As revealed by International Adviser yesterday, a guidance note distributed by the Office of the Commissioner of Insurance has said paying the upfront commission, sometimes referred to as “clawback”, to intermediaries selling ILAS, will be banned from 1 January 2015.
In addition to the indemnity commission ban and setting out firm rules on how ILAS products should be sold to consumers, the guidance note also stipulates that from 1 January next year, insurers will have to provide a minimum death benefit of 105% of the account value on each policy. This is an increase from the current 101% requirement.
Logical step
Mark Rawson, chief executive of The Henley Group, which was recently acquired by UK headquartered St James’s Place, said the guidance note itself was not a surprise at this time, “given the OCI has been engaged with the life insurers in Hong Kong for some time”.
He added: “[The ban on indemnity commission] is a logical step on from commission disclosure (introduced in June last year) and a move towards product and remuneration structures that are more explicit in their charges and in turn ones that are better linked to clients’ future changing needs.”
Rawson warned however that there may be some advisory firms which will be less able to adapt and that “despite ‘warnings’ of change to this industry over many years, the reality is most have made no changes to their business models".
“They have no reserves, no ability to pay overheads other than through commissions in, no infrastructure to help develop their business etc the majority of firms have simply stuck to ‘old models’ and will now struggle to adapt,” said Rawson.
Underpinning the changes, including the “headline grabbing” indemnity ban, is a drive by the OCI to focus those selling ILAS products on the needs of clients and to try to prevent their mis-sale.
Melanie Nutbeam, a senior associate at HFS Asset Management (click here to read an IA profile of HFS) and an International Adviser panel member alongside Rawson, said through the guidance the OCI is “attempting to bolster the survival of ILAS products”.
She does however, welcome the changes. “The industry [in Hong Kong] has been transaction rather than relationship focused.
“I was pleased to see the Commission’s guidelines actually push some onus back onto companies to ensure they inculcate appropriate corporate culture – that is not focused on driving high commissions all the time.”
Nutbeam added that some firms have already anticipated they will need to find services they can offer that provide real value to clients at fair cost, but that those which have “focused on fast sales and little follow-up servicing, or setting and forgetting portfolios, will exit the industry as easy money with little accountability will become a thing of the past”.
A possible side-effect, said Nutbeam, could be to shift the gender representation in the industry.
“[There could be] more women as they are often more inclined to work on a relationship basis – building strong steady relationships where providing fair value is a key motivator,” she added.
Look out for further analysis of these latest changes on International Adviser over the coming days… In the meantime, tell us what you think using the comment box below or get in touch with me via twitter at @SimonDanaher1
