Enriching Lives: A History of Insurance in Hong Kong, 1841-2010

Chapter 6 - Changes and Innovations in the Market

Chapter 6 Changes and Innovations in the Market In the late 1980s, Hong Kong’s economy underwent structural transformation, resulting in the rapid development of the service sector. The insurance industry also entered a period of high growth as insurance gradually became familiar and acceptable by the public. To protect policy holders through effective supervision of the industry, the Government decided to set up a new office with reinforced staff establishment under the then Monetary Affairs Branch to take over from the Insurance Division of the then Registrar General’s Department. On 8 June 1990, the Office of the Commissioner of Insurance (OCI) was established. The past decade witnessed the continuous development of the insurance industry. Premium income increased more than double in ten years, the number of insurance practitioners kept increasing and insurance products became more and more sophisticated and diversified. The OCI has been constantly updating the legislation and introducing appropriate regulatory standards in the light of changes in the market conditions. It has also worked closely with industrial bodies and implemented a series of self-regulatory measures, thus laying a solid foundation for the prudential supervision of the insurance industry. In the past ten years, Hong Kong experienced many important events, for instance, the return of Hong Kong’s sovereignty to China, the Asian financial crisis and the advent of the 21st Century. Of these, the Asian financial crisis has dealt a severe blow to Hong Kong’s economy. In a period when the economy experienced a negative growth and a high unemployment rate, the insurance industry was no exception. Nevertheless, our insurance industry as a whole remains financially sound and stable. This is attributable to the effective regulatory system which is the result of the wholehearted collaboration between the industry and the OCI. — Hong Kong’s Commissioner of Insurance, June 20001 152 Enriching Lives Market Transition in the 1990s (1) Long-term-products earnings beat general The shift of Hong Kong’s economy from manufacturing to services started in the mid1980s and continued apace into the 1990s. In 1986, the services sector already accounted for nearly 70% of the city’s GDP; in 1997, it rose to 85%. By then, the shift was almost complete. The impact on the insurance sector could not have been more direct. The traditional general products such as marine and employees’ compensation, all associated with manufacturing, no longer brought in the most premium. In their stead, long-term products such as life coverage began to rake in increasing revenue. In 1987, general insurance still accounted for two-thirds of the $10 billion in premium income, but its percentage had plunged to 37% by 1997, with life premiums more than picking up the slack. Of the $52 billion in total premium income in 1997, 63%, of $32.5 billion, was generated by life or other long-term policies. (2) Global firms enter the local life market Naturally, the booming life market in Hong Kong caught the attention of many global players. Some of them quickly poured in capital and human resources to get a piece of the action. Here we will review four of these new global entrants: • The Union des Assurance de Paris-Vie, Europe’s second-largest insurer, was already offering general coverage in Hong Kong. But in 1991 it made its foray into the life market by focusing on group life and medical insurance products. This yielded remarkable results. In 1994, the company brought out a personal-life and savings product as well as a slew of investment-linked products. • The National Mutual Life Association of Australia, that country’s second largest insurer, raised capital in Hong Kong’s stock exchange to expand its operations significantly. As 153 Changes and Innovations in the Market early as in June 1986, Melbourne-based National Mutual acquired the local interest of Sentry Life Insurance (Asia) Ltd. for AUD$58 million and changed its name to National Mutual Asia Ltd. After the takeover, the firm grew from 800 agents to 3,400. • The Transamerica Occidental Life Insurance Co. traces its roots to Shanghai in 1933. But while the Japanese invasion had scattered Transamerica’s policyholders, its staff painstakingly looked for them after the war and carried on with coverage. In 1992, Transamerica built upon this history and its Hong Kong branch to explore markets in the major mainland cities, such as Beijing and Tianjin, as well as Taiwan. • In January 1995...