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

Conclusion - Future Prospects of Hong Kong’s Insurance Industry

Conclusion Future Prospects of Hong Kong’s Insurance Industry The insurance industry under the strong contribution from the life sector has achieved tremendous growth over the past twenty years. The annual premiums from both general and life insurance have increased fifteen times from $13 billion in 1988 to over $200 billion in 2007, now representing over 10% of the Hong Kong gross domestic product. The importance and value of insurance are now being recognized by the community. The industry provides risk and wealth management, appropriate protection and quality insurance solution to Hong Kong whether they are individual or groups, commercial, industrial SMEs or corporations. Insurance has become a vital pillar of Hong Kong’s financial service industry and a major economic sector employing more than 100,000 people. The HKFI, as a trade association representing 136 insurers, is proud to see its mission of promoting insurance making significant progress over the years. While our industry prospers and thrives, we have never deviated from our firm commitment to actively practicing self-regulation. — Agnes Koon, The Story of The Hong Kong Federation of Insurers The Insurance Sector’s Contribution to the Economy The reform and opening up of China in the 1980s set off a rapid transformation of Hong Kong’s economy. Where manufacturing had once been king, the services sector became dominant. In 2007, manufacturing accounted for a mere 2.5% of GDP (as opposed to 70% in 1970), while services in 2007 accounted for 92.3% of the economy. Within the sector, finance, insurance, real estate, and business services were the most important producers, delivering 29% of GDP. 214 Enriching Lives In 2008, the insurance sector generated $188 billion in gross premiums, amounting to about 12% of GDP, and it employed 46,000 people, 1.3% of the SAR’s workforce.1 As a pillar of the financial services sector, the insurance industry offers long-term, general, and comprehensive products. From 1982 to 2007, Hong Kong’s GDP expanded by 7.2 times, whereas gross premiums over the same period grew by 42 times. The penetration rate, meanwhile, grew from 2.5% to 13.6%, a spectacular surge. The Basic Characteristics of Hong Kong’s Insurance Industry (1) A plethora of insurers and concentration of market share At the moment, Hong Kong is one of the most liberalized and saturated insurance markets in the Asia-Pacific region—and, indeed, in the world. As of July 2010, Hong Kong had 170 authorized insurance companies, with 104 in general business, 46 in long-term, and the balance in composite. Fully 88 insurers are registered domestically, with the remainder in 22 different nations. Bermuda, Britain, and the United States are the most popular countries of incorporation, accounting for more than a quarter of all registrants. Meanwhile, there is a high level of concentration in market share. Take the life market as an example. In 2007, the ten largest life insurers in Hong Kong took up 74% of the market, leaving the balance for thirty-seven insurers to carve up. As a rule, insurance companies compete on prowess of capital and reputation, so the nature of the business naturally favours the behemoths. But the large number of small to medium-sized insurers in Hong Kong means that there was room for survival as smaller fish in the pond, but only for so long. As the government raised the bar for new entrants in the 1980s and as industry players were reshuffled by the global M&A mania of the 1990s, it became a game of survival of the fittest. The number of insurers in Hong Kong thus began to dwindle. 215 Future Prospects of Hong Kong’s Insurance Industry (2) High density and penetration In 2007, the density of insurance in Hong Kong was US$3,373.3. That ranked the city No. 1 in Asia and No. 13 worldwide. And with a penetration rate of 11.8%, Hong Kong ranked No. 3 in Asia and No. 16 worldwide. (‘Density’ is the average insurance premium per capita; ‘penetration rate’ is the ratio of total premiums to GDP.) Many international insurers also have ventured into the Hong Kong market since the handover. During the first post-handover decade, total gross premiums for the industry as a whole nearly tripled, from $52 billion to $188 billion in 2008. (3) The life market rules Since the mid-1980s, as factories headed north en masse and the services...