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Chris Chapel

Customers prefer to buy insurance packages that are transparent

Transparency and full disclosure of all charges are crucial components of the investment process, according to Robert Knight,  chief executive of Standard Life (Asia).

Standard Life, Britain's third-biggest life insurance company, has been offering investment-linked products in Hong Kong for about four years.

Mr Knight said insurance companies had moved toward investment-linked products because of the expense involved in writing traditional products and because many customers preferred buying their insurance in an investment package. Fees and benefits were also easier to see in investment-linked products, he said.

'Companies have tended to see the advantage of investment-linked products. They have moved away from the more expensive traditional products. Also, they understand that the public can get a much more transparent picture of what is going on.

'In the old days, it was terribly difficult for people with whole-of-life policies to know what they were getting for their money. It was very difficult to calculate where the charges and costs were. An investment-linked product is much more transparent. You get a simple statement setting out the number of units and their price.'

Mr Knight said there were significant differences between investment-linked products and ordinary mutual funds.

'I would say we are a level down on the risk scale from a mutual fund company. We operate in a similar way, but we differ greatly in three areas. First, we accept monthly premiums, while most mutual funds are single payment/premium. The second difference is we tend to offer much broader-based funds. And thirdly, we can offer insurance riders on top.'

Mr Knight said Standard Life recommended that all investors have a balanced portfolio.

He said his company occupied an investment middle ground, in between the absolute security of cash and the high-risk direct exposure to narrow sectors of the stock market.

'We can provide an investment that gives access to the equities market but takes a lot of risk away,' he said.

'It is being invested by experts and it is in quite a broad mix of funds, not a very narrow sector. It will be invested in, say, Hong Kong rather than Hong Kong smaller companies or in Europe rather than just France. On top of that, we can give insurance protection: for families, of income, in the case of illness or just pure life insurance on top as a rider.'

Mr Knight said most buyers of investment-linked insurance products were primarily seeking insurance protection, with the investment exposure treated as a welcome bonus.

He said  most people realised the shortfall between what their family would need to survive comfortably in the event of their death and what  they had at present.

'I would suggest insurance is the first reason they buy. There is the attraction of regular-premium, long-term saving, but probably it is the insurance that people have the immediate need for. For many people, this is their main insurance cover.'

Mr Knight said investment-linked products probably had some way to go before they reached their limit within their market of investment customers.

'I think there is still a lot of education that needs to be done. They have definitely become popular products. But as investment products, they are actually a solution to a need, so it depends very much on what the advisers  are saying.

'The public is not knocking on the door and demanding investment-linked products. The education is really with the advisers.'

Mr Knight said he believed Standard Life had the right mix of investment-linked products for now,  but they might be expanded in the future.

'We might also change the charging structures, depending on how that market moves. We are very keen to charge the customer as little as possible, so we are keen to pay lower commissions.''



Investment-linked products give clients a clearer picture