HONG KONG: Insurance companies in Hong Kong are going to face tougher regulations this year governing the sale of investment-linked insurance products, as the city attempts to widen the financial sector's code of conduct to include local insurance agents in the wake of the Lehman Brother's minibond fiasco.

Unlike local banks and brokerages, insurance agents currently are not regulated by the Securities and Futures Commission, although they can sell investment-linked products.

The market has been concerned that insurance buyers in Hong Kong are being less protected than customers of local banks, as the city's lenders have already implemented stricter regulations on the sale of investment products.

According to the new regulations implemented since October 2009, local banks must conduct a lengthy test of an investor's risk tolerance, while the sales process must also be recorded with an audio device.

Local banks must also establish areas with noticeable, signed partition in their branches to sell investment products separately from where they handle commercial banking services.

The tightening in regulations now seems to extend to the insurance industry, as Permanent Secretary for Financial Services and the Treasury (Financial Services) Au King-chi said earlier that insurance agents would also need to follow proposed new rules set by the SFC, including implementing a cooling-off period and forbidding gifts to clients, to prevent mis-selling practices.

The Life Insurance Council of the Hong Kong Federation of Insurers told China Daily that it has been enhancing its requirements for the sale of investment-linked insurance products, including the introduction of financial needs analysis and risk profile questionnaires.

Insurance agents, meanwhile, are required to call their customers within the 21-day cooling-off period to seek confirmation of the insurance contracts, the council said.

"With the new regulatory measures in place, potential policyholders will have a better understanding of the products they purchase and thus will have more confidence in taking on investment-linked products," said Alex Chu, Chairman of the Life Insurance Council of the Hong Kong Federation of Insurers.

However, Chu noted it would be difficult for insurance agents to record the entire sales process with an audio device, the approach that is currently adopted by the local banks.

"Tape recording of the sale process of insurance policies is technically very difficult, if not impossible, for insurance agents, because in most cases, the sale process is conducted in public settings at the request of the clients, such as restaurants and cafes," Chu said.

He added that insurance agents are also required to take a tougher examination, concerning investment-linked insurance products, before they are allowed to sell them.

"We are supportive of any measure to uplift the professional standard of our industry," Chu said, adding that the revision of the exam syllabus is a significant step towards achieving a better standard.

Veteran insurance agent Peter Tsang agreed that the new insurance regulations will be beneficial to the insurance industry.

"It is good for the industry, as the new regulations can help boost customer confidence. Once the confidence is back, the industry can run a much better business," said Tsang, who has been working for an international insurer for around eight years.

However, Tsang added that it may take some time for customers to get used to the regulatory changes, as some of them may feel bothered by having to complete the new risk-tolerance assessments.

Despite the recent strengthening of regulations on investment products, insurance companies expect sales of investment-linked insurance products will show significant robust growth in 2010, benefiting from the global economic recovery.

HSBC Insurance found in its recent survey that Hong Kong people now save around a third of their monthly income in cash, investments, insurance and pensions.

Jason Sadler, managing direction of HSBC Insurance Hong Kong, said customer appetite for investment-linked insurance products has been picking up since the second quarter of last year.

Zurich Insurance said investment-linked insurance products were the major revenue drivers for the company in the previous five to ten years.

"We expect the sales of investment-linked products to continue growing, as the financial conditions gradually improve," said Ted Ridgway, Zurich's chief executive officer of Global Life Hong Kong.

He said that the company will also launch more innovative insurance products into the market in the coming months, in order to fuel its revenue growth and capture market opportunities amid the economic recovery.

(HK Edition 02/03/2010 page4)