On April 22, 2013, the Hong Kong Federation of Insurers, a self-regulatory body, issued a circular which forbid agents and brokers from recommending ILAS products to consumers who do not have life protection needs:
According to the above sales flow illustration, if a client indicates no life protection needs, then the broker should not recommend ILAS.
The rationale for this rule may be related to a statement issued by the Securities and Futures Commission in a circular dated August 13, 2009—four years earlier:
“ILAS are first and foremost insurance policies providing the policyholder with life cover, but which have an additional investment element. Life cover, as distinct from investment, would appear to be the dominant factor motivating a policyholder to acquire an ILAS product because there are many pure investment products on the market which tend to have lower initial charges, are more negotiable than ILAS and do not give rise to the same penalties for early termination. These types of products would appear to be more suitable for, and attractive to, those who are principally concerned with investment and are unconcerned with the acquisition of life cover.”
Moreover, on March 14, 2011, two years before HFKI issued its new ILAS rules, the Hong Kong Monetary Authority issued a circular forbidding bank-based insurance intermediaries from selling ILAS products to consumers who have no insurance needs. According to paragraph 6.4:
“Where a customer indicates that he or she does not need/want insurance/investment products, [authorized intermediaries] should not recommend ILAS products.”
In other words, ILAS should only be recommended if a client has BOTH insurance and investment needs.
Six months after HKFI issued its April 2013 circular, HKFI reiterated its position on ILAS once again in a FAQ page published on Oct. 22, 2013:
According to HKFI’s explanation, it is unacceptable for an agent or broker to sell an ILAS product to a consumer who has no life protection needs, unless the consumer explains in his or her own handwriting why they are buying the ILAS product, despite the fact that it is unsuitable.
Many ILAS products, such as “101 plans” or portfolio bonds, have only a negligible amount of life protection attached to them, just 1% of the account value, which is a mere fraction of the annual fees. These products are not suitable nor desirable for anyone who has life protection needs.
The products can only be described as investment products, and this is exactly how they are marketed and sold. However, according to HKFI, HKMA, and SFC, the products are not suitable for people who have pure investment needs.
In other words, these products are neither suitable as investments nor suitable for life protection. They have no justification for existing, except as commission and fee generators for the people and companies who sell them.
If HKFI’s regulations had been followed and enforced, sales of these products should have stopped on April 22, 2013. However, these products have remained on the market and are still being sold to this day.
This means that all agents, brokers, and companies who have continued to enrich themselves by flogging these exploitative products have been in blatant violation of HKFI regulations for well over a year. Tens of thousands of Hong Kongers have undoubtedly been ripped off during this period.
One of the victims has contacted this blog and has begun to file complaints with various regulators.
Consumer Council Should Explore Legal Action on Behalf of Victims
Although HKFI issued the new regulations, HKFI cannot be counted upon to help victims, since HKFI’s members are the perpetrators. HKFI has too many conflicts of interest.
Consequently, the Consumer Council should intervene and try to help organize a class action lawsuit (or nearest equivalent), on behalf of victims.
IIA Must Be Given Authority to Force Insurers and Brokers to Compensate Victims
If no one else will stand up for ripped off consumers, then the Independent Insurance Authority must do it. However, the IIA does not even exist yet. The LegCo must ensure that IIA has the authority to intervene in this and many other past insurance frauds and mis-selling scandals.