Hong Kong Insurance Association
With a stable political and socioeconomic environment, the Hong Kong Special Administrative Region has always been one of the most profitable markets in Asia. In the years 2002 to 2007, life insurance premium grew at a moderate 19 percent. Hong Kong remains secure in its role as a major financial center as well as a favored location for the regional headquarters of multinational insurance companies. Arguably, it also has the most sophisticated consumers and insurance agents in the region. All this stems from a long history of foreign life insurance companies operating in Hong Kong, who continue to dominate the market.
Hong Kong has proved not only to be a highly regarded center for regional operation but has also become a talent pool extending its influence all over Asia, and most prominently in China. Many top Hong Kong executives have been headhunted to run insurance businesses in China.
For example, Dominic Leung, who ran Prudential (UK)'s greater China business and has been in the industry for over 25 years, joined Ping An in 2004, becoming the first non-mainlander to take the reins of a life insurance company in China. Similarly, Patrick Pooh, who headed ING Asia, left to chair the Operations Committee at China Pacific in 2007.
Relative to the size of the population and its economy, it is remarkable how much this one small territory can contribute to the insurance business - for example, Hong Kong accounted for 13 percent of Prudential (UK) 2007 Asian annualized premiums.
The more recent growth of Hong Kong's life insurance market is attributable to the opening of new market segments by bancassurance and increased demand for investment-linked products.
Bancassurance accounted for 38 percent of the market in 2006 by attracting consumers who had not previously bought insurance. Hong Kong has the strongest bancassurance presence in Asia, and some of the strongest bancassurance capabilities. Most of the large banks have established their own life insurance companies - for example, HSBC, Hang Seng, and Bank of China (HK), all have their own life subsidiaries. This has prevented independent life insurers from capturing share in the bancassurance market, with the exception of Prudential (UK) which has a strong bancassurance partner in Standard Chartered, one of the major banks in Hong Kong.
Investment-linked life insurance premium grew from US$1.57 billion in 2002 to US$7.90 billion in 2007, representing a 40 percent hike in market growth during this period. This has been aided by one of the most advanced sales forces in the region where insurance agents have been upgrading themselves to become wealth managers in the broader sense. In 2007, about 550 insurance professionals-life and general - held the highly regarded Certified Financial Planners (CFP) qualification; this represents approximately 20 percent of the total pool of CFP certificate holders. CFP is just one example; there are many other certification programs that have attracted Hong Kong agents to improve their qualifications to serve as wealth planners. Although, upon closer scrutiny, many of these so-called wealth planners still have much room for improvement, Hong Kong is emerging as an example of best practice in professional agency forces for other markets in Asia.
Undeniably, these eye-popping numbers have been supported by an extremely favorable investment market since 2003. Going forward, it is likely that the Hong Kong market will experience a slight slowdown in growth rates from the previous extraordinary pace; however, growth should remain healthy at around 9 percent due to a number of factors.
First. Hong Kong's economy, backed by its proximity to the Chinese mainland, is expected to continue expanding, bringing increased wealth to the population. Real GDP is expected to grow at 5.2 percent from 2007 to 2012, the highest among the Asian Tigers.
Second, bancassurance continues to play a big role in the market. Major banks, such as HSBC, have made insurance a key component of their growth strategy, especially for the mass-market segment, A consumer survey indicates that despite a relatively high premium penetration as a percent of GDP, only 67 percent of Hong Kong residents hold a life insurance policy. This is a lower rate than the other Tigers. For example, 83 percent of Taiwanese are estimated to hold some form of life insurance policy,
Third, there is a fundamental demand from Hong Kong consumers for wealth management, as they seek avenues to invest their money,
One additional factor fueling the growth of the Hong Kong market is an upstage of life insurance policies sold to mainlanders. It is estimated that they accounted for 5 percent of new insurance policies sold in the first half of 2007. It is important to note that this is a significant but gray market because under the current currency regime there are many rules on how mainland Chinese can move their assets overseas. Some insurers have banned this practice in fear of violating these regulations.
Given the financial center status of Hong Kong, it is probably the most mature and sophisticated market in Asia. The market today is dominated by a few large players but also has a healthy set of smaller competitors, The three dominant players with a tied-agency sales force are AIA, Manulife, and Prudential (UK) who accounted for an estimated 30 percent of the market in 2007. The dramatic development of bancassurance has produced significant growth by the bank players, led by HSBC, Hang Seng (majority owned by HSBC), and the Bank of China, enabling them to grab approximately 19 percent of the market through their life insurance subsidiaries.
It is important to note that most of the large banks have established wholly owned subsidiaries to produce life insurance products, effectively shutting out the largest bancassurance channels for the insurers. But as is the case in many other markets, this is not so much a "lost" market share by the traditional life insurers; rather, the banks have expanded the pie of life insurance through opening up their distribution and selling their own products.
Unlike other Asian markets, there is no large indigenous local player in Hong Kong. This is an international market, and given its British colonial past, there really is no distinction between local and overseas life insurers.
Hong Kong will remain a very significant and relevant market for most insurers. For players already in the market, this will remain a profitable market with healthy but not economically destructive competition. While there is little prospect of major change among the players in terms of market share, the Hong Kong market will continue to be an important profit generator and a center for multinational insurers to launch their regional activities. To find out more, you can check out Hong Kong Insurance Association.