China has warned mainlanders of risks connected with buying insurance products in Hong Kong, saying that they would not be protected by mainland law if things go awry.
Products denominated in currencies such as the Hong Kong dollar and the US dollar pose currency risks for buyers, the CIRC said in a recent statement. Purchases of overseas life and investment-related insurance products are transactions under the capital account, which is not open under current rules, the regulator said. Investors also face interest rate risk.
Policyholders risk being unable to make timely premium payments if foreign exchange payment policies change, the regulator said. In addition, the insurance policies are covered by Hong Kong’s laws, not China’s.
Litany of negatives
Citing a litany of negatives about buying Hong Kong insurance policies, the statement said that mainlanders have to travel to Hong Kong to buy insurance in the territory. It warned that an insurance policy bought on the mainland from a Hong Kong-based insurer would not be regarded as valid under mainland law nor protected under Hong Kong law. CIRC also said if a dispute was to arise over insurance policies bought in Hong Kong, mainland purchasers would have to travel to the territory to settle their cases. Legal fees are high in Hong Kong, CIRC added.
“Policyholders would not get anything back if they surrendered their Hong Kong insurance policies within two years after the purchase,” CIRC said further. “The Hong Kong Insurance Claims Complaint Bureau can only handle compensation up to HK$1 million (US$128,800).”
CIRC’s warning followed one issued in March by the State Administration of Foreign Exchange which cautioned mainland Chinese that purchases of insurance policies in Hong Kong carry risk because they are transactions under the capital account, which is not fully liberalised.
Stemming outflow of capital from the mainland
Since February, Chinese regulators have moved to curb mainlanders’ purchases of insurance in Hong Kong, to stem the outflow of capital from the mainland.
Mainlanders paid HK$31.6 billion, or 24.2% of the total new premiums of all life policies sold in Hong Kong last year.