If it was me who came up with the headline of this article, I would definitely have been accused of smearing Hong Kong or spreading “fake news”. Fortunately, the headline was copied from an article published by a mainland media outlet. In late April, Securities Times, a subsidiary of People’s Daily, ran an article entitled “Hong Kong’s insurance industry is entering its darkest time”. The rationale behind the heading was that Hong Kong’s insurance sector had lost many mainland clients recently.
Over the past few years, mainland Chinese clients had been the biggest driving force of Hong Kong’s insurance sector. Although the mainland government introduced a policy a few years ago subjecting participating life insurance to capital restrictions, thus blocking certain funding channels such as UnionPay, mainland clients still amounted to a big business for the local insurance sector, given that the non-participating life insurance terms in Hong Kong are highly attractive to mainlanders.
Yet the number of mainlanders taking out insurance policies in Hong Kong has dropped significantly recently, not because of the social movement in 2019 but because of the Covid-19 pandemic. As a result of the government’s anti-pandemic measures, mainlanders have not been able to come to Hong Kong to buy insurance plans without having to be quarantined. Last year, the total premium of insurance plans taken out by mainlanders was only $6.8 billion, amounting to a sharp drop of 84 percent year-on-year.
According to the said Securities Times article, Macau’s insurance industry logged a record-high total life insurance premium last year, amounting to a 2.7 percent growth. The article also quoted an insurance agent of AIA Group (1299: Hong Kong) as saying the group had shifted its business focus to Macau, and that “every month we have two to three mainland clients taking out a policy in Macau”.
In all fairness, although Hong Kong’s insurance lost a lot of mainland customers last year, the total premium still grew 4.9 percent year-on-year in 2020 to $608.4 billion. Even the growth rate of the total life premium alone was higher than that of Macau. So the comparison made by the Securities Times article was not an apple-to-apple comparison.
Low popularity of Hong Kong government affects vaccination rate
Nevertheless, starting from September 2020, individual mainland visitors could already travel to Macau. Currently, mainland customers account for a third of the insurance business of AIA’s Macau branch. Macau has been planning to expand its financial industry, which encompasses the insurance sector. Meanwhile in Hong Kong, with a lack of new mainland customers for months, the local insurance sector is not as strong as its Macau counterpart, even though it is not facing the darkest time yet.
The plight the local insurance sector is in is a microcosm of the challenge facing Hong Kong’s financial industry, and the challenge stems from the currently low vaccination rate, which makes it difficult for Hong Kong to reopen itself to visitors. It is not that I am encouraging people to get the shots here, but major cities around the world are clamoring to boost their vaccination rate. The sooner herd immunity is achieved, the faster the economy can recover.
Last week, the Monetary Authority’s chief executive Eddie Yue warned that Hong Kong could lag behind Singapore in opening up to visitors and that Hong Kong-based financial companies engaging in cross-border businesses could suffer, given the city’s lower vaccination rate compared with other financial centers.
The Hong Kong government’s current public approval rating is very low. If it wants to boost the vaccination rate, it should offer citizens encouragement. A coercive policy would only backfire and people would simply refuse to get their jabs. Unfortunately, the government blames different parties without reflecting on why it has such a low credibility. Eventually, Hong Kong’s insurance sector may lose more customers to Macau and Singapore, and that would really usher the industry into its darkest time.
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