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Chris Chapel

Investment-linked insurance has blossomed in Hong Kong in recent years to become one of the fastest-growing sectors in the industry.

New premiums for investment-linked products - which are well known overseas - jumped by almost 50 per cent in 2001 to total HK$3.7 billion. There was a slight decline in sales last year because of investor concerns regarding stock market performance, but the industry continues to have faith in the sector.

Manulife's assistant vice-president, individual product marketing, Alan Ng, said the surge in growth in 2001 was largely due to sales of so-called '101' policies, which are almost pure investment vehicles in an insurance policy structure.

'Manulife does not market this type of policy,' Mr Ng said.

'When we look at our own investment-linked products, demand for these products has slowed down because of falling stock markets. In this investment climate, many of our customers opt for traditional insurance policies.'

However, Manulife does still market other investment-linked products. It recently launched ManuSelect Investment Protector, which offers enhanced investment alternatives.

The chief operating officer of AXA China Region, Warren Lee, said unit-linked insurance products suited some investors well.

'These are probably more of an investment product. There is still some life insurance in there, but usually a smaller amount,' he said.

'The main reason for taking out the product would be to get the investment exposure. You take this product if you are looking for an investment savings plan.

'One of the great things about them is you get both life coverage and investment. The emphasis is probably more on investment than insurance protection with these particular products, but you get both.'

Mr Lee said investment-linked products needed to be flexible so that they could be tailored for the clients' specific needs.

'Even investment-linked products can offer quite good protection for the client. It really depends on what the client needs,' he said.

'For example, if you are looking to fund future education needs, you will want to accumulate, so the product won't emphasise the life coverage much. And, of course, the higher the coverage, the higher the cost of insurance.'

One reason for the success of investment-linked insurance products is that they give policyholders some choice in what sector of the investment markets they are exposed to - unlike traditional life insurance products, which amass regular premiums and pay out at maturity or death. This extends as far as choosing the funds into which the money is invested.

Investment-linked products typically offer a choice of investment component from a range of funds. All investment-linked products offer some level of life-insurance coverage.

Products are available to suit every scenario, for people seeking heavy insurance coverage with a bit of investment to those looking primarily for investment with some life coverage as well.

When people buy a traditional insurance policy, the premium goes into an insurance company's funds and is out of the customer's control. In return, of course, the customer receives a payout if the insured event, such as a death, occurs or when a policy matures.

Insurance companies generally manage their own funds conservatively. Buyers of investment-linked policies tend to control the investment direction themselves by choosing the underlying investments from a range of choices. If they choose correctly, they can obtain better performances than insurance funds can achieve.

The spectrum of insurance products today is wide. On one side you have very traditional policies offering life and other protection. At the other end, there are investment-linked products, which combine insurance with investment. Somewhere in the middle of the spectrum are savings-oriented insurance policies: relatively conservative policies enabling savings via insurance. This has been a major growth area for insurance companies.

Another reason for the popularity of investment-linked products is the introduction of the Mandatory Provident Fund (MPF), which has made people far more aware of retirement investing. At the same time, bleak conditions in the stock and property markets combined with low interest rates have led people to ask their advisers for products offering better returns than those traditional vehicles.

According to a survey last year by market company ACNielsen, 31 per cent of Hong Kong people who planned to buy an insurance policy in the near future were interested in investment-linked policies. Of those interested, 60 per cent said they were most attracted to policies with the added-value of investment.

ACNielsen estimated that the local insurance market had grown nearly 20 per cent in the past three years despite the economic downturn. At the time the survey was released, an estimated 63 per cent of Hong Kong's adult population today had, on average, two insurance policies.

'The two-for-one appeal for linking insurance and investment products is a very strong selling point,' said Helen Lok, executive director of customised research at ACNielsen.

'There is still a lot of misconception in the market about investment-linked insurance policies, so if policy services providers carefully implemented a strong, educational campaign on such products, they could easily capture a whole new market.'

The two growth groups that stood out in the survey were young people in their 20s and all women. The number of policy holders in both groups grew by between 48 per cent and 62 per cent, possibly reflecting the focus of insurance companies' marketing efforts.

Leading players in the investment-linked sector of the local insurance market include Skandia, HSBC, Eagle Star, AXA, American International Assurance, Winterthur, New York Life and CMG.

Some companies, like Skandia, are concentrating on investment-linked insurance for the bulk of their new business, while others, such as Pacific Century Insurance, have been more wary of the new trend.

More recent market uncertainty has prompted a range of new products as companies try to meet changing market conditions.

While the market has grown rapidly there have been concerns from consumer groups that some people have not fully understood the new products they are buying.



Dual nature of policies attractive to public