China is considering an ‘insurance connect’ that would lower barriers to Hong Kong insurers, enable local offices to process claims
Hong Kong authorities are working with their mainland counterparts to establish a special channel for the marketing, sale and processing of insurance products, using a model pioneered in the Stock Connect, according to Insurance Authority chairman Moses Cheng Mo-chi.
Cheng said he and Insurance Authority chief executive John Leung Chi-yan proposed the idea to the mainland’s banking and insurance regulator China Banking Insurance Regulatory Commission (CBIRC) during a meeting in May and received “better than expected positive feedback”.
Further discussions with mainland officials are planned for Hong Kong, he said.
He said the idea for the special channel originated with local Hong Kong insurance companies.
“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,” he said.
Cheng said a lot of details would need to be worked out, including quotas and restrictions.
“The major concern of the CBIRC is how to control capital outflows. Any premium payments and compensation involve cross border fund flows. We need to figure how to make sure the fund flows do not breach China’s capital controls,” Cheng said.
Cheng said the scheme could be established on a closed loop fund flow model, which is the basis for the Stock Connect.
“This closed loop would make sure the fund flows are under control and not seen as an outflow,” he said.
“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. We would need to study many details,” Cheng said.
“The Chinese government recently added controls on mainlanders buying Hong Kong life insurance policies amid concerns about capital outflows,” Chan said. “If we can have a connect scheme which ensures that insurance payouts are returned to the mainland, the central government would feel comfortable. It will also boost our insurance industry.”
Chan believes that simple life policies and medical products could be suitable to be sold via the insurance connect.
Cheng said that he believes the CBIRC in principle supports the concept. He added that Hong Kong insurance products are highly regarded on the mainland.
“The mainland regulator supports mainlanders to buy products under a well regulated connect scheme. It would also like to see Hongkongers to go north to buy mainland insurance products,” Cheng said.
The authority on Monday will mark its first anniversary. The authority has hired 230 staff and has plans to expand its headcount to 300 in the near future, Cheng said.