The yellow row in the chart shows that ILAS policies are being surrendered nearly twice as fast as they are being sold. Sales are the lowest they’ve been since the 1990s, and surrender rates have never been higher.
The Hobbins Lawsuit Was the Catalyst
Sales began plummeting in 2012, in the wake of the historic Hobbins lawsuit, which threatened to wipe out the entire crooked industry.
Hobbins was mis-sold a handful of ILAS products with 5 to 8 year contracts (not any 25-year savings scams, the worst kind). Hobbins argued that the commissions paid by the insurance companies to his broker were so obscenely high (and not fully disclosed) that those commissions were actually a form of bribery intended to induce his broker to screw him for the benefit of itself and the insurers.
Anyone who reads Section 9 of the Prevention of Bribery Ordinance will see that Hobbins’ argument was clearly correct. However, Hobbins lost his case because the judge was too cowardly to challenge the status quo and to potentially destroy a multi-billion dollar predatory industry which never should have existed.
Despite his personal loss, Hobbins inadvertently performed an invaluable public service. His lawsuit set in motion a chain of events which are still impacting the industry to this day.
Because everyone knew that his bribery argument was correct, insurance regulators were forced to react. They introduced a set of very weak commission disclosure rules which they thought were just barely adequate enough (maybe) to prevent the industry from being subjected to more bribery lawsuits, while still allowing the industry to easily rip off unsuspecting consumers. These new regulations were a joke, but the increased scrutiny of ILAS products, especially in the media, have put a major dent in sales.
The biggest blow came from HKMA, the bank regulator. It implemented much stricter rules than the self-serving insurance regulators. These rules have completely annihilated ILAS sales in banks. As of June 2014, sales were negative, due to customer refunds.
Exit Penalties Are a Major Injustice
The chart at the top of this post shows that hundreds of thousands of ILAS policies are being terminated every year.
Tragically, when polices are terminated, investors are hit with extortionate exit penalties which are as high as 100%. This is a major injustice, since the vast majority of investors should have never been sold these products in the first place.
At the same time that investors are being penalized, the unscrupulous individuals who exploited these investors are walking away with a fortune, penalty-free.
This is disgusting, shameful, and unbelievably scandalous. The police, the ICAC, the regulators, the legislators, the courts—at least one of them needs to step up and put a stop to this.