Mainland Chinese customers spent US$7.6 billion on Hong Kong insurance policies last year, but sales to fall as ‘pent-up’ demand fades: watchdog

Mainland Chinese customers spent US$7.6 billion on Hong Kong insurance policies last year, but sales to fall as ‘pent-up’ demand fades: watchdog

Mainland Chinese customers spent US$7.6 billion on Hong Kong insurance policies last year, but sales to fall as ‘pent-up’ demand fades: watchdog

“This pent-up demand will fade, so demand will return to the average level seen during the years before the pandemic. It is unlikely to go back to a peak of HK$72.7 billion seen in 2016.”

Last year’s tally is a significant jump on the three-year Covid-19 period, which recorded sales of HK$2.1 billion in 2022, HK$700 million in 2021 and HK$6.8 billion in 2020. It is higher than the pre-Covid era too, which reported sales worth HK$43.4 billion in 2019, HK$47.6 billion in 2018 and HK$50.8 billion in 2017, Cheung said.

A rush to buy insurance policies in Hong Kong in 2016 prompted China to introduce measures the same year that tightened cross-border payments for overseas insurance policies. Cheung, however, hopes the buying trend will continue in the current interest rates and foreign exchange scenario.

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“As long as the US interest rate cuts do not happen too soon and too drastically, and the currencies stay at the current level, there is still demand among mainland visitors coming to Hong Kong for buying policies for better returns,” he said. “This is how Hong Kong can contribute to the country, as we can act as a wealth management centre for mainland visitors.”

The US Federal Reserve’s key target range currently is 5.25 to 5.5 per cent interest, after rising from zero in March 2022 in a crackdown on inflation. Hong Kong, whose currency has been pegged to the US dollar since 1983, has also increased its base rate from 0.5 per cent in March 2022 to 5.75 per cent as of July last year.

In contrast, the mainland’s one-year loan prime rate currently stands at a record low of 3.45 per cent, compared with 4.35 per cent in 2022. The insurance policies’ payout is linked to interest rates, so mainland customers who buy US dollar or Hong Kong dollar policies can enjoy a better return of about two percentage points than those on the mainland.

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Additionally, many mainland customers have turned to higher yielding bank deposits and insurance and investment products in Hong Kong amid a weakening of the yuan. The Chinese currency has lost 14 per cent against the US dollar since March 2022, when the current interest rate rise cycle started.

Cheung said the IA will continue with its educational efforts to make sure mainland customers understand the products they are buying. It will also conduct more enforcement activity to make sure insurance companies and their salespersons treat customers fairly.

“The Insurance Authority previously focused on checking the financial capacity of the insurance companies,” he said. “This year onwards, we will also check on their policies for anti-money-laundering, sales practices and other customer-protection issues.”

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The State Council, the Chinese central government’s cabinet, has been studying proposals for the set up of after-sales service centres in Greater Bay Area cities, said Stephen Yiu Kin-wah, the IA’s chairman, but a launch time table has not yet been fixed.

“[This initiative] reflects the need for insurance companies to have service centres to support policyholders on the mainland,” Yiu said.

Hong Kong regulations require mainland visitors to be in the city when buying insurance policies.

Last year, almost 34 million people visited Hong Kong, including more than 26.8 million from the mainland, according to the Hong Kong Tourism Board. In 2022, a mere 604,564 people visited the city during the pandemic.

Consumer spending during the Lunar New Year holiday has been encouraging, and will help the insurance industry, said Kenrick Chung, director of Ben. Excellence Consultancy, an insurance broker in Hong Kong.

“If other factors remain unchanged, we expect the trend for mainland visitors coming to buy policies in Hong Kong will continue in the coming year.”

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