The Unspoken Rules of Buying Insurance in Hong Kong (AI Translation)

【周刊提前读】香港买保险有哪些潜规则？灰色空间如何监管？

On Canton Road in Tsim Sha Tsui, Hong Kong insurance agents and brokers aggressively market insurance products to mainland tourists. A notable decline in premiums for newly issued policies to mainland Chinese visitors in Hong Kong's insurance market by 36.9% year-over-year in Q2 2024 underlines the industry's challenges. Despite overcoming the pandemic’s pent-up demand, a 10% quarterly drop persists, exacerbated by Hong Kong Insurance Authority (HKIA) and Independent Commission Against Corruption (ICAC) actions in mid-April targeting non-compliant intermediary channels dominant in mainland visitor business [para. 1].

The enforcement actions involved executing search warrants at four locations, including a licensed broker's office, during which an insurance broker and referral agent were arrested [para. 2]. Typically, insurance intermediaries such as agents, brokers, and referrers play critical roles, yet HKIA disclosures highlighted improper high commission payouts, leading to widespread "commission rebate" practices [para. 3][para. 4].

Hong Kong's marketplace includes insurance brokerage companies, banks, and agents, being held accountable for their duties. Some brokers are suspected of paying over 90% of commissions to intermediaries, reflecting systemic issues highlighted by industry insiders [para. 5][para. 6]. The influx of "high-end talents" via the extended "Top Talent Pass Scheme" has complicated the issue, creating competition and incentivizing illegal rebates to retain clients [para. 7][para. 8].

Industry experts like Lin Juntong emphasize that rebates lead to the undermining industry service standards and client trust. Compounded by brokers' illegal promises, such practices have been reported to ICAC [para. 9][para. 10]. Despite the complex regulatory landscape, Hong Kong’s insurance products remain attractive due to their competitive savings-oriented dividend policies [para. 11][para. 12].

Recognizing lingering issues, HKIA has actively started rectifying intermediary channels with excessively high commission payouts tied to non-compliant behaviors. Investigation updates as of early September indicate continuing scrutiny [para. 13][para. 14]. The problematic model involves intermediary "boat companies" funneling high commissions to mainland connections, facilitated through largely undetectable practices [para. 15-17].

Crucial to this model are "signing agents" who are paid nominally to seemingly legitimize policies signed offshore, often without genuine client service [para. 18-20]. The gray area persists due to structured rebates and disingenuous client declarations mitigating regulatory detection [para. 21][para. 22].

Amid regulatory tightening, some brokerage firms face operational disruptions, with industry articles and anonymous sources pointing to widespread 'black sheep' practices involving substantial commission payouts, often facilitated through reciprocal arrangements with mainland entities like banks [para. 23][para. 24][para. 25].

Hong Kong's favorable policies continue facilitating high-value mainlanders' cross-border insurance purchases. However, ongoing tensions between regulatory compliance and incentivized malpractice challenge sector stability [para. 26][para. 27]. The infusion of talents via the Top Talent Pass Scheme has intensified rebate practices, critically for visa renewal leveraging mainland connections [para. 28-30].

To mitigate the damaging effects of the top-heavy commission structure, it is suggested that Hong Kong averages commissions over multiple years, emulating Singapore’s model which caps initial commissions and mandates capital retention against brokerage commissions [para. 31][para. 32]. This approach aims to lessen the upfront commission incentive fueling rebate issues [para. 33][para. 34].

Following HKIA and ICAC coordination, regulation efforts extend to eliminating deceptive marketing and non-compliant sales via local banks, which have come under scrutiny for misleading premium financing pitches [para. 35-37].

HKIA's proactive measures, including memoranda with regional counterparts and a detailed vetting program for insurance intermediaries, aim to safeguard against systemic abuse while striving for market refinement and global competitiveness [para. 38-41].