- Population: 7.4 million
- Location: Eastern Asia
- Ethnicity: 93.6% Han Chinese
- Official Languages: Cantonese (88.9%), English (4.3%) and Mandarain (1.9%)
A Short History of Hong Kong’s Insurance Industry
Insurance, and the broader financial services industry, has played a pivotal role in Hong Kong’s economic development. Because of its geographical location, combined with a commitment to free trade and an open economy, Hong Kong has always been seen as a prime location for foreign firms to set up business in Asia.
Hong Kong became a UK colony in 1841 and British insurers subsequently dominated the insurance industry until the 1960s. By the time of Japanese occupation in 1941, Hong Kong had 100 insurers in the colony. After World War II, Hong Kong returned to British rule, and the post-war insurance industry began to globalize and diversify.
Although marine products continued to be a dominant player in the market, the development of Hong Kong as a manufacturing hub gave rise to fire, accident and employee insurance products. Insurance became a highly competitive industry and by the 1980s Hong Kong was established as the insurance centre in the Asia-Pacific (APAC) region. By the late 90s, Hong Kong had the highest number of licensed insurers per capita in the world.
Hong Kong was returned to Chinese sovereignty in 1997, but on the proviso that Hong Kong would remain democratic and committed to the principles of a free and open market. The ‘one country, two systems’ approach was coined, envisioning Hong Kong as a bridge between China’s style of unitary/one-party governance and the freedoms of global commerce and trade with the rest of the developed world. This delicate relationship between Hong Kong and China has been tested recently with the Umbrella Movement protests in 2014 and 2019’s historic march against the controversial extradition bill, but has endured nevertheless.
The transfer back to Chinese sovereignty in 1997 meant many local manufacturers moved their operations from Hong Kong to Mainland China, lowering the demand for fire and employee based insurance. However, the insurance market continued to thrive, with life products beginning to dominate the market by the 1990s. Industry began to self-regulate in response to pressure from the public and government. Hong Kong positioned itself as the invaluable gateway to the Chinese market and central Asian continent thanks to it being the fourth largest stock market in the world and the ideal place for multinational life insurers to base their regional headquarters.
The top 10 insurance companies in Hong Kong are:
- Zurich Insurance Company
- Prudential Insurance Hong Kong
- Metlife Life Insurance
- Friends Provident International
The independent regulator of the insurance industry in Hong Kong is the Insurance Authority (IA) which was only established in 2015. The function of the IA is to modernize the regulatory infrastructure in line with international best practice and facilitate the stable development of Hong Kong insurance industry.https://www.ia.org.hk/en/aboutus/role/statutory_functionse.html
In 2017, the IA absorbed the regulatory function of the former Office of the Commissioner of Insurance and is expected to also take over the self-regulatory functions of insurance intermediaries in late 2019.
The IA has invested in initiatives to support the development of Insurtech initiatives in Hong Kong through pilot programs such as the InsureTech Sandbox and Fast Track. Both are designed to streamline ease of access for Insurtech innovators and insurers to test their products and collaboration before launching them to the market.
Life Insurance in Hong Kong
Hong Kong is considered a key international life insurance centre ideal for multinational life insurers wanting to establish regional offices in the APAC region. Ranked number four in the world for ‘ease of doing business,’ ‘fastest internet’ and ‘simplest tax system,’ Hong Kong offers many attractions for life insurance companies.
Moreover, Asian populations are increasing their demand for life insurance as it becomes a more financially accessible product for aging populations that are living longer.
Financial services in general contributes to around 18% of Hong Kong’s GDP and is a major employer for local Hong Kong workers. The life insurance sector is a significant component of this ecosystem and plays an important role in strengthening Hong Kong’s social and economic development.
Hong Kong’s life insurance market is comprised of individual life products, retirement contracts, group life insurance and annuity products.
Voluntary Health Insurance Scheme VHIS
Opportunities for growth in insurance continue to expand following the announcement of a government-backed health insurance scheme in 2019. Most of the major insurance companies who hold 86 percent of the market share are already signed up as providers. The government is offering Incentives such as tax deductions to encourage participation in the scheme in the hope it will reduce the burden on the public system.
The VHIS is likely to bring greater transparency to the insurance marketplace enabling greater disruption opportunities for digital solutions and Insurtech innovation.
Insurtech in Hong Kong
Insurtech in Asia is experiencing rapid growth with last quarter being the biggest ever in funding for the sector. With over 161 registered insurers based in Hong Kong, combined with a tech-friendly regulatory system; the environment is ripe for insurtech innovation.
Many are already utilizing the opportunities in Hong Kong. It is estimated that of the 550 FinTech start ups in Hong Kong, there are over 30 specifically dedicated to insurtech.
The insurance industry is experiencing digital transformation in all aspects of the ecosystem. For instance, in 2018 saw the first virtual insurance license issued to Bowtie in Hong Kong.
Insurtech highlight: Galileo Platforms
Galileo Platforms is a platform technology company that uses blockchain to digitally connect insurers and customers in the insurance ecosystem. The company strategy is to ensure their products are, ‘’enabling the insurance ecosystem to engage digital citizens.”
By disrupting traditional insurance with blockchain technology, Galileo adds efficiency to the value chain by encrypting client and contract data in order for the distributor, insurer and reinsurer can access with authorized access.
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