As of the end of December 2018, there were 161 authorized insurers in Hong Kong, of which 93 were pure general insurers, 49 were long-term insurers and the remaining 19 were composite insurers. At the time, Hong Kong had 2,422 insurance agencies, 69,285 individual agents, and 25,256 registered technical representatives registered with the Insurance Agents Registration Board (IARB). In addition, there were 788 authorized insurance brokers.
The Hong Kong authorities’ introduction of tax-deductible health schemes and pension products on 1 April 2019 is likely to drive the growth of the city’s life insurance market, according to Fitch Ratings. Dubbed Voluntary Health Insurance Scheme (VHIS), the scheme was mentioned by John Leung, CEO of the Insurance Authority at the Financial Times Asia Insurance Summit during which he expected it would add impetus for the further growth of medical insurance in the city.
Administrated by the Food and Health Bureau, the VHIS aims to regulate individual indemnity hospital insurance products. Participation in VHIS is voluntary. Each policyholder can claim a tax deduction on qualifying premiums up to HK$8,000 per insured person each year (excluding premium levy). An insurer seeking to provide VHIS-compliant policies must register as a VHIS provider. There are 25 VHIS providers at the moment.
Fitch expects life insurers to broaden their customer base and enhance their revenue sources as they participate in these policy-initiated products. Consumer awareness of the importance of health insurance coverage is likely to increase further as a result of the promotion of government health insurance schemes.
Voluntary contributions to mandatory provident funds (MPFs) and demand for qualifying deferred annuity products (QDAP) are likely to accelerate in the short term due to the potential tax savings that participants can enjoy. Fitch expects insurers or MPF scheme providers, which have higher-income customers who have greater incentive to make tax-deductible contributions to MPFs or buy QDAP policies, to report faster premium expansion or growth in contributions. Additional fee income from operating tax-deductible voluntary contribution (TVC) accounts will enhance the earning stability of MPF providers.
Over the longer term, the attractiveness of TVC accounts depends on the performance of funds in these accounts, especially when administrative costs associated with TVC accounts are included in the overall return calculation. Individuals might hesitate to make TVCs if the long-term returns plus the benefits of tax deductions from TVCs are much less than returns from investments in funds with similar risk profiles outside the TVC under the MPF framework.
Fitch does not expect the launch of the Voluntary Health Insurance Scheme (VHIS) on 1 April to significantly improve premium growth for the life insurance sector as the scheme could eat into the growth of other health insurance products and customers may switch from existing policies to VHIS. However, it expects the city’s aging population and rising medical costs to spur demand for VHIS and the scheme may open more cross-selling opportunities to insurers taking part.
TVC is a new form of contribution under the MPF framework. Scheme members can establish a TVC account under an MPF scheme of their own choice. They can contribute directly to the TVC account without going through their employers. All QDAPs must be in compliance with the guideline issued by the Insurance Authority. Individuals can enjoy the maximum tax-deductible amount of H$D60,000, which is the aggregate limit for both TVC and QDAPs. Based on the current highest tax rate, the maximum tax savings can amount to HK$10,200.