U.S., Australia, or other foreign countries.
The Institute of Financial Planners of Hong Kong was formed in June 2000 to maintain high professional standards and self-discipline for the city��s providers of financial planning services. In November 2000, the institute achieved its first milestone when it was approved by the Financial Planning Standards Board to offer testing and certification for the Certified Financial Planner in Hong Kong and Macau. The institute now boasts more than 10,000 members.
Fig. 7.5
A stock certificate issued by Associated Bankers Insurance Co. Ltd., a bancassurance company led by Hang Seng Bank.
The Rise of Bancassurance
For the longest time conventional insurers have prided themselves on offering personalized, comprehensive service one-to-one through both the agency system and their own sales networks. But as banking expanded globally with more value-added services, bancassurance rode high on this global expansion.
However, bancassurance has become more prevalent and popular only over the last three decades. Beginning in the 1980s, most banks in Europe were firmly in the insurance marketing business. In Britain alone, from 1992 to 1996, bancassurance��s market share more than doubled, from 7% to 15%, at an average annual rate of 21%.
Bancassurance is marketed in various ways: either by the bank or the insurer taking the lead, or through concerted efforts of the bank and the insurer together. When an insurer takes the lead, it analyzes the database of the bank��s clientele and tailors products and marketing strategies based on the composite statistics resulting from such analysis. The most commonly marketed products are term life and accident. When a bank takes the lead, it uses the partnering bank��s sale force to sell clients on various types of insurance products. In this case, a financial consultant with an intermediary��s license conducts a comprehensive analysis of clients on their financial planning and recommends certain investment and insurance products for their portfolios.
The development of bancassurance in Hong Kong can be traced to the Associated Bankers Insurance Co. Ltd. in the 1960s and CIGNA in the 1970s. In 1965, Hang Seng Bank started Associated, with Wing Hang Bank, Wing Lung Bank, and Bank of East Asia banks as shareholders. That arguably was the first bancassurance venture in Hong Kong, with a bank taking the lead. But CIGNA, also, was a bancasssurance pioneer. In 1979, CIGNA partnered with banks and credit card companies to market its insurance products, through both direct mailing and telemarketing. Yet, the heyday of bancassurance would not come until the mid-to-late 1990s.
When the financial crisis hit in July 1997, the real estate bubble burst and interest rates stayed high. All this took huge bites out of banks�� margins. As banks looked for revenue sources other than interest, bancassurance presented new opportunities for income streams. So large and medium-sized banks tapped into their vast client networks and menus of professional services to expand into the sector, either through their own insurance subsidiaries or by partnering insurers.
The greatest advantages enjoyed by bancassurance are a bank��s access to a vast client database and a network of branches. The most popular marketing tactic has been
Fig. 7.6
A dragon dance at the opening ceremony of the Prudential Assurance Co.��s offices in Tsim Sha Tsui, 19 May 2000.
through client contact at the branch level. A bank��s customers are invited to attend bank-sponsored events such as investment seminars, informational sessions on new products and mutual funds, and so on. Through these gatherings, a bank��s financial consultants can maximize their contact with the customers and ��soft sell�� insurance products. This has proved far more effective than traditional hard selling because customers tend to have faith in a bank��s institutionalized, standardized financial planning service.
Some examples of the myriad of bancassurance products are as follows:
�E
Mortgage insurance, such as the residential-mortgage protection plan offered by Standard Chartered. Under the plan, if policyholders become unable to make mortgage payments due to involuntary unemployment or short-term disabilities, they are entitled to up to $200,000 or six months�� coverage.
�E
Credit card�Vrelated life products. AIA and Citibank jointly promoted a plan that granted holders of certain credit cards up to $100,000 in automatic life coverage
�E
Products related to the Mandatory Provident Fund. These are available at all HSBC and Hang Seng Bank branches. The Bank of China also joined with Prudential in offering such products.
Of the major banking groups, HSBC Life Holdings, part of the HSBC Group, fared best in bancassurance. Founded in 1976, HSBC Life tapped into the banking giant��s client pool as early as in 1993. But the biggest growth did not surface until after 1997.
C. F. Choy CEO, The Bank of China Group Life Assurance Co. Ltd. Joined the industry in 1982
I was assigned to the insurance department when I first joined the HSBC Group, and thus began my life-time affair with bancassurance. In those early days, bancassurance��s growth remained rather straitjacketed. That��s because retail banking was already hugely successful and lucrative, so there��s a lack of incentive to blaze the bancassurance trail. I remember a veteran banker saying this to me: ��I don��t know what on earth you fellows in the insurance department are toiling for. Whenever we bankers sign a contract, it��s at least for a few million dollars. But you guys�� policies make only a few hundred dollars a pop. It��s peanuts.��
Figs. 7.7�V7.9 For me, the idea of banassurance is simple; it boils down to understanding your clients��
Advertising brochures of
needs. We used the financial-planning approach and took a comprehensive look at a client��s
leading insurers, 2000s.
portfolios and asset-management goals. So then we can recommend the appropriate share that goes into savings, investment, insurance, etc. The bottom line is everybody needs some coverage; the trick is to figure out how much a client can afford. That way you can make sure you sell the right policy and thus minimize cancellations and losses on the client��s part.
Effective bancassurance marketing calls for integration�Xof the computer system, back office personnel, client database, etc. For instance, when a bank customer comes to the counter for currency exchange, the teller should follow up by asking if the customer might want to take out travel insurance.
Whether bancassurance has been a success in Hong Kong remains to be seen. But remember that veteran banker who once shrugged off bancassurance as peanuts? After he��d retired he joined the board of directors of a bancassurance firm. That tells you something about the growing clout of bancassurance.
The Rise of the Niche Market
As the sector grew mature, competition in the mainstream market intensified. To boost premium income and expand the client base, insurers clamoured to explore the niche markets. This resulted in a flowering of new policy types.
In contrast to conventional products such as employees�� compensation, motor vehicle, and travel insurance, the niche market caters to individual needs for coverage from horses and collectibles to jewellery and yachts.
The rise of the niche market was prompted by the increased competition from banks. As bancassurance gained market share in the conventional market, insurers looked for other revenues elsewhere and increasingly invested in the niche market, according to Geoffrey Lung, a veteran practitioner. Also, relentless mergers and acquisitions among global players have brought specialty know-how to bear in the local insurance market and made it possible to expand into the niche market. Equine insurance is one such example.
Insuring horses was no novelty, because it is as old as the racing franchise in Hong Kong. For many years Lloyd��s has been the go-to place for equine insurance. Beginning in the 1970s, large agencies such as Mollers�� began to act as intermediaries for purebred coverage. Even some local insurers have increasingly warmed to the equine line in recent years. Of the 1,400 horses currently in the stable, about 800 have some kind of coverage for death or loss of racing capability. When horses are shipped to the city from overseas, such as from Australia and New Zealand, they also have to have transit coverage. Lloyd��s coverholder is the one-stop shop for coverage.
Another product gaining popularity is one covering private collections. The scope of such coverage can be very broad. It usually covers the more common collectibles, including antiques, postage stamps, artworks, and timepieces, but it can include items deemed valuable by a collector, for example, commemorative badges, feather fans, red wines, personal letters, Ming- or Qing-style furniture, and so on. Since most of these items carry no objective price tag, the coverage amount is either determined by professional evaluators or hashed out over discussions between the owner and the insurer.
Jewellery coverage also was getting noticed by the insurers. In the crime-riddled 1990s, insurers often were hit with losses covering jewellery. But as jewellery shops are equipped with advanced anti-theft systems and the Hong Kong Police keep a better pulse on local and global crime intelligence, robbers have a tougher time in their fencing operations.
As both the costs and risks associated with robberies rose, the number of cases dropped precipitously. Insurers now face significantly lower risks in covering jewellery. In addition to the domestic market, the city also exports stones to Europe and North America. So insurers should provide both retail coverage and transit coverage.
The emergence of other non-mainstream products was intricately linked to the rise of certain economic activities. As Hong Kong has hosted various international and domestic
conferences in recent years, conference-cancellation products became a hit. Also, the rapid growth of the advertising sector gave rise to liability products that cover injuries incurred during the production of commercials.
The Development of Chinese-Owned Firms in Hong Kong
For the longest time, Hong Kong��s insurance sector has been dominated by foreign firms, especially American and British insurers. That said, Chinese-owned firms have carved out a significant slice of the market. These include the pre�VWorld War II establishments Sincere and Wing On and such postwar upstarts as Ming An, Associated Bankers, and Asia Insurance. But it was not until 1990s that the Chinese-owned firms emerged as a moneyed force to be reckoned with. Below are some of the major mainland players in the Hong Kong insurance sector:
China Taiping Insurance (HK) Co. Limited (formerly known as ��The Ming An Insurance Co. (HK) Ltd��)
Ming An��s forerunner was Shanghai��s Ming An Property & Product Insurance. In 1949, The China Taiping Insurance (HK) Co. Limited (China Taiping) was incorporated in the territory with a registered capital of $1 million and paid-up capital of half as much. In its early years, its mainstays were mostly cargo, hull, and transport-liability products. During the 1960s, changing with the times, it switched gears and expanded its offerings in fire, employees�� compensation, and, later, construction all-risks. It also served as agent for the Legal & General Assurance Society Ltd., a British company.
By the 1970s, China Taiping had jumped on the re-insurance bandwagon and took part in a joint venture with Jardine Matheson, HSBC, and the Bowring Group of London called the East Point Re-insurance Co. of Hong Kong Ltd. In the following decade, Ming An joined forces with the China Taiping Insurance (HK) Co. Ltd. and the People��s Insurance Co. of China (Hong Kong) Ltd. to found the China Reinsurance (HK) Co. Ltd.
The Ming An (Holdings) Co. Ltd., the holding company of China Taiping, was listed on the main board of the Hong Kong Stock Exchange on 22 December 2006. Ming An Holdings became a wholly owned subsidiary of China Taiping Insurance Holdings Co. Ltd. (CTIH) and withdrew the listing of the company��s shares on the exchange on 2 November 2009.
A year-to-year increase of 46% in gross written premiums, to $1.97 billion in 2008, placed China Taiping among the major general insurance companies in Hong Kong.
K. C. Hong Director, China Taiping Insurance (HK) Company Limited Joined the industry in 1951
During the heyday of light industries, insurers devised many peculiar ways to calculate fire premiums. At that time it was common to find textiles and plastics factories under the same roof of an industrial building. However, since fire risks were quite a bit higher for plastics, even owners of textiles factories had to pay the higher premiums if they were housed in the same building. Also, the higher up the factories were the higher the premiums, especially when the factories were located on or above the fifteenth floor. That was because fire engines had ladders that could not reach farther up than the fifteenth floor.
Taiping Reinsurance Co. Ltd. (formerly known as ��The China International Reinsurance Co Ltd��)
Its first incarnation, as the Taiping Reinsurance Co. Ltd. (TPRe), was established in September 1980 by People��s Insurance (a 40% stake), Ming An (30%), and China Taiping (30%).
By 1998, TPRe had already captured nearly 21% of the city��s re-insurance premiums, making it the second largest such firm in the market, after Munich Re.
Later, in a 1999 restructuring, China Taiping Insurance Holdings Company Limited (CTIH) (formerly known as China Insurance International Holdings Company Limited) was set up and inherited all life business developed by the former China Reinsurance Co. since 1996. The business scope covered a wide range of products including life, health, and accident.
In 2000, the new holding company publicly listed its re-insurance subsidiary, the Taiping Reinsurance Co., Ltd. (TPRe) China International Re-insurance Co., as well as its re-insurance brokerage firm, Sino-Re, on the Hong Kong Stock Exchange. China Insurance thus became the first mainland insurance company to be publicly listed across the border. In 2008, the company achieved total premiums of RMB 6.6 billion and total assets RMB
17.4 billion.
The Bank of China Group
Bank of China Group Insurance was established in July 1992 and conducts business through six branches and two subsidiaries, the Bank of China Insurance Co. Ltd. and BOCG Life.
The former provides a wide range of general services, ranging from accident and health, motor, cargo in transit, and property to general liability and other products. The latter offers long-term life insurance products, including traditional and linked individual life insurance and group life insurance products through the Bank of China (Hong Kong)��s distribution network. By the end of 2005, BOCG Insurance��s total consolidated assets were valued at $13 billion.
In 2005, the Shenzhen branch of BOCG Insurance completed a restructuring and was incorporated as a wholly owned subsidiary of BOCG Insurance, the Bank of China Insurance Co. Ltd. In December of the same year, the Bank of China Insurance Co. Ltd. received approval from the China Insurance Regulatory Commission to open its first domestic branch in Jiangsu Province.
In 2004, BOCG Insurance had consolidated gross written premiums of HK$3.8 billion and consolidated pre-tax profit of $265.5 million. Its net written premiums for its property and casualty insurance business ranked first in Hong Kong for seven consecutive years, from 1998 to 2004, according to OCI data.
As of year end 2005, BOCG Life had gross written premiums of HK$3,639 million. In April 2006, BOCG Insurance conditionally agreed to sell 51% of its interests in BOCG Life to Bank of China (Hong Kong) Holdings.
The Asia Insurance Co. Ltd. and Hong Kong Life Insurance
Among Chinese-owned firms, the Asia Insurance Co. is one of the oldest and most ambitious in the sector. In 1959, Bangkok Bank��s Thai Chinese founder, Chin Sophonpanich, along with other prominent Chinese business executives, established what would become the region��s leading general insurer and got it listed on the city��s four stock exchanges in 1972.
Even at its listing, Asia Insurance had amassed $10 million in capital. The company would soon get two more shots in the arm. The Continental Group of USA, holding company of Diners Club, became a shareholder in 1976, followed by Chiyoda Fire & Marine Insurance of Japan in 1989. By 2007, Asia Insurance had obtained a Standard & Poor��s ��A�� rating.
In terms of business development, Asia Insurance has also been active in forming a number of joint ventures with partners around the region. The general insurer opened branches in Taiwan and Macau in the early 1980s. In 2001, Hong Kong Life Insurance was formed with other local financial institutions to offer comprehensive life insurance services.
In 2005, along with People��s Insurance, Bangkok Bank, and the Sumitomo Life Insurance Co. of Japan, Asia Financial, under the leadership of Robin Chan and Bernard Charnwut
Fig. 7.10
The opening ceremony and press conference of Hong Kong Life, 23 April 2001.
Chan, started a joint venture to form PICC Life Insurance with a nationwide license to begin providing life insurance on the Mainland.
By 2006, the annual gross premiums of Asia Insurance put it in fifth place among local general insurers.
The Development of the Mainland Market
Throughout the 1990s, as the mainland��s insurance market developed rapidly, efforts by Hong Kong insurers to tap into the mainland market grew apace.
Fig. 7.11
Ma Yongwei, chairman of the China Insurance Regulatory Commission, executes calligraphy to celebrate the opening of the HKFI��s new headquarters at Wan Chai, 10 May 2001.
After the Insurance Law of the People��s Republic of China (a.k.a. the Insurance Company Administration Provisions) was promulgated in 1995 and the Administrative Rule of Insurance Agents (a.k.a. the Provisional Regulations on the Control of Insurance) in 1996, China, in 1998, established its first-ever insurance regulatory commission, the China Insurance Regulatory Commission, a milestone in the development of an insurance sector with enormous potential. Since the handover, the economic tie that binds the Hong Kong and mainland insurance sectors has only tightened.
This culminated in the Mainland and Hong Kong Closer Economic Partnership Arrangement (CEPA), which was signed on 29 June 2003. It is the first free trade agreement between the Mainland and SAR. Under it, Hong Kong insurers are accorded the following significant concessions:
�E
Groups formed by Hong Kong insurance companies through re-grouping and strategic mergers are permitted to enter the mainland market subject to certain established market-access conditions;
�E
A maximum limit of capital participation by a Hong Kong insurance concern in a mainland insurance company is set at 24.9%;
�E
Hong Kong residents with insurance qualifications are permitted to work in the mainland insurance industry;
�E
Hong Kong insurance agencies are permitted to set up wholly owned companies on the Mainland to offer insurance agency services to mainland insurers.
For other foreign insurers, China��s accession to World Trade Organization in 2001 required it to take steps to relax or even dismantle numerous market barriers. Foreign firms had previously been rare, and rare it was for such a firm�XAIG, for instance�Xto make headway in the mainland market. Others could enter only by way of joint ventures with mainland firms.
For instance, in 1996, Manulife Financial��s joint venture in Shanghai, the Zhong Hong Life Insurance Co. Ltd., became China��s first joint venture life insurance company. Manulife-Sinochem is a joint venture company between Manulife (International) Ltd. (51% ownership) and the China Foreign Economic & Trade Trust & Investment Co., a member of the Sinochem group (49% ownership). By the end of 2007, the insurance regulatory commission had approved seven foreign insurers and five Chinese-foreign joint ventures.
In 2002, after its accession to the WTO, China enacted its Regulations for the Administration of Foreign-Invested Insurance Companies to fulfill its commitment to let
in more foreign investors, not least insurers. To meet its WTO obligations, in December 2004, China ��lifted its previous restrictions limiting foreign insurers to fifteen cities and prohibiting the sale of group policies��.2 For foreign insurers, China��s ��potential for growth is immense, as less than 4% of China��s 1.3 billion people have insurance��.3 It also is a market full of challenges.
Yet, few Hong Kong�Vbased heavyweights were deterred. In October 2002, HSBC Insurance Holdings Ltd. bought a 10% stake in the Ping An Insurance Co. of China Ltd. for US$600 million. At the time, that was the largest ever infusion of foreign capital in the Mainland��s financial sector. By August 2005, HSBC doubled its Ping An stake to 19.9%. In the meantime, HSBC Insurance Brokers Ltd. entered into a joint venture agreement to offer insurance-broking and risk-management services to domestic and international clients on the Mainland, making it the first foreign joint venture there to have obtained an insurance-broking license to offer services to domestic customers. Also, HSBC partnered with Hua Yu Asset Management Ltd. in Shanghai and the Beijing Zhong Ke Engineering Co. to form HSBC Insurance Brokers Ltd., with headquarters in Beijing. With an injection of US$498,000, HSBC held a 24.9% stake in the new brokerage.
This new concern, licensed to undertake insurance broking, claims handling, re-insurance, and risk-management risk-consulting services, would focus on brokering large commercial risks, re-insurance business, international marine, aviation, transport, and health-care insurance to foreign investment entities. With it, HSBC��s full-on plans for the mainland market were complete.
HSBC��s Group Chairman, Sir John Bond, said in 2005, ��We are optimistic about the long term prospects of the insurance industry in mainland China.��4
In 2005, together with Bangkok Bank and Japan��s Sumitomo Life Insurance, the Hong Kong�Vbased Asia Financial Holdings partnered with PICC Holdings to form a joint
venture.5 The frenzy over the Mainland is best summed up by a top executive at TPRe (formerly known as ��China International Re��): ��In the post-handover decade, Hong Kong insurers, no matter general or life, have seized the opportunity to expand��, Chief Executive Officer Kenneth Ng said. ��Nearly eight of the top ten focus their attention squarely on the Mainland, in any shape and form and to differing degrees.��
Agnes Koon Chief Executive, KSY Specialty Ltd., 2008�V2009 Chairman of the Hong Kong Federation of Insurers
��HKFI�� stands for more than the Hong Kong Federation of Insurers. A trademark of professionalism and dedication to consumer protection, it symbolizes our member corporations working together to promote the common interests of the industry and the public.
At its twentieth anniversary, HKFI is given a brand new look, which captures the essence of both the association��s longstanding corporate identity as well as the core values of insurance. The focus of the new logo is the last letter, ��I��. With a bright red dot set against the navy blue, it sends out a clear message of insurance forming an integral part of all socio-economic activities. Portrayed as a torch with blazing flames, the letter carries a significant symbolic meaning.
Conclusion
Future Prospects of Hong Kong��s Insurance Industry
The insurance industry under the strong contribution from the life sector has achieved tremendous growth over the past twenty years. The annual premiums from both general and life insurance have increased fifteen times from $13 billion in 1988 to over $200 billion in 2007, now representing over 10% of the Hong Kong gross domestic product. The importance and value of insurance are now being recognized by the community. The industry provides risk and wealth management, appropriate protection and quality insurance solution to Hong Kong whether they are individual or groups, commercial, industrial SMEs or corporations.
Insurance has become a vital pillar of Hong Kong��s financial service industry and a major economic sector employing more than 100,000 people. The HKFI, as a trade association representing 136 insurers, is proud to see its mission of promoting insurance making significant progress over the years.
While our industry prospers and thrives, we have never deviated from our firm commitment to actively practicing self-regulation.
�X Agnes Koon, The Story of The Hong Kong Federation of Insurers
The Insurance Sector��s Contribution to the Economy
The reform and opening up of China in the 1980s set off a rapid transformation of Hong Kong��s economy. Where manufacturing had once been king, the services sector became dominant. In 2007, manufacturing accounted for a mere 2.5% of GDP (as opposed to 70% in 1970), while services in 2007 accounted for 92.3% of the economy. Within the sector, finance, insurance, real estate, and business services were the most important producers, delivering 29% of GDP.
In 2008, the insurance sector generated $188 billion in gross premiums, amounting to about 12% of GDP, and it employed 46,000 people, 1.3% of the SAR��s workforce.1
As a pillar of the financial services sector, the insurance industry offers long-term, general, and comprehensive products. From 1982 to 2007, Hong Kong��s GDP expanded by 7.2 times, whereas gross premiums over the same period grew by 42 times. The penetration rate, meanwhile, grew from 2.5% to 13.6%, a spectacular surge.
The Basic Characteristics of Hong Kong��s Insurance Industry
(1) A plethora of insurers and concentration of market share
At the moment, Hong Kong is one of the most liberalized and saturated insurance markets in the Asia-Pacific region�Xand, indeed, in the world. As of July 2010, Hong Kong had 170 authorized insurance companies, with 104 in general business, 46 in long-term, and the balance in composite. Fully 88 insurers are registered domestically, with the remainder in 22 different nations. Bermuda, Britain, and the United States are the most popular countries of incorporation, accounting for more than a quarter of all registrants.
Meanwhile, there is a high level of concentration in market share. Take the life market as an example. In 2007, the ten largest life insurers in Hong Kong took up 74% of the market, leaving the balance for thirty-seven insurers to carve up. As a rule, insurance companies compete on prowess of capital and reputation, so the nature of the business naturally favours the behemoths. But the large number of small to medium-sized insurers in Hong Kong means that there was room for survival as smaller fish in the pond, but only for so long.
As the government raised the bar for new entrants in the 1980s and as industry players were reshuffled by the global M&A mania of the 1990s, it became a game of survival of the fittest. The number of insurers in Hong Kong thus began to dwindle.
(2) High density and penetration
In 2007, the density of insurance in Hong Kong was US$3,373.3. That ranked the city No. 1 in Asia and No. 13 worldwide. And with a penetration rate of 11.8%, Hong Kong ranked No. 3 in Asia and No. 16 worldwide. (��Density�� is the average insurance premium per capita; ��penetration rate�� is the ratio of total premiums to GDP.)
Many international insurers also have ventured into the Hong Kong market since the handover. During the first post-handover decade, total gross premiums for the industry as a whole nearly tripled, from $52 billion to $188 billion in 2008.
(3)
The life market rules
Since the mid-1980s, as factories headed north en masse and the services sector took off, the impact on the insurance market has been enormous. Demand for marine, fire, and employees�� compensation products fell off a cliff, while the market for life products surged. By some estimates, premium income for general business rose 6% from 2004 to 2008, while premium income for life skyrocketed by 65%, from $98.4 billion to $162 billion, during the same period.
(4)
Investment-linked products raise risks
The Mandatory Provident Scheme launched by the government in 2000 unleashed a rush of hot money into the stock market and a flood of public interest in investment-linked insurance products. As the financial meltdown of 2008 has shown, the risks associated with many of these derivative products were ill understood, even by investment professionals.
The conundrum for insurers of how to strike a balance between product innovation and policyholder protection remains.
(5) Dual supervision
Hong Kong��s insurance sector is one of the few in the world that operates primarily on a self-regulatory basis, complemented with some degree of government supervision. Professional standards for practitioners are consistently raised to safeguard policyholders�� interest. In 1990, the government broke its laissez faire mold and set up the Office of the Commissioner of Insurance to extend its supervision over the industry.
More recently, in 2009, a policyholders�� protection fund was proposed to enhance protection for policyholders in the event of an insurer��s insolvency, to help bolster public confidence in the insurance industry, and to promote the general stability of the insurance market. The proposal is currently under consultation.
This dual supervision system has its pros and cons. The obvious advantage is that the relationship between government regulators and practitioners is based on trust and transparency. This maximizes freedom and helps cut down the cost of doing business. The problem is that at times it is unclear who is, indeed, policing the industry.
Johnny Chen CEO, Greater China/Southeast Asia, the Zurich Insurance Co. Ltd. Joined the industry in 2005.
Hongkongers the ultimate risk-takers: Hong Kong policyholders don��t give a damn about the protection value of life contracts; all they care about are the savings and investment yield. And they demand high returns for the high risks they dare to bear. So it��s not a surprise to see that the first life policy for local policyholders is linked to high-risk investment options. They��re more preoccupied with short-term returns and less concerned about future protection.
But after the baptism of fire that was the financial tsunami of 2008, I believe that insurers and policyholders alike are keen to go back to the basics, preferring products that guarantee savings and protection, albeit with lower returns.
The Hong Kong edge: The high penetration of insurance coverage has much to do with the city��s sound legal system. Hong Kong is an international city that employs a good chunk of the footloose global workforce. But these migratory workers, either here for the long haul or on short-term assignments, tend to choose to take out a life policy here and keep it long after they��ve returned home�Xall because they have faith in the legal and insurance system here.
Looking Ahead
Hong Kong��s insurance sector has weathered the ups and downs of more than a century and can boast an impressive record of development. New developments in 2009, namely the new requirements of Merchant Shipping (local vessels) (Compulsory Third Party Risks) Insurance and Building Management (Third Party Risks) Insurance, will serve only to further growth.
To be sure, teamwork and network management are just as crucial to future growth. Victor Fung, chairman of Li & Fung Ltd. and a world-famous proponent of supply-chain management, once wrote: ��Executives of insurance enterprises are becoming aware that successful coordination, integration, and management of key business processes across members of their supply chains will ultimately determine their competitive success. Insurance intermediaries/brokers increasingly realize that they no longer compete as solely autonomous entities. Instead, competition occurs more and more among entire supply chains. And they also know that they cannot produce an overall insurance solution without addressing the entire supply chain of their customers.��2
In November 2002, the Hong Kong government��s Census and Statistics Department released the Thematic Household Survey Report No. 9, part of which includes a survey on insurance needs and opinions on insurance services. According to the survey, ��over half (52%) of the persons who had purchased insurance policies before indicated that they were quite satisfied/very satisfied with the insurance services received while 4.6% indicated that they were quite dissatisfied/very dissatisfied. Another 43.3% gave an average rating��.3 And at the same time, ��the percentage of persons aged 18 and over who had purchased their own life insurance policies increased with educational attainment. The respective percentages were 55.9% for persons with tertiary educational attainment; and 43.3% for those with secondary/matriculation educational attainment��.4
It is evident from the survey that Hong Kong people at large hold a positive view of the industry and that their demand for products rises as they become more educated. All this bodes well for future development, especially in the life sector.
(1) Room for growth in private medical insurance
Most people in Hong Kong rely on the public health care system, which is funded mostly by taxpayers but heavily subsidized by government dollars. The services are very affordable, compared with private health care, and of high quality. However, private health care remains too expensive even for the middle class, so more and more increasingly seek out private medical insurance.
Meanwhile, as the public system is overloaded and costs shoot up, the government also has been exploring various schemes to encourage more people to take out medical coverage to pay for private care. Between late 2009 and early 2010, the government held two rounds of public consultation to solicit views on shoring up healthcare financing and mandating health insurance coverage.
In a February 2010 survey conducted by The Chinese University of Hong Kong which was based on a sample of 1,013 full-time employees, an overwhelming 80 percent of
respondents supported a tax deduction for private medical insurance policyholders, and as much as one-third of those polled said this kind of deduction would entice them to buy medical insurance and rely less heavily on public health care. However, more than half were adamantly against any sort of mandatory medical savings scheme proposal, akin to the current mandatory scheme for retirement savings.
If the government implements a plan to offer substantial and meaningful financial incentives for more people to buy into medical coverage, this will portend a tremendous growth potential for the industry.
Mike Lee Vice President, Operations, MassMutual Asia Ltd. Joined the industry in 1986
The AIDS scare: Sometime around the late 1980s, more and more people came to recognize an incurable disease called AIDS. Because AIDS was highly infectious and at that time killing most of those who were infected, insurance companies got very nervous. So the HKFI quickly stepped up to the plate with a raft of recommendations. One of the most important was a provision subjecting all policyholders with US$250,000 or more in coverage to an HIV test. This really has helped the sector contain the risks of covering AIDS.
(2) The emerging mainland market
Industry practitioners have been eyeing the huge mainland market and its rising living standards and, hence, demand. On 29 June 2003, the central government in Beijing and the Hong Kong SAR government signed off on the Closer Economic Partnership Arrangement (CEPA), their first free-trade agreement. Effective on 1 January 2004, the CEPA waives all customs taxes on Hong Kong goods shipped to the Mainland and permits all locally registered insurance companies to ��form strategic partnerships in order to enter the mainland insurance market subject to certain established market-access conditions�� and ��all Hong Kong residents with insurance qualifications to work in the mainland��s sector��. In one of the five CEPA supplements, permission was given for insurance intermediaries to attain mainland qualifications by sitting for examinations in Hong Kong and for Hong Kong agencies to set up wholly owned companies on the Mainland to provide agency services to mainland insurance companies.
Furthermore, the Hong Kong Monetary Authority (HKMA) and the People��s Bank of China jointly agreed in July 2010 to lift the limit on Hong Kong residents�� purchase of yuan-denominated wealth management products. This promised to open up the yuan-denominated markets on Hong Kong insurers. Already, the Life Insurance Council��s Renminbi Life Insurance Products Working Group has completed its proposal to launch annuities and other life products in the Mainland, pending further discussion with both HKMA and the OCI.
Another important development concerns the release of the Outline of the Plan for the Reform and Development of the Pearl River Delta (2008�V2020) by the Beijing government��s National Development and Reform Commission.
Its significance lies in the fact that for the first time, the central government folded Hong Kong and Macau into the planning framework for the Pearl River Delta region. In the outline, it says that ��the state will encourage [Guangdong Province, Hong Kong, and Macau] to realize joint development of the cross-border logistics, convention and exhibition, cultural, and tourism industries; will heighten their mutual recognition of the professional qualifications for the banking, securities, insurance, appraisal, accounting, law, education, and medical service industries in order to create the conditions for developing service industries��.5
(3) Growing appeal of long-term assurance schemes
Long-term products, in particular those with an investment components, have been gaining popularity among policy-holders in recent years. Meanwhile, such products, commonly known as investment-linked assurance schemes (ILAS), have grown increasingly sophisticated and complex, befuddling many brokers and consumers.
In light of the financial tsunami of 2008, the OCI urged providers of ILAS products to be more equipped with financial knowledge in order to advise their clients properly. To that end, the agency introduced the Investment-linked Long Term Insurance Examination on 1 March 2010 for all those practitioners with less than seven years of documented experience in selling long-term products. In the same breath, insurers were advised to strengthen internal control over sales of long-term investment-linked products in order to minimize litigation risks.
(4) The rise of independent regulatory regime
In July 2010, the government��s Financial Services and the Treasury Bureau unveiled a proposal to install an independent regulatory body to oversee the industry, thus following a well-established international practice. It is proposed that this new insurance authority, first considered in the mid-1990s, will replace the current, government-controlled Office of the Commissioner of Insurance.
The authority will be operationally independent from the government and financially self-sustaining. The proposed authority will have a staff of 237 people and an annual budget of $240 million, to be supported solely by licence fees paid by insurers and salespersons and a 0.1 % levy on insurance premiums paid by policyholders.
The authority, expected to be up and running by 2013 at the earliest, will licence all insurance brokers working for both banks and insurance firms but is empowered to preside over complaints and investigations only concerning insurance companies and their agents. The HKMA will have the power to investigate insurance complaints against the 18,000 bank-based brokers who sell about 30% of all insurance policies issued annually.
The new Insurance Authority will replace the current regime, which is to a large extent self-regulatory. At present, three non-statutory industry groups �X the Hong Kong Federation of Insurers (HKFI), the Hong Kong Confederation of Insurance Brokers (HKCIB) and the Hong Kong Professional Insurance Brokers Association (HKPIBA) �X are vested with limited investigatory and sanctioning powers. Government officials believed that this proposed regulatory body will help supervise this industry in a uniform, professional manner, while eliminating once and for all any appearance of conflict of interest.
In addition, the government proposed setting up a statutory appeals tribunal to handle appeals against decisions or penalties handed down by the Insurance Authority. An independent process review panel will be established to review internal operating procedures to ensure consistency and fairness as the new authority carries out its mandates.
The government solicited public comments on the proposal from July till October 2010 with plans to introduce the bill to establish the proposed regulatory body to the Legislative Council by 2011.
Clement Cheung Commissioner of Insurance (2006�V2009) Hong Kong SAR
Over the past decade, Hong Kong��s insurance industry has been growing steadily and rapidly providing career opportunities for many capable and aspiring professionals.
Globally, most multinational financial institutions now have business interests in many pies and so they face myriad risk factors in an increasingly complex investment environment. Take AIG, the global conglomerate, as an example. Its Asia-Pacific insurance operations have always been smooth sailing yet its U.S. holding company was nearly sunk by its investments in the sub-prime mortgage and credit derivative products.
For Hong Kong��s insurers, the best, even-keeled strategy is to keep one eye on the global market and the other on the vast untapped mainland market.
Notes
Chapter 1
1.
A. Chalkley. 1985. Adventures and Perils: The First Hundred and Fifty Years of Union Insurance Society of Canton, Ltd. Hong Kong: Ogilvy & Mather Public Relations (Asia) Ltd.
2.
H. A. L. Cockrell, and E. Green. 1988. The British Insurance Business: History and Archives. Continuum International Publishing Group-Sheffie.
3.
G. C. Allen, and A. G. Donnithorne. 1954. Western Enterprise in Far Eastern Economic Development. London: Allen & Unwin, p. 119.
4.
M. Greenberg. 1998. British Trade & the Opening of China 1800�V1842, p. 18.
5.
E. Le Fevour. 1968. Western Enterprise in Late Ch��ing China: A Selective Survey of Jardine, Matheson and Company��s Operations 1842�V1895. Cambridge, Mass.: Harvard University Press, p. 136.
6.
North China Herald, 26 November 1864, p. 191.
7.
A decisive battle in the Greek War of Independence, in which the British, French, and Russian navies defeated Ottoman-Egyptian forces.
8.
Lombard Insurance Group. 1986. Lombard Insurance Group, 1836�V1986. Hong Kong: The Group, p. 15.
9.
James Steuart. 1934. Jardine, Matheson & Co. Afterwards Jardine, Matheson & Co. Limited: An Outline of the History of a China House for a Hundred Years 1832�V1932. London: The Westminster Press, pp. 36�V37.
10.
Chalkley, p. 5.
11.
Chalkley, pp. 12�V13.
12.
Chalkley, p. 11.
13.
Chalkley, p. 14.
14.
Zhao Lanliang. 2003. Research on the Contemporary Shanghai Insurance Market (1843�V1937). Shanghai: Fudan University Press, p. 26.
15.
S. C. Lockwood. 1971. Augustine Heard and Company, 1858�V1862: American Merchants in China. Cambridge, Mass.: East Asian Research Center, Harvard University, pp. 106�V108.
16.
Zhao, p. 29.
17.
Le Fevour, p. 136.
18.
Lockwood, p. 107.
19.
Le Fevour, p. 136.
20.
The structure of Hong Kong Fire Insurance Co. was modelled on that of its British counterparts. In the early days in England the fire brigades were under the insurers�� command; only later did the brigades fall under the police command. Even so, the insurers remained in close cooperation with the brigade and helped distribute educational material to raise awareness of precautionary measures against fires.
21.
Zhao, p. 33.
22.
Allen and Donnithorne, p. 120.
23.
Steuart, pp. 36�V37.
24.
Fire Insurance Association of Hong Kong. 31 July 1987.
25.
Lowe, Bingham, Matthews. 1962. Notes on the History of the Firm as Secretaries of the Insurance Associations.
26.
Le Fevour, p. 21.
27.
Le Fevour, p. 14.
28.
Le Fevour, p. 24 footnote.
29.
Le Fevour, p. 28.
30.
The Manufacturers Insurance Company, South China Hong Kong and Macau 1898�V1976, p. 1.
Chapter 2
1.
J. Resnick, and R. Wong. 2000. 100 Years and Growing �X The Story of Sincere. Sincere Co. Ltd.
2.
Wing On Department Stores Celebrating 100 Years of Retailing.
Chapter 3
1.
Chalkley, p. 36.
2.
Chalkley, p. 38.
3.
Chalkley, p. 36.
4.
Chalkley, p. 54.
5.
Chalkley, p. 45.
6.
Lombard Insurance Group. 1986. Lombard Insurance Group, 1836�V1986. Hong Kong: The Group, p. 5.
7.
R. Hutcheon. 1992. A Burst of Crackers: The Li & Fung Story. Hong Kong: Li & Fung Ltd. Press, p. 23.
8.
The Accident & Marine Insurance Associations of Hong Kong. 17 August 1987.
9.
C. A. Brook-Fox. 1982. Marketing Effectiveness in the Hong Kong Insurance Industry. Hong Kong: The University of Hong Kong. Unpublished MBA thesis, pp. 3�V4.
Chapter 4
1.
Y. C. Jao. 1984. ��The Financial Structure��, in The Business Environment in Hong Kong, Oxford University Press, p. 170.
2.
Jao, p. 170.
3.
J. W. Matthews. 1964. Insurance Markets of the World. Swiss Reinsurance Company, p. 436.
4.
P. Hugh. Absolute Integrity: The Story of Royal Insurance 1845�V1995. Royal Insurance, p. 229.
5.
C. A. Brook-Fox. 1982. Marketing Effectiveness in the Hong Kong Insurance Industry. Hong Kong, p. 4.
6.
Brook-Fox. p. 5.
7.
T. T. Yuen. 1986. A Study on the Popularity of Utilizing Insurance Brokers by Industrial Concerns in Hong Kong for Management of Their Insurance Programme. Hong Kong: The University of Hong Kong. Unpublished MBA thesis, pp. 4�V5.
8.
Yuen.
9.
Jardine, Matheson & Co Ltd: 150th Anniversary. 1982. Hong Kong: The South China Morning Post.
10.
Brook-Fox, p. 6.
11.
The Manufacturers Insurance Company, South China, Hong Kong and Macau 1898�V1976, p. 3.
12.
The Hong Kong Export Credit Insurance Corp. 2006. Forty Years of Development and Experience, p. 45.
13.
The Hong Kong Export Credit Insurance Corp. Annual Report 1976�V77, p. 6.
Chapter 5
1.
J. W. Matthews. 1964. Insurance Market of the World, Swiss Reinsurance Company, p. 436.
2.
A. Hicks. 1983. Insurance Law Reform. Law Lectures for Practitioners. Hong Kong: Hong Kong Law Journal Ltd., p. 291.
3.
Hicks, p. 284.
4.
Hicks, p. 289.
5.
Hong Kong Federation of Insurers. 1998. The Story of the Hong Kong Federation of Insurers 1988�V1998. Hong Kong: Hong Kong Federation of Insurers, p. 18.
6.
The Story of the Hong Kong Federation of Insurers 1988�V1998, pp. 28, 25.
Chapter 6
1.
Office of the Commissioner of Insurance. 2000. Commemorating the 10th Anniversary, Office of the Commissioner of Insurance. Hong Kong, p. 7.
2.
The Law Reform Commission of Hong Kong. Press Release on Report on Laws on Insurance, 15 January 1986.
3.
Hong Kong Administrative Law Sourcebook��s Hong Kong cases. See http://law.hku.hk/ hkadmlawsb/hkcases.htm
4.
Insurance Companies Ordinance (Cap. 41).
5.
Hong Kong Federation of Insurers. Press release on Life Insurance Council Announces Scheme to Protect Consumers, 28 September 1994.
6.
Hong Kong Federation of Insurers. Press release on Life Insurance Council Offers Consumers Cooling-off Rights, 27 June 1996.
7.
Hong Kong Federation of Insurers. Press release on Consumers Better Informed When Selecting Life Policies, 5 May 1998.
8.
Office of the Commissioner of Insurance. Hong Kong: An Ideal Captive Hub. Web document. http://www.oci.gov.hk/framework/index08_01.html.
9.
Office of the Commissioner of Insurance. 1997. Hong Kong: An Ideal Domicile for Captives.
Chapter 7
1.
Office of the Commissioner of Insurance of Hong Kong SAR Government. 2000, p. 25.
2.
KPMG, Reuters. 2005. Foreign Insurers in China: Opportunity and Risk. Hong Kong: KPMG & Reuters, p. 7.
3.
KMPG, Reuters, p. 4.
4.
The Hongkong & Shanghai Banking Corp. Press releases, http://www.pingan.com/about/en/ news_70052.jsp#, May 2005.
5.
KPMG Hong Kong's monthly insurance news summary: May 2005, http://www.kpmg.com.cn/en/ virtual_library/Financial_services/insurance_notes/Insurancenotes0505.htm.
Conclusion
1.
The Government of the Hong Kong Special Administrative Region. 2008. Hong Kong Annual Report and Hong Kong Annual Digest of Statistics.
2.
V. Fung. ��Supply Chain Orchestration: Its Concepts and Relevance to the Insurance Industry��. Hong Kong Chamber of Insurance Intermediaries 2007 Yearbook, p. 18.
3.
Census and Statistics Department, Hong Kong Government. 2002. Thematic Household Survey Report No. 9, p. 65.
4.
Census and Statistics Department, Hong Kong Government. 2002. Thematic Household Survey Report No. 9, p. 65.
5.
National Development and Reform Commission. 2009. Outline of the Plan for the Reform and Development of the Pearl River Delta (2008�V2020).
Index
Accident Insurance Association of Hong Kong, 79, 80, 138, 141, 147
Actuarial Society of Hong Kong, 195
Ageas Insurance Company (Asia) Limited, see New Zealand Life, Pacific Century Insurance, Top Glory Insurance
Air Hong Kong, 182
Akers-Jones, Sir David, 138
Alexander, J. D., 61
Alliance Assurance, 102
American Asiatic Underwriters, 109, 119, 120
American Foreign Insurance Association, 93
American International Assurance Co. Ltd., 74,
75, 117�V122, 124, 154, 157, 179, 187
American International Group, 120, 121, 209, 222
American International Reinsurance Company, 75
American International Underwriters Ltd, 88,
95, 96, 159, 161
AMTD Risk Management Ltd, 108
Anderson, Roddy, 165
Aon, 107
Asia Financial, 206, 210
Asia Insurance Co. Ltd, 48, 179, 203, 206,
207
Asia Life Insurance Co., 106, 120
Asian Eagle Insurance Co., 101
Associated Bankers Insurance Co. Ltd., 86, 88, 161, 196, 197, 203 Augustine Heard & Co., 11, 26, 27
AVIVA, 93 AXA China Region Insurance Co. (Bermuda) Ltd., 89, see National Mutual Asia Ltd., Sentry Life Insurance (Asia) Ltd.
AXA General Insurance China Ltd., see Norwich Winterthur Insurance (International) Ltd., Winterthur Insurance
AXA General Insurance Hong Kong Ltd., see Guardian Assurance Group of London, North Pacific Insurance Co., Union Insurance Society
AXA Wealth Management (Hong Kong) Ltd., see Winterthur Life Insurance (Asia) Ltd.
Bangkok Bank, 206, 210 Bank of China (Hong Kong), 160, 199, 200, 205, 206 Bank of China Group Insurance, 205, 206; Bank of China Group Life Assurance Co. Ltd., 199, 205, 206; Bank of China
Insurance Co. Ltd., 205 Bank of Credit & Commerce, 161 Bank of East Asia, 88, 161, 197 Beaver Fire Insurance Co., 64 Bengal Insurance Society, 24 Black, Sir Robert, 124 Blaker, C., 70 Bombay Insurance Society, 24 Bond, Sir John, 210 Bowring Group of London, 203 Bradley & Co., 37, 39 Brett, Simon, 165 British & Foreign Marine Insurance Co., 84 British East India Company, 8, 10, 11, 15 British Traders�� Insurance Co. Ltd., 27, 30 Brodie, E. A., 61 Brown, Samuel, 22 Butterfield & Swire Co. Ltd., 32
Canton Insurance, 1, 5, 10, 12, 15, 17, 18, 19, 20, 21, 24, 27, 28, 41, 60, 62, 65, 89 Carlingford Insurance Co. Ltd., 101, 161 Carrian Group, 134, 135 Cathay Pacific, 87, 192 Census and Statistics Department (Hong Kong), 218 CGNU, 93 Chalkley, Alan, 5 Chalmers, Sir Mackenzie Dalzell, 131 Chan, Bernard Charnwut, 179, 206, 207 Chan, Frank, 172 Chan, Robert, 206 Chan, Y. K., 179, 193 Chater, Sir Paul, 20 Chen, Johnny, 216 Cheng, K. P., 113
Cheng, M. K., 155
Cheung, Ambrose, 142
Cheung, Clement, 136, 222
Cheung, Vincent, 92
China and Japan Marine Insurance Co., 11
China Fire Insurance Co., 31, 36, 61
China Foreign Economic & Trade Trust & Investment Co., 209
China Insurance Co. Ltd., 130, 205
China Insurance Merchants�� Bureau, 13, 14
China Insurance Underwriters Ltd., 134, 135
China International Reinsurance Co. Ltd., 91, 174, 203, 204, 205, 211
China Light & Power, 83, 107
China Merchants�� Steam Navigation Co., 13
China Mutual Life Assurance Co., 12, 13
China Ping An, 122
China Taiping Insurance (HK) Co. Ltd., see Ming An Insurance Co. (H.K.) Ltd.
China Taiping Insurance Holdings Co. Ltd., 204, 205
China Traders�� Insurance Co., 11, 23, 36, 43
China Underwriters Ltd, 31, 84
Chinese Insurance Association of Hong Kong, 41, 55, 79
Chinese Insurance Co., 31
Chinese Underwriters Club, 192
Ching, W. S., 96
Chiyoda Fire & Marine Insurance of Japan, 206
Choi, Annie, 136
Choi, K. S., 138
Chong Hing Insurance Co. Ltd., 85
Chow, Andrew, 176
Choy, C. F., 199
Chubb, 102
CIGNA, 161, 197
Citibank, 160, 161, 199
CMG Asia, 106, 122
Commercial Union Assurance Co. Ltd., 92, 93, 95, 102, 161
Consumer Council, 132, 142, 172
Continental Group of USA, 206
Continental Insurance, 83
Dah Sing Bank, 161 Dah Sing Life Assurance Co. Ltd., 75, 158 Dairy Farm, 83 Dao Heng Bank Group, 161 Dao Heng Insurance, 161 Daoguang, Emperor (Tao Kuang), 8 Davidson, W. S., 10 Davidson-Dent, 1, 10, 11, 17 De Shing Hao, 13 Dent, Lancelot, 22 Dent & Co., 1, 10, 17, 20, 21, 22, 31, 41 Dodwell, S. H., 37 Dragonair, 182 Dunt, Percy, 64 Eagle Star, 101, 161
East Point Re-insurance Co. of Hong Kong Ltd., 203
Ede, Nathaniel, 22
Elliot, Sir Charles, 15, 16
Elliot, George, 16
Ellis, A. H., 37
Employees�� Compensation Insurance Residual Scheme Bureau, 185
Falcon Insurance, see Ka Wah AMEV Insurance Ltd., Winterthur Swiss Insurance
Far East Insurance, 161
Federation of Hong Kong Industries, 123
Fire Insurance Association of Hong Kong, 34, 77, 78, 79, 113, 138, 141
First Pacific Bank, 161
Fong, Gregory, 193, 194
Fook On Assurance, 42
Fook On Marine & Fire Insurance Co., 15
Freeman Corp. Ltd., 155
Fung, H. C., 123
Fung, Victor, 123, 217
General Accident Co., 93
General Agents and Managers Association of Hong Kong, 194
General Insurance Council of Hong Kong, 137, 141
Generali, 102 George King & Co., 65 George R. Stevens & Co., 90 Gilman & Co., 11, 82 102 Glanfield, Stephen, 141 Glass, Deborah, 172 Gockchin, Philip, 52, 53, 55 Gocklock, James, 52, 53, 54, 55 Godown Co. Ltd., 42 Grantham, Alexander, 80, 146 Greenbreg, Maurice, 121 Guardian Assurance Group of London, 89
Hang Seng Bank, 82, 86, 87, 88, 89, 116, 161, 187, 196, 197, 199
Hang Seng General Insurance (HK) Co. Ltd., 176
Hang Seng Insurance Co. Ltd., 159, 200
Hang Seng Savings & Loan, 87
Harcourt, Lt. C. H. J., 66
Harris, Elvon, 140, 165
HIH Insurance Ltd., 181