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Jul 2024

Great opportunities in the Greater Bay Area

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Source: Asia Insurance Review | Jun 2023

The reconnection of Greater Bay Area cities and the accelerating flow of visitors from mainland China, particularly Guangdong province, provide Hong Kong insurers with an opportunity to recover a vast customer base. Even a partial recovery in L&H insurance business from mainland Chinese visitors could potentially be a significant boost to Hong Kong insurers’ premium growth in 2023.
By Ahmad Zaki
The Greater Bay Area (GBA) is economically and strategically important for insurers in Hong Kong. According to a survey conducted by Swiss Re, the demand and growth potential the GBA represents remain substantial. Guangdong residents express a strong need for L&H insurance protection, and insurance penetration in the nine mainland GBA cities (3.46% of GDP as of 2022) is much lower than in Hong Kong (18%).
John Zhu“The GBA is one of the richer parts of China. Its industries are also some of the more exciting, faster growing ones, with Shenzhen especially, as a technology hub,” said Swiss Re chief economist John Zhu. “So there has been a huge amount of growth and that’s one reason why Hong Kong insurers want to target this market.
While mainland China has its own insurers, including low cost and government provided and subsidised options, when it comes to the L&H line, insurers in Hong Kong have an advantage. Primarily, customers come to Hong Kong for higher quality of healthcare that they cannot access in China, according to Swiss Re’s survey.
“This, of course, requires a certain degree of income in order to meet the expenses, which is what the GBA offers,” he said. “At the same time, we’re not just talking about the rate of doctors per patient, but also in terms of waiting times. The capacity in Hong Kong for a reasonably good hospital especially, is probably more accessible in that sense. The lines are just shorter. You get a nicer room. Those sorts of things are valued by the customers, according to our survey.”
These findings by Swiss Re are echoed in a similar survey conducted by Oliver Wyman, who found that 72% of mainland consumers plan to travel to Hong Kong within the next 24 months and 47% are interested in purchasing a life insurance policy during their trip. The latter figure reaches 65% for consumers from the GBA.
Product differentiation
There are also many types of products in Hong Kong that are different from what is available in mainland China. Hong Kong has a well-established bundling of savings and protection products, which has proven to be attractive to certain customers.
Louisa LiOliver Wyman partner Louisa Li said, “We anticipate strong demand for Hong Kong given its role as an insurance hub that offers extensive coverage and a trusted regulatory environment. Much of the returning demand from mainland consumers will be those looking to increase coverage rather than buying for the first time. These consumers are seeking core product propositions, such as superior coverage scope and better long-term financial returns.”
According to Oliver Wyman’s survey, about 60% of mainland Chinese buyers surveyed indicated an increase in concern over their life and health protection post-COVID-19. Most also expressed they felt more inclined to purchase life insurance in Hong Kong now compared to three years ago. When considering the city’s insurance offerings, the ability to access overseas medical resources, the trust in the local regulatory environment and the industry’s overall reputation have become more important to consumers post-COVID-19.
For mainland Chinese buyers, the most pressing concerns are critical illness or death, and insufficient medical funds and resources; the younger the consumers, the more pronounced these fears are. For those planning to purchase life insurance in Hong Kong in the next 24 months, around 80% are interested in critical illness or medical healthcare products. The product features that are most critical to mainland consumers are disease coverage, and geographical and network coverage; both factors are more important post-COVID-19. While the priority of pricing is slightly lower, many respondents also expressed increased consideration toward value for money.
Inflation and interest rates
“Another thing that we note in the report from a macro perspective is that because of this quirk where Hong Kong is pegged to the US dollar, so interest rates in Hong Kong are good, which means that returns are high,” said Mr Zhu. “So, the US Fed has been raising interest rates very rapidly, whereas China has been cutting or loosening because it wants to maintain growth momentum. So, with products that have a savings component, Hong Kong actually has that advantage because it has the interest differential.”
According to Mr Zhu, China currently is tracked to have an interest policy rate by year end to still be 2%. This is in comparison to 5% in the US.
“Problems arise when you have the same monetary policy, but very different inflation rates or different cycles. Funnily enough, Hong Kong has one of the lower inflation rates in Asia. So, over the past several months, indeed over the past year, it has been 2% or under,” he said. 
“And part of the reason is because last year in 2022, Hong Kong contracted.
So, it had one of the worst GDP performances in Asia. This was unfortunate because everywhere else was rebounding very strongly. But Hong Kong, because of its COVID restrictions, was still closed off for most of the year. It gradually relaxed it towards the end and then suddenly at the start of this year. Everyone’s feeling a lot more optimistic about it now.”
Mainland Chinese buyers prefer products that provide long-term growth and low volatility returns. Post-COVID-19, their appetite for offshore investment allocation has also increased. Savings products are the only type of product that mainland Chinese buyers have shown a clear preference for increasing their coverage in Hong Kong rather than in mainland China. For those planning to purchase life insurance in Hong Kong in the next 24 months, 61% are also interested in increasing their savings coverage. The savings propositions that mainland Chinese buyers value are expected returns, a guarantee of returns, and flexibility with regard to withdrawals, while features such as foreign exchange allocation and legacy planning are less important.
“We foresee continued demand for savings products in Hong Kong as a means for consumers to accumulate and grow wealth. Hong Kong offers higher expected returns, and its trusted financial system provides consumers with a base from which they can diversify and broaden their portfolios,” said Ms Li.
Savvier customers
At the same time, Mr Zhu said that it is not inflation that drives the demand. Customers in the GBA are not attracted to Hong Kong because it is cheaper, but because it offers a different product, better suited to needs that are not necessarily completely met with the offering in the mainland market.
“One of the things that we found in our survey is that the mainland market hasn’t stood still. Mainland insurance companies are very innovative as well. So, they are obviously also trying to meet their customers’ needs. So that’s why in our survey, one of the points that we are very keen to get across to our clients when we talk to them about planning their China strategy is that they cannot take mainland Chinese consumers for granted. They are not the same as they were pre-pandemic,” he said.
“The competitive landscape has changed. They also know products better. They also have the technology and the knowledge to compare products better because everyone can do it on their smartphone now. That’s why Hong Kong, if it wants to recapture this large market demand, should think very closely about what is really driving the demand for consumers to buy insurance from Hong Kong.”
Oliver Wyman’s survey found that from an engagement perspective, mainland Chinese buyers’ purchasing behaviours and preferences have also changed. Compared to pre-COVID-19, 56% do more research by themselves when purchasing insurance policies. While insurance agents and brokers remain the preferred distribution channels, only 30% of the respondents surveyed rely on recommendations from their agent or relationship manager when shopping for insurance. Instead, they view brand and product differentiation as more important factors for selecting an insurer.
Mainland Chinese buyers are also increasingly seeking seamless ways to manage their policies post-sales. Compared to pre-COVID-19, 58% demonstrated a greater preference toward obtaining policy information via online channels. More than half also said they would prefer not to travel to Hong Kong for policy servicing should there be alternative options in the future.
Changing demands
One of the findings Swiss Re uncovered was that some of the factors that used to be important are not as important anymore, such as brand name or brand loyalty. This, he said, is partly because consumers are savvier about insurance and are able to compare across brands more easily.
“One of the things that consumers say have become much more important over the past couple of years is the product fit for their needs. And sometimes that would include add-ons such as cover for family. Some consumers will come to Hong Kong not just to buy insurance for themselves, but for their kids,” he said.
While the GBA has a higher income relative to the rest of mainland China, the weaker Chinese economy and elevated unemployment rate means that the competition and value for money is also more important than before.
“Our call to action is not to take returning customers for granted. Don’t assume that they’re the same customers as three years ago. The market in China and consumers preferences have changed and that means, in terms of product design, the insurance product specifically is more important. Insurers must also remember the other parts of the user experience, including ease of purchase, claims and cross-currency payments. These are things that Hong Kong insurers may need to also think about and incorporate into their strategy,” said Mr Zhu. A 
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