Hong Kong seeks ‘Insurance Connect’ with China

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When the Hong Kong-Zhuhai-Macau bridge opens on July 1 it will create a new physical link between Hong Kong and the mainland as part of China’s ambitious plan to establish the Pearl River Delta region as a so-called Greater Bay Area.

While such feats of engineering are highly visible manifestations of China’s plan to return Hong Kong to the fold, the most important links are less tangible — the legal and regulatory steps that are bringing the two closer together, including the convergence of insurance markets.

Indeed, Hong Kong insurance regulators said this week that they are working with their mainland counterparts to create an “Insurance Connect” similar to the arrangement that exists for stock trading.

Insurance Authority chairman Moses Cheng revealed in an interview with the SCMP that he had received “better than expected positive feedback” when he proposed the idea to the China Banking Insurance Regulatory Commission (CBIRC) in May.

Unsurprisingly, the idea comes from local Hong Kong insurance companies, which have seen sales to mainland customers plummet as Chinese regulators seek to restrict capital outflows.

During the first quarter of 2018, sales to mainlanders fell by a record 37% — to HK$11.8 billion (US$1.5 billion), down from HK$18.8 billion during the same period in 2017 and less than half the high point of HK$23.7 billion booked in the last quarter of 2016.

Hong Kong’s peg to the US dollar certainly helped to increase Chinese capital outflows to the city during 2016 as the renminbi weakened, but insurers there argue that the main driver of Chinese insurance purchases in Hong Kong is greater product choice, more flexibility and, perhaps most important, higher investment returns.

Under the Insurance Connect proposal, mainland customers would initially be able to renew policies and file claims through service centres in the Greater Bay Area.

“If the experience is good, it could then be expanded into a full-scale Insurance Connect scheme to allow mainlanders to buy policies from Hong Kong companies in the mainland while Hongkongers can also buy products from mainland insurers,” Cheng told the SCMP.

Such an arrangement would presumably be subject to some kind of capital-control mechanism that prevents Hong Kong policies being used as a vehicle to funnel cash out of the mainland, similar to the closed-loop model used by Stock Connect — though negotiating an insurance version may not be straightforward.

“Since the payment streams for life insurance may last for 10 or 20 years, while the compensation may be made many years later, the fund flow controls would thus be more complicated than the Stock Connect,” said Cheng. “We would need to study many details.”

However, the IA chairman says that his counterparts on the mainland support the idea in principle as Hong Kong products are seen as well-regulated.

At their peak, sales to mainlanders represented more than a third of new business for insurers in Hong Kong, compared to less than a quarter so far this year. It remains to be seen if an Insurance Connect could boost sales back to 2016 levels, but in the long run greater convergence between Hong Kong and the mainland is clearly on the agenda.

The post Hong Kong seeks ‘Insurance Connect’ with China appeared first on InsuranceAsia News.

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