Are Life Insurance and General Insurance Regulations the same?
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Further Reading
Life insurance is a complex product, that is typically in force for many years and obtained with a view to offer long term financial protection.
We recently discussed the licensing of agents and insurance brokers in Hong Kong’s insurance markets, and the fact these different intermediaries have fundamentally different obligations to customers under the law. However, we did not look the licensing of individual products.
General Insurance vs Life Insurance Licensing
In order for a broker or agent to be properly licensed to carry out insurance business in Hong Kong they must have first passed the qualifying exam for the product class they wish to work with. The Insurance Intermediaries Qualifying Exam (IIQE) is supervised by the Insurance Authority.
There are multiple exams, but all insurance intermediaries must pass at least 2 in order to advise or sell insurance products. The first exam which all intermediaries (brokers and agents) must pass is Principles and Practices of Insurance which establishes base competencies as to the individuals understanding of the concept of insurance as a whole.
Insurance intermediaries are able to choose which additional exams they take, depending on the business they wish to work with:
- General Insurance
- Long Term Insurance
- Investment-Linked Long Term Insurance
- Travel Insurance Agents
General insurance encompasses any products which are not included in additional examinations. This means, using CCW Global as a broker example, that passing the General Insurance exam would allow you to advise on:
- Health Insurance
- Professional and Financial Insurance
- Marine Insurance
- Automotive Insurance
- Home Insurance
- Travel Insurance
- Contingency Insurance
The range of products classified as “general insurance” in Hong Kong is actually extremely broad. However, if you pass the general insurance exam and are licensed by the Insurance Authority to sell general insurance, then you are still not allowed to advise on any life insurance products.
In order to advise on Life Insurance, the intermediary must first pass either of the two life insurance exams; Long Term Insurance or Investment-Linked Long-Term Insurance.
Long Term Insurance or Investment-Linked Long-Term Insurance
Life insurance is considered to be the most complicated form of insurance, and this is evidenced by the fact that there are two separate life insurance exams dealing with different products and types of life insurance policy.
Long Term Life Insurance
Long Term Life insurance is best thought of along the lines of being the simplest possible form of the product. This shouldn’t be misconstrued to say that Long Term Life Insurance is simple, but rather of the Life Insurance products available in Hong Kong it is the most easily understood.
Term Life Insurance and Keyman Life Insurance are great examples of this. A contact that runs for a fixed period of time, during which the policyholder (or their beneficiaries) receives a settlement in the event of a claim. Additional riders can be added, including Disability Income, Critical Illness, and others.
Long Term Life insurance is similar to General Insurance products in respect of the fact that it only deals with risks. The risk of death, or impairment being the primary focus.
CCW Global Ltd is licensed to conduct business in Long Term Insurance.
Investment Linked Long Term Life Insurance
Investment Linked Long Term Insurance is any Life Insurance product which includes an investment component.
Annuities, Universal Life Insurance, Unit-Linked Life Insurance, and Pensions are all Life insurance products which generally have an investment component attached to their coverage. This means that the money being used as premium payments is normally invested and grown by the insurer, so that the policyholder ends up with more money at the end of the plan’s life than they put into the policy in premium payments.
Investment linked long term insurance is different from general insurance products as it includes elements to the cover beyond satisfying and offsetting the policyholder’s risk.
CCW Global is not licensed to conduct business in Investment Linked Long Term Insurance.
Should you change your life insurance?
In the last year the Hong Kong Life Insurance market saw its largest ever slump. The reason we have taken the time today to discuss life insurance licensing is that there is a concern over the coming financial year that some actors in the market will revert to less legitimate means of selling their products.
One of the most common issues with Life Insurance is the problem of Churning. Churning is when an agent, broker, or IFA, persuades a customer to switch their life insurance coverage so the intermediary can make additional commissions.
Life Insurance works differently from most other types of insurance, due to the fact that the commissions provided are very high – far exceeding all other policy classes.
As a broker CCW Global represents the interests of our clients – this is our legal obligation under Hong Kong law due to our licensing status as a broker. We earn a commission every time we place a policy with an insurance provider – we do this rather than charge fees for our services, and the advice that we provide is completely free of charge if you choose not to purchase any coverage through our company.
At CCW Global we believe in a no-pressure, consultative process when it comes to advising on insurance; you can learn more about our quotes here.
When a customer switches from one life insurance product to another it is generally the case that the policyholder will lose money. Remember, Life insurance is a long-term product (as per the names of the examinations required to sell it) and, in the case of investment-linked life, can begin to accumulate a value. Terminating an investment-linked life insurance policy before it has matured will likely result in severe financial penalties, and be highly detrimental to the policyholder.
If a policy has matured, or reached its cash-out value, then there isn’t really any issue with taking the money and buying a new policy. However, with the historical low in the life insurance market over the last 12 months, there will be companies and intermediaries who want quick and easy sales and may push policyholders to cancel their existing coverage and take out new protection.
This is generally not a good idea.
If you hold a Term Life Insurance plan, best practice is to leave the policy in operation over the course of the entire term. Likewise, if you hold an Investment Linked Life Insurance policy, then maintaining the policy for as long as possible will mean you maximize its value. There are exceptions, of course, because life is different for people, but on the whole, terminating your life insurance plan mid-policy and switching to a new one will not benefit you, as a policyholder.
If you would like to discuss any insurance matters in Hong Kong, or if you would like to learn more about Life Insurance Licensing, please Contact Us today to arrange a no-cost, no-risk consultation with one of our expert Hong Kong Insurance Brokers.