‘Insurance Connect’ delays; GBA integration goes on

The eagerly awaited “Insurance Connect” scheme remains on hold, with no indication of when it might be launched. However, Hong Kong’s Insurance Authority (IA) and the central government’s China Banking and Insurance Regulatory Commission (CBIRC) are inching forward with cross-border initiatives to spur integration within the Greater Bay Area.

This was made apparent by comments from senior officials and executives at recent forums, in Hong Kong and Shenzhen. Most prominent of these were speeches given by IA chairman Moses Cheng Mo-chi and CBIRC Chief Counsel Liu Fushou. 

Speaking at the Asian Insurance Forum in Hong Kong on December 10, Liu said that the key would be to establish regional regulatory mechanisms for insurance institutions to operate across the GBA. “Our next step is to facilitate the set-up of insurance institutions in the GBA through various approaches, particularly to help those with the expertise and features suited for GBA development.”  

Liu Fushou, Chief Counsel of the CBIRC, shares his views on the forum.

Cheng followed up this optimistic note with a statement of confidence at last week’s Innovation Economy Summit in Shenzhen: “With the improvement of life quality of people on the mainland and more understanding of insurance and wealth management, Hong Kong’s diversified products and professional services will provide new options to mainland consumers.” He also alluded to the establishment of vehicle insurance covering the Hong Kong-Zhuhai-Macau Bridge as an example of what can be achieved in cross-border integration of policies.

He would not, however, comment further on the timing or specificity of the “Insurance Connect” scheme, which has been on hold since early September, apparently due to the ongoing Hong Kong protests. “it would be hard to launch a new connect scheme under the current economic situation,” Cheng was quoted as saying then by SCMP.

When asked for comment on the progress of the scheme, the IA told Greater Bay Insight that it is deepening cooperation with its mainland counterparts, step by step. “We keep working on post-sale services in the Greater Bay Area and maintain tight cooperation with CBIRC, but there is no timetable for Insurance Connect from the Insurance Authority currently,” a spokesperson said. 

Gradual experimentation seems to be the modus operandi. As Cheng alluded to in his speech, the IA has so far issued “virtual insurer” licenses to one life insurer and one general insurer, both of which are now operational. The Insurtech Sandbox provides a controlled environment for insurers to test innovative solutions using real market data, he said, adding that four out of the six approved applications had been rolled out.

Time is marching on

Despite such cordial public statements, it is clear that the clock is ticking for Hong Kong insurers, which have seen sales plummet since the onset of the Hong Kong protests, as many mainland clients who might previously have visited Hong Kong to purchase policies have stayed away. These people had previously accounted for as much as a quarter of all insurance business in Hong Kong. Yet in the most recent quarter ending in September, sales from mainland customers fell almost 30% compared to the previous three months, from $13.6 billion to $9.7 billion, as reported by the Insurance Authority. 

At the same Asian Insurance Forum attended by the CBIRC, Carol Hui, executive director of long term business at the Insurance Authority, urged the Hong Kong Government to resume the cross-border Wealth Management Connect and Insurance Connect, according to Insurance Business magazine. 

The Insurance Connect scheme, introduced by the IA in June last year, aims to build a platform for Hong Kong and mainland-based insurance companies to sell and process insurance products on either side of the border. Although this would be a serious challenge to the country’s controls on foreign exchange, as mainlanders would no longer need to travel to Hong Kong in order to buy policies denominated in hard currencies, it had previously been expected to forge ahead as part of the GBA plan, which envisages Guangdong and its two SARs cooperating and integrating their economies more closely.

Moses Cheng, Chairman of the IA, gives the welcome remarks to guests at the forum.

It is easy to understand the quandary facing regulators when it is considered that insurance is an industry where mainland players have a distinct advantage. Unlike other sectors of the financial services industry, mainland institutions are actually more advanced in many ways than their international counterparts based in Hong Kong. Ping An Insurance, for instance, is the world’s largest financial-services company, with operations on both sides of the border. Its use of technology is setting new standards for the industry globally and allowing the creation of insurance products that are being mimicked, when they can, by their competitors.

A Ping An spokesperson contacted for this story said they do not have a view on the Insurance Connect scheme at present.

This is understandable. Any protection that is being given to the mainland by slowing the rollout of the Insurance Connect scheme is in preserving its controls over the exchange channels for Renminbi, which is not yet fully convertible to international currencies from within the mainland. Other insurance companies contacted for comment also either declined or did not repond to queries.

Cross-border loopholes in forex controls are a sensitive subject. As this CNN article points out, the State Administration for Foreign Exchange has earmarked 2020 as a challenging year in its efforts to stem the outflow of capital through unofficial channels. 

Steady, two-step progress

The Insurance Connect scheme has, since the beginning, been laid out as having two stages. The first is to allow Hong Kong insurers to set up service centers in the GBA. These would allow mainlanders who had already bought insurance products to renew their premiums and file redemption claims. The second stage would allow mainland residents to buy policies from Hong Kong companies without leaving the mainland, according to SCMP’s reporting.

The insurance Connect scheme sounds like the Stock Connect scheme, but in fact this second stage is far more ambitious in terms of requiring an easing of foreign exchange controls, as it could potentially reach a wider cross-section of society. It has been awaiting implementation since being mentioned in the “Outline Development Plan for the Guangdong-Hong Kong-Macao Greater Bay Area”, released by the Central Government in February.

The GBA plan clearly intends to promote “cross-boundary transactions of financial products such as funds and insurance within the GBA”, and also to “expand the types of investment products and investment channels, and establish a mechanism for mutual access to capital and products.” 

In November, the central government also released 16 measures to facilitate Hong Kong people working and living in the Greater Bay Area. Among these, three are related to the insurance industry, which are aimed at supporting Hong Kong insurance companies to expand in the mainland market. They do not, however, enable significant progress to be made in opening the mainland market, but rather facilitate easier management of joint-ventures between mainland and Hong Kong insurers.

The IA is clearly keen to widen understanding of the more complex issues facing the industry, particularly the need for regulatory frameworks to keep up with innovative progress. Read its paid post on SCMP.com, highlighting what was said at the recent Asian Insurance Conference.

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