Mainland appetite set to boost HK insurance sector

Chen Jiaqi visited the Hong Kong Special Administrative Region last month for the first time in nearly three years following the full resumption of normal travel between the SAR and the Chinese mainland. Besides taking in the sights of the city's famous Victoria Harbour and going on her eagerly awaited shopping spree, another priority on her to-do list was taking out insurance policies for her son.

The 34-year-old worker at a Guangzhou-based manufacturing company bought her first savings insurance in the SAR in 2016 as deep-pocketed mainland residents shelled out a record HK$72.68 billion ($9.26 billion) on Hong Kong's insurance products that year — accounting for nearly 30 percent of the local insurance coverage sold — according to the Hong Kong Insurance Authority.

"Before the pandemic, there was already growing interest in buying insurance policies in Hong Kong, judging by the large number of people around you who always asked about such products," recalls Chen.

But COVID-19 sparked a drastic drop in the number of tourists, dealing a hefty blow to the city's insurance business in recent years. According to the insurance watchdog, new office premiums attributable to mainland visitors contracted by a whopping 84.3 percent, from HK$43.4 billion in 2019 to HK$6.8 billion in 2020, because of continued restrictions on cross-boundary passenger traffic. The figure plummeted by almost 90 percent to HK$688 million in 2021.

Booming market

Early signs of a turnaround began emerging after the resumption of quarantine-free travel between Hong Kong and the mainland. Mainland visitors like Chen set their sights back on Hong Kong's sophisticated insurance products, as evidenced by the jump-start in insurers' business growth and hiring plans.

Sally Wan, CEO of AXA Greater China, said the insurer in the first quarter of this year has performed "very well", with a "healthy double-digit growth" in new business.

"We're optimistic about the growth momentum with travel curbs lifted, buoyed by pent-up demand from mainland travelers for insurance needs," she says.

The optimism prevails across the insurance sector as tourism rebounds. According to the Hong Kong Tourism Board, the number of visitors in March this year rose by 68 percent from the previous month to about 2.5 million. In the first quarter of 2023, Hong Kong recorded a cumulative 4.41 million inbound visitors — about 30 percent of the average quarterly figure before the pandemic. Roughly 3.4 million mainland visitors made up 76 percent of the total number of inbound travelers in the first three months of this year.

A survey conducted by global investment bank UBS before the lifting of cross-boundary travel restrictions showed that 47 percent of 1,000 respondents from the mainland intended to buy Hong Kong insurance coverage. About two-thirds of them said they would visit the SAR within 12 months after normal travel fully resumed.

UBS expects the growing appetite for Hong Kong insurance products to drive the amount spent by mainland visitors on them to its peak next year.

"Now that cross-boundary travel has normalized with all pandemic curbs lifted, we're getting more inquiries and new business from mainland visitors," says Patrick Graham, CEO of Manulife Hong Kong and Macao.

"We're confident that the demand from both local residents and mainland travelers for insurance products in Hong Kong will continue to go up. It's possible sales will return to pre-pandemic levels in the second half of this year," he added.

Canada-based Manulife, which currently has 11,700 agents in the Hong Kong and Macao SARs, plans to recruit 3,000 more agents this year.

According to Lawrence Lam, CEO of Prudential Hong Kong, the company saw a continued increase in the number of inquiries and an uptake of insurance and protection products from Hong Kong and offshore markets, particularly mainland visitors, through the agency and "bancassurance" channels, in which insurance companies sell insurance through banks.

"To meet the surging demand for insurance products, Prudential aims to hire an additional 4,000 financial consultants in Hong Kong this year," Lam says.

As to why Hong Kong's insurance policies are welcomed by mainland residents, Kelvin Chu, UBS executive director of Asian insurance and diversified financials, explains that the city's insurance products can be generally classified as protective and investment-themed products, both of which have an edge over the mainland's.

Hong Kong's life and health insurance, for instance, offers policyholders access not only to the city's high-quality medical treatment and private healthcare services, but also other features that are absent in mainland insurance products. These include guaranteed lifelong renewal of medical insurance and reimbursement of a wide range of specialty drugs. Hong Kong's insurance against critical illnesses also provides higher guaranteed medical coverage, as well as services, such as second medical opinions from reputable overseas medical organizations.

For investment-focused products, the long-term rate of return of Hong Kong's policies is way higher than that of those on the mainland, Chu says. He cited a study comparing participating insurance offered by six insurers in Hong Kong and four mainland insurers, saying that although the latter offered bigger guaranteed returns, the former provided significantly higher nonguaranteed and total returns, thanks to fewer investment restrictions, such as being able to invest in different global assets.

"Diverse currency and investment asset allocation options also make Hong Kong insurance highly preferable," Chu says.

GBA initiatives

Hong Kong Chief Executive John Lee Ka-chiu unveiled a road map for developing the local insurance industry while at the annual Asian Insurance Forum held in Hong Kong last year, pledging to strengthen the city's function as an international risk-management center.

"The insurance industry, being an integral and substantial part of our economy, will continue to play an important role in this new chapter for Hong Kong," Lee said at the forum, attended by hundreds of top insurance executives.

The insurance industry contributed HK$113 billion to Hong Kong's economy, or 4.4 percent of the city's GDP, in 2020. According to the Insurance Authority, the sector employed more than 117,000 licensed insurance intermediaries as of late January.

A wide range of initiatives rolled out to develop the insurance business include deepening market connections in the Guangdong-Hong Kong-Macao Greater Bay Area — one of the world's wealthiest city clusters that comprise nine cities in Guangdong province and the Hong Kong and Macao SARs. With a population of 87 million, the Greater Bay Area's economic output topped 13 trillion yuan ($1.88 trillion) in 2022 — 2.8 trillion yuan more than that in 2017 — data from Guangdong's Development and Reform Commission show.

Specific measures include helping companies implement service centers in Guangzhou's Nansha district and Shenzhen's Qianhai district to meet the needs of mainland customers who bought their policies in Hong Kong.

The insurance sector's GBA strategy has drawn proponents for its sights on wealthy residents and the protection gap in the region.

According to Swiss Re, one of the world's biggest reinsurers by net premiums written, Guangdong province is the largest life and health insurance market on the mainland, with nearly $62 billion in gross premiums written last year, with the nine mainland cities in the Greater Bay Area accounting for 87 percent of the total business in the province.

The penetration rate of life and health insurance in the Greater Bay Area's mainland cities reached an average of 3.46 percent of GDP in 2022. Although well above the country's national rate of 2.84 percent, the rate is much lower than Hong Kong's 18 percent life and health insurance penetration rate, according to the Switzerland-based reinsurance giant.

Ken Lau, managing director of Greater China and Hong Kong CEO of FWD Group, expects the setting up of after-sales centers in the Greater Bay Area's mainland cities to create synergy in the insurance market by streamlining the process of premium settlements and filing of claims, laying the foundation for an "insurance connect".

The much-anticipated program to allow cross-boundary sale of insurance policies is part of efforts to deepen financial links amid successful collaboration in a wide array of investment platforms for stocks, bonds and wealth management instruments.

However, Raymond Leung, team leader of life and health solutions for Hong Kong and Taiwan at Swiss Re, points out that stronger insurance demand from mainland residents "cannot be taken for granted", as competition in the Greater Bay Area has also risen.

Without access to Hong Kong insurers in the past three years, many Chinese customers have turned to Macao or mainland companies to meet their protection needs, says Leung, warning that the pandemic may have changed consumer sentiment and insurance preferences. "To attract mainland customers in the Greater Bay Area and beyond, Hong Kong insurers need a deeper understanding of how consumer demand has evolved in a dynamic GBA."

To tap emerging opportunities arising from deeper integration of the Greater Bay Area, Hong Kong insurers, including AXA, are set to launch tailor-made policies for local car owners who drive to Guangdong on business, social or leisure visits.

The measures will cater to the upcoming "quota-free scheme" under which eligible Hong Kong private cars would be allowed to travel to and from Guangdong via the Hong Kong-Zhuhai-Macao Bridge without having to stay within regular quotas.

Mechanism needed

Despite the market warming-up, experts have called for a clear regulatory and implementation framework in place as integration of the GBA, which crosses jurisdiction lines, requires high-level policy coordination and the participation of various stakeholders in the insurance business.

Joe Fang, research director of the One Country Two Systems Research Institute, says the HKSAR government must discuss with mainland authorities ways of providing cross-boundary motor insurance plans at reasonable prices through appropriate channels.

"The HKSAR government needs to make proper supporting arrangements for such vehicle insurance," he says. "If the price of single or short-term cross-boundary motor insurance is too high, it'll cause a certain degree of resistance in implementing the proposed policies for Hong Kong vehicles heading north."

Samuel Yung Wing-ki, chairman of the Hong Kong Examinations and Assessment Authority, called for a mechanism to effectively remit the total value of Hong Kong policy claims back to mainland bank accounts, as many policyholders or beneficiaries living on the mainland are unable to collect policy payouts or claim payments personally in Hong Kong.

For mainland residents who have bought Hong Kong insurance products, the protection offered by Hong Kong insurance products would be worthless if they were unable to have the total cash value of the policy or the claim amount remitted to the mainland to meet life-emergency needs, Yung warns.

As the financial burden of policyholders and beneficiaries goes up, local mainland governments may have to provide them with extra care or benefits, which may increase local fiscal spending, he says.

"It's impossible to estimate the total cash value or total claims involved. Solving the problem will strengthen the overall level of social protection."