Why we go to Hong Kong to buy insurance
Following the purchase wave of milk powder, gold and luxuries, mainland Chinese are going to Hong Kong to buy insurance.
According to the data by the Office of the Commissioner of Insurance, the mainlanders began buying insurance in Hong Kong from 2003, at the time of the opening of individual visits permit to them. The trend lagged a bit during the period of 2008 financial crisis and regained its ascending in 2010. The premium of new insurance issued to mainlanders by Hong Kong insurance industry in 2010 was HKD 4.4 billion and in 2011 HKD 6.3 billion. When it arrived 2012, the figure soared to HKD 9.9 billion, an increase of 57%. And only for the first quarter of 2013, the figure had already reached HKD 2.8 billion, accounting for 12.5% of the total premium of the new issued individual insurance.
In fact, buying insurance in Hong Kong does not really guarantee convenience and riskless. Firstly, if a mainlander wants to buy insurance in Hong Kong, he/she should go to Hong Kong in person. You may say that the travelling and travel fare is not such a big deal, but it still acts as a barrier. Moreover, the greater risk originates from the changes of Renminbi exchange rate. The Hong Kong insurance is dominated by Hong Kong dollar or US dollar. Hence, if Renminbi keeps appreciating, the value of the insurance premium is actually shrinking. Since the term of an insurance contract always lasts for more than 10 years, there are too many unforeseeable elements affecting the value of the insurance in future. For instance, from 2013 to today, the exchange rate of HKD against RMB has deflated by 24%, which means the investment gaining and premium of the investor has accordingly devalued by 24% in the past 10 years. Therefore, the high earnings have already been offset by the 10 years of deflation of HKD.
Besides, insurances purchased in Hong Kong shall be subjected to the constraints of the Hong Kong Insurance Bill. Therefore, in case that a dispute occurs, the policy holder from mainland shall bring claim with the Insurance Claims Complaints Bureau. However, if the consultancy proves unsuccessful, although the policy holder does not need to worry about any legitimate shady deals since Hong Kong is a law ruling society, it costs time and money to find a lawyer and initiate a suit, which is quite inconvenience. After all, mainlanders are strangers there.
Anyhow, regardless of all these inconvenience and risks, mainlanders still swarm into Hong Kong to buy insurance. Obviously, insurance products in Hong Kong have their huge attractions.
The first appealing aspect is the cheap premium. Owing to the intense competition in Hong Kong’s insurance market, the premium in Hong Kong is relatively low. For same insurance coverage, the premium in Hong Kong is 20%-30% lower than the premium in mainland.
In addition to the cheaper premium, the insurance coverage in Hong Kong is even boarder. Take critical illness insurance for instance; the critical illness insurance in mainland generally covers 35 types of diseases while Hong Kong provides at least 40 types, sometimes even more than 60 types of diseases. Additionally, the critical illness insurance in Hong Kong provides more flexible settlement claims. For critical illness insurance in mainland, if the policy holder has critical disease during the insurance term, the insurance company will make the insurance payout in a lump sum and then the insurance contract is hereto terminated. However, since critical disease is always defined as the advanced stage of a disease, which means, a patient, indeed, cannot get the compensation at the early stage of a disease. This is called “insure death but not living”. In contrast, Hong Kong provides more diversified forms of settlement as for critical disease insurance ,a patient with disease of early stage (namely: has disease but the disease is not yet belonging to the critical disease category) could apply for an advance of the sum insured and the insurance contract continues valid. If the patient is again stricken by critical diseases, the patient could then advance 100% of the sum insured. This method protects the rights and benefits of the policy holder better.
Beside the market competition, another important reason of the lower premium and broader coverage for insurance industry in Hong Kong lies in the fact that insurance company in Hong Kong uses the census data of Hong Kong as their basis for the calculation of premium. Since Hong Kong residents are normally with good health and longevity, their overall probability of accidents is relatively low, which allows a lower premium rate. Of course, the average life span for people of big cities such as Beijing, Shanghai and Guangzhou is not actually inferior to that of Hong Kong. However, residents of these cities are now threatened by pollution, and thus the premium rate there is accordingly lifted.
The other aspect of insurance is the yield. High yield, on the one hand, means a higher long-term return and on the other hand, a lower premium rate for the policy holders. In terms of yield, Hong Kong is a city with financial liberalization, in sharp contrast to mainland cities with severe financial restraints. It is fully market-oriented, which guarantees more multiple investment channels assisting the industry to optimize its portfolios at a world-wide level. Consequently, it is more possible for them to gain high yields. Take investment linked insurance for instance, its annual yield in Hong Kong is around 8%-10& while in mainland it was 2.67% in 2012.
Also, the insurance products in Hong Kong are also endowed with some “soft advantages”. Since insurance is a kind of long term contract which often lasts for decades and some even for a lifetime, the subsequent service(s) such as policy service after signing the insurance contract and settlement after accidents are of extraordinary importance. In this regard, the insurance industry in Hong Kong stays ahead of their counterpart in mainland almost in every aspect in terms of service quality, brand influence as well as personnel quality. For example, in response to the purchase trend of mainlander, insurance companies in Hong Kong made immediate upgrades. They enabled policy holder to pay premium in mainland and quickly inspected the diagnostic qualifications of hospitals in mainland, which makes it more convenient for their clients in mainland to buy insurance and make claim.
And the thing matters more than service is the regulatory system. Free market competition could spontaneously develop into industry supervision and coordination. And the insurance industry of Hong Kong has always been operating under a self-regulatory system. As a non-governmental self-regulatory institute, the Insurance Claims Complaints Bureau is dedicated in execution of self-regulatory plans. It provides effective and free channels for policy holders or beneficiaries in coordination of their disputes with their insurance companies over settlements of insurance claims. Given that the amount of policies purchased by non-Hong Kong residents has scaled up significantly for recent years. From May 1, 2013, the Insurance Claims Complaints Bureau has expanded their range of claim complaint service to non-Hong Kong residents, by which, mainland residents began enjoying the same services as those of the Hong Kong residents.
In facing the Hong Kong competitors, insurance companies in mainland have also made effort to narrow their gap with their Hong Kong counterparts in terms of product design, and their service is also under improving. Nevertheless, due to some profound reasons, it is still hard for insurance industry in mainland to compete with that of Hong Kong in a long time.
The front side of insurance concerns the client. Acceptance, yield, life insurance, accident insurance, education insurance, and health insurance, all these are about the safety and happiness of common people and all these based on the rule of law. Meanwhile, rule of law also guarantees fair competition which brings better service to the consumers. And the back end of insurance is associated with investment and finance to gain profits for clients. And for the finance and investment, rule of law, free market, financial liberalization and intense competition are all needed. In this sense, insurance is more like an institution-intensive product.
Individuals in the market are always sensitive. Though they don’t really care about what is the system behind. They instinctively flock to the products with highest quality. For mainlanders, there are a number of places they can just go there as easily as they go to Hong Kong, but these places are even poorer and underdeveloped than China; and for other places, like Hong Kong, they are under rule of law and have well-developed free market. However, it is too hard for general Chinese to get their visa approved going to such places. Hong Kong is the unique one. In addition to its sound rule of law, finance and free market, it is the only place where Chinese could go there for shopping and enjoying quality services without any guarantee deposit or any asset certification but only with an exit-entry permit for travelling to and from Hong Kong and Macau. Thanks to such convenience, numerous mainland parents are capable to feed their children with safer milk powder and buy cheaper but quality insurance. Hong Kong is indeed the city for all Chinese. And it is simply because of this, the rule of law and free market system in Hong Kong is closely related with every Chinese.
Published in the Tencent DaJia Column | 2014-10-13
