Regulators Say ILAS Is Not Suitable for Investors Who Have No Insurance Needs—Suggesting that up to Two Million Hong Kongers Have Been Mis-sold

Approximately two and a half million ILAS policies have been sold in Hong Kong over the past 15 years. Insurers have collected more than half a trillion dollars in premiums. According to an adviser interviewed by the South China Morning Post, approximately 75% of investment products sold to Hong Kongers were ILAS products, as of 2012.

Suitable for No One

Most ILAS policies provide little or no life cover, which means they are not suitable for investors who need life cover. However, regulators say ILAS products can only be sold to investors who need life cover. This means that most ILAS policies are suitable for no one. It’s impossible to sell them without “mis-selling” them.

Mis-Borrowing

Note: I mis-borrowed this cartoon from Martin Shovel.

SFC Subtly Suggested that Many ILAS Products Are Ripoffs

In a 13 Aug 2009 circular, the SFC stated:

“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.”

SFC here pointed out that ILAS products have unusually high initial charges, long lock-ins, and high exit penalties. SFC implied that these policies are suitable only for individuals who need life cover.

However, most ILAS policies provide no life cover. According to SFC’s logic, such policies would not be suitable or “attractive” to anyone. This is a subtle hint that the products are ripoffs.

OCI Overtly Suggested that Many ILAS Products Are Ripoffs

According to a guidance note issued by OCI on 30 July 2014:

OCI - Unfair Charges (Underlined)

Since most ILAS products have minimal insurance content and multiple high charges (often hidden), the products clearly do not meet the “fair treatment of customers” principal. In other words, the products are ripoffs. This is exactly why, as OCI pointed out, the products are “often” aggressively sold, mis-sold, and fraudulently sold:

Mis-selling and Agressive Selling

OCI - Frequent Mis-selling and Fraudulent Selling

HKMA, HKFI, and OCI Have (in Effect) Banned Most ILAS Products

In a series of circulars issued over the past four years, ILAS regulators have explicitly forbidden insurance intermediaries from selling ILAS products to investors who have no insurance needs. ILAS products can only be sold to investors who need insurance. Because most ILAS products provide no insurance, they can’t be sold to anyone. In effect, they are banned.

Below are excerpts from the relevant circulars issued over the past four years.

HKMA’s 14 March 2011 Circular

HKMA - No Need, No Sale

AI means “Authorized Institution”. HKMA is the Hong Kong Monetary Authority, Hong Kong’s bank regulator.

HKMA’s 22 April 2013 Circular

HKMA - No Mis-selling

AI means “Authorized Institution”. HKMA is Hong Kong’s bank regulator.

HKFI’s 22 April 2013 Circular

HKFI Regulation on ILAS Sales (April 22 2013)

HKFI is the Hong Kong Federation of Insurers, a self-regulatory organization.

OCI’s 30 July 2014 Guidance Note (GN 15)

OCI - Investment and Insurance Needs

OCI - First Assess Needs

OCI is the Office of the Commissioner of Insurance.

HKFI’s 8 Dec 2014 Circular

HKFI - ILAS Sales Flow

HKFI is the Hong Kong Federation of Insurers, a self-regulatory organization.

The Industry Continued to Flog ILAS even after the De Facto Ban

All insurance intermediaries are self-regulated, except for intermediaries who work in banks—they are regulated by HKMA.

In April 2013, HKMA forced banks to begin disclosing ILAS commissions. Since ILAS commissions are at an obscenely unjustifiable level, on par with robbery, banks decided to stop selling ILAS. It was too difficult to rob clients when the clients knew they were being robbed.

As sales of ILAS dried up in banks, the rest of the self-regulated industry (who did not require themselves to disclose commissions) continued to flog ILAS—even though most ILAS products had, in effect, been banned. 

The charts below show the amount of premiums raked in since 2013 by the three main types of intermediaries (agents, bank agents, and brokers):

2013 ILAS Distribution Channels

Source: OCI’s website. See here.

Data published by the Office of the Commissioner of Insurance. See here.

Source: OCI’s website. See here.

Up to Two Million Mis-sold Investors Deserve Compensation

About two and a half million ILAS policies have been sold in Hong Kong over the past 15 years. OCI has not published data for previous years.

Since most ILAS products provide no life cover, it’s likely that most policyholders have been mis-sold (i.e., ripped off). The number of mis-sales could exceed 2 million.

All ILAS victims have paid excessive fees (often hidden) and their investments returns have suffered (sometimes catastrophically). As a result, their retirement plans, college savings plans, and/or other savings plans have been negatively impacted.

As a matter of justice, these victims deserve compensation from the companies that fleeced them.

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