Connect this: Life Insurance to join Stock Connect in GBA

The Greater Bay Area (GBA) initiative promotes the financial integration of Hong Kong and mainland China with the help of better capital flow. By tapping into the GBA, Hong Kong’s insurance professionals believe it could open the door to a bigger market to help Hong Kong stay competitive in the region.

This week, Hong Kong’s Financial Services Development Council (FSDC) released a report on enhancing the city’s role as a leading life insurance centre. The advisory body suggests some ways to achieve that, and one of them is to create the “Life Insurance Connect”.

Under this plan, mainland Chinese can buy Hong Kong’s life insurance products. The FSDC says the measure can result in a wider insurance distribution within China using Hong Kong’s close ties with the country.

To make this initiative work, the FSDC suggests special or preferred treatment for Hong Kong.

We want in first

China recently announced that it would start allowing foreign companies to own domestic insurers within three years. The FSDC says Hong Kong could be granted an accelerated pathway to 100 percent ownership nationwide for appropriately qualified life insurance operations. This way, foreign companies would choose to set up regional offices in Hong Kong.

“The purpose of the ‘Life Insurance Connect’ is to expand the opportunities for the life insurance industry to access the Mainland market. Details will be worked out by the Hong Kong and Central Governments,” says FSDC’s spokesperson.

This would require talks at the government level, but the FSDC hopes the Hong Kong officials will take the initiative to discuss with their mainland counterparts.

“A lot of Hong Kongers now live and work in the GBA, which drives the demand for Hong Kong insurance products. The Bay Area can benefit from these products provided by Hong Kong insurers,” says Ms Winnie Wong Chi-shun, a member of the FSDC.

The “Life Insurance Connect” plan would focus on a specific set of life insurance, medical protection and investment products offered to mainland Chinese and Hong Kong residents within the GBA.

We’ve done this before

This proposal is yet another “connect” that aims to draw Hong Kong and China closer financially, after the Stock Connect and Bond Connect initiatives. Other similar measures include the Mutual Recognition of Funds and the qualified domestic institutional investor (QDII) programmes.

“This ‘Life Insurance Connect’ could build upon the existing QDII scheme and the Stock and Bond Connect initiatives. Life Insurance Connect might be expanded later to allow for uniform GBA regulation of distribution as well,” the FSDC says in the report.

FSDC chairman Mr Laurence Li says the insurance industry has contributed greatly to Hong Kong’s economy, and the city must strive to be the regional hub for multinational and mainland Chinese life insurance companies in order to stay competitive.

What’s in it for China?

Mainland Chinese have also been keen to buy Hong Kong-issued policies, said Chinese Financial Association of Hong Kong.

In 2015, mainlanders spent HK$31.6 billion in new premiums, representing 24 percent of all new premiums for life policies sold in the city.

“Compared with similar insurance products on the mainland, Hong Kong policies have fewer exemptions and offer more flexible ways to draw cash. The most attractive feature is the high projected return. Though not guaranteed, a potential return up to 6 percent per annum proves to be a big draw for mainland clients seeking yield,” the association said.

Mr Chan Kin-por, lawmaker for the insurance sector, says the “Insurance Connect” proposal could give a boost to the insurance industry.

“If we can have a connect scheme which ensures that insurance payouts are returned to the mainland, the central government would feel comfortable,” he says.

Other suggestions by the FSDC to boost the life insurance industry include implementing “fit for purpose” economic capital requirements, encouraging the issuance of long-term assets appropriate for matching long-term liabilities, providing tax incentives to insurance groups that establish and maintain regional headquarters in Hong Kong, promoting insurtech and fostering talents.

Founded in 2013 by the Hong Kong government, the FSDC is an advisory body to formulate proposals and strategies for promoting Hong Kong’s financial service industry.

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