Hong Kong looks to technology as public ignorance and apathy leave city with US$885 billion shortfall in mortality protection

Insurance Authority, Bowtie Insurance

Hong Kong faces a mortality protection gap of HK$6.9 trillion (US$884.6 billion), which could cause many families undue financial trouble in the event of the death of the main earner, according to the Insurance Authority’s first study on the subject.

To raise awareness about insurance protection, the authority plans to introduce a free online tool to allow people to calculate their insurance protection needs by the end of the year, a senior executive said.

While Hong Kong had the highest insurance penetration rate globally, most residents were buying products with savings or investment features and not enough for their protection value, the study found.

The mortality protection gap – the shortfall between the protection needs of a household, and the financial resources available to fund the surviving family’s future living in the event of death of the breadwinner – translates to a shortfall of HK$1.9 million for every working adult in Hong Kong, the report said. This poses a financial risk for families without adequate insurance compensation, leaving them unable to pay for the family’s mortgage loan, medical bills for elderly parents, or education fees for their children.

Insurance Authority, Bowtie Insurance

Hong Kong has highest insurance penetration rate worldwide but they do not have adequate cover. Photo: Felix Wong

“Even though Hong Kong has a well-developed insurance market, most people buy insurance products with savings or investment features and do not pay attention to make sure their insurance policies can provide sufficient protection to their families in case the breadwinner were to suddenly pass away,” Prudence Ho, senior manager of policy and development division at the Insurance Authority, told the Post in an exclusive interview.

“Many Asian and Hong Kong people want investment returns, or at least a decent guarantee of returns, from their insurance policies,” she added.

To increase awareness about insurance protection, the Insurance Authority will introduce a free online tool to allow people to calculate their insurance protection needs, based on their age, income and number of children, Ho said.

Total sales of new life insurance policies in Hong Kong rose 23 per cent in the first half of this year to HK$80.5 billion, according to data released by the Insurance Authority. Investment-linked life policies, which allow policyholders to invest in a number of funds for higher returns, were among the products driving growth. The sales of such products grew at an annual rate of 192 per cent to HK$13.4 billion in the first half of this year, the data showed.

The mortality protection gap in Hong Kong is ironic as the city ranked No 1 in the world in terms of premiums per capita at US$8,983 per person last year, higher than the global average of US$360, according to Swiss Re. The city also topped the global charts in terms of life insurance premiums as a percentage of gross domestic product at 19.2 per cent, far higher than the global average of 3.3 per cent.

“The introduction of virtual insurance companies will help to encourage more people to buy simple term life insurance products at a cheaper cost,” she said.

Insurance Authority, Bowtie Insurance

Fred Ngan Yiu-fai, co-founder and co-chief executive officer of online insurer Bowtie Life Insurance, believe virtual insurers can help promote people to buy protection products. Photo taken in December 2018. Photo: Roy Issa

Term life insurance, also known as pure life insurance, does not have any savings or investment features. However, it is not popular in Hong Kong as only 0.9 per cent of insurance premiums paid in 2019 were for such products, far lower than 8 per cent for investment linked policies, and 59 per cent for whole life policies that have high savings value, according to the Insurance Authority.

An insurance policy with high savings feature is about 20 times more expensive than a pure term life policy, according to Ho.

A 30-year male non-smoker only needs to pay HK$71 per month to get a term life cover of HK$1.9 million, which is the average mortality protection gap in Hong Kong, said Fred Ngan Yiu-fai, co-founder and co-chief executive of Bowtie Insurance, Hong Kong’s first online insurer.

“Term life policies have been around for a long time but traditional agents have low incentives to sell the products as they cannot earn high commissions,” Ngan said.

“Virtual insurance companies can fix the protection gap by focusing on providing a simple and easy way for people to buy high-protection value insurance products.”

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