Speaking on Hong Kong radio station RTHK, Sin Chung-kai, also a former member of Kwai Tsing District Council, also urged the establishment of an independent Insurance Authority and the introduction of a statutory licensing regime for insurance intermediaries selling Insurance Linked Assurance Schemes.
This would replace the current self-regulatory regime, which enables insurance salesman to sell schemes without a license from the government’s supervisory body.
“Given that 99% or more of what is being sold is investment related, I do not agree with the SFC position that an intermediary selling ILAS products does not need a license,” he said.
“We strongly urge the SFC to accept their responsibilities in this regard. It should step up regulation of the selling activities of this kind of product, including enacting legislation to classify relevant selling activities and ongoing investment advices as regulated activities under the Securities and Futures Ordinance (SFO).
“An Insurance Authority will help solve part of the problem, as the regulator will license and regulate the salespeople and may fine those who have committed misconduct as much as HK$1m.”
Improved transparency
Chung-Kai added that there would also a need for the future Insurance Authority to set out guidelines for governing the structures of fees and charges to help improve the transparency of ILAS products.
“In most cases, affordability is not duly considered in the assessment of whether an ILAS product is suitable for a customer,” he said. “The government should take its regulatory reform a step further by looking again at the regulation of investment advice in the insurance sector.”
He said the Legislative Council is currently “scrutinizing” the Insurance Companies (Amendment) Bill 2014 for the establishment of an independent Insurance Authority
Widely sold in Hong Kong over recent years, ILAS schemes provide life insurance protection and also include investment elements which allow policyholders to choose how their premium is invested among various funds.
In 2009, the SFC issued a circular arguing that ILAS products should be regulated by the insurance regulators in Hong Kong rather than itself, since the sale of ILAS does not fall under “dealing in securities” in the SFO.
Misled and cheated
However, Chung-Kai argued that many people who have been sold ILAS products have been “misled or even cheated” by insurance brokers into believing it was an investment product.
He said it was not until years after purchasing the schemes when they wanted to withdraw contribution that they found the lock-in period of the products was not three to five years as expected but sometimes as long as 20 or even 30 years.
“When some policy holders failed to make long-term contributions payments, they were forced to surrender the policies or cease payment, and were charged a high surrender cost by the insurers.”
From 1 January, it became a requirement for investments sitting inside ILAS products available to be authorised by the SFC, meaning only professional investors are allowed to invest in open architecture products.
