Insurance industry in Hong Kong to reach USD 120.98 billion by 2025

The Insurance Industry Market size was valued at USD 73.75 billion in 2019 and is estimated to reach USD 80.09 billion by the year 2020.

It is expected to grow at the CAGR of 8.6% within the time horizon of 2020-2025. It will reach USD 120.98 billion by the year 2025.

Definition / Scope
Market Overview
Market Risks
Top Market Opportunities
Market Trends
Industry Challenges
Technology Trends
Pricing Trends
Regulatory Trends
Market Size and Forecast
Market Outlook
Technology Roadmap
Competitive Landscape
Key Market Players
Strategic Conclusion
References
Appendix

Definition / Scope

Insurance is the contract between insured person and insurance company as a means of protection from the financial loss and a form of risk management.

Basically, the insurance company provides the insurance policy to the interested customers to bear their financial losses through the investment of the pre-paid premium form the insured persons.

Insurance schemes can be classified into long-term business such as life and annuity and general business such as accident and sickness.

In the context of Hong Kong, there are 162 authorized insurers in which 92 are pure general insurers, 50 are pure long-term insurers and the remaining 20 insurers are composite ones.

The life and health insurers sell the life and health insurance products, annuities, mutual funds, pension plans, and other related financial products.

Property and casualty insurers sell the property and casualty insurance lines, which includes marine, surety and fidelity bonds and other coverages.

On the basis of the type of business, distribution pattern and premium payment system, the insurance industry can be categorized into the following segments:

Market Overview

The Insurance industry in Hong Kong accounts for almost 1.27% of total world premium volume holding the seventeen position globally in terms of it.

More specifically, in terms of the life insurance premium, Hong Kong holds the market share of 2.16% and for non-life insurance premiums; it holds the market share of about 0.21% of the total world market for premium volume.

The expenditure of the residents for insurance per capita premium is the highest worldwide and the gross premium of this industry accounts for 18.2% of GDP of this country. The insurance industry is an important element of diversified financial businesses in Hong Kong.

The market size of the insurance industry in Hong Kong is valued at USD 73.75 billion in 2019, increased from USD 38.25 billion in 2013. It is expected to grow at the CAGR of 8.6% within the forecasted time period of 2020-2025. It is estimated to reach USD 120.98 billion by the year 2025.

On the basis of the type of business, the non-linked individual life and annuity segment is leading the market with 83% of the total insurance industry of Hong Kong. Banks hold the largest market share in terms of the distribution channel of insurance schemes with the market share of about 39.8% of total market size.

About 99% of the total insurance premium is paid at regular intervals. The key market players engaged in the insurance industry are Prudential Life, AIA International, China life, HSBC life, AXA General Insurance Hong Kong Limited, Bupa Limited, and China Taiping Insurance.

Market Risks

Fraud insurance claims

The fraud cases of the claims in the insurance industry are in increasing trend as the fraud cases are difficult to detect. Within a year, the false and inflated insurance claims are increased by 130%. It has been estimated that out of every USD 100 paid out in claims, about USD 10 to USD 15 would be of the certain elements of fraud.

For instance, a fake death certificate was developed and the policyholder had pretended to be dead to deceive the compensation of USD 639,000. However, the insurance company caught the fraudulent death claim and the person was sentenced to 25-month imprisonment for this claim.

Although Hong Kong has developed the Insurance Fraud Prevention Claims Database to prevent fraud cases, it might create risks for the growth of the insurance industry.

Top Market Opportunities

Belt and Road Initiative

The Belt and Road Initiative is the plan made by the Government of the People’s Republic of China to build infrastructure for transportation from china to other Asian, European and African Countries.

The Hong Kong Insurance Authority has initiated the new platform named Belt and Road Insurance Exchange Facilitation platform with a view to helping the Hong Kong and other international Insurance companies to provide the professional services for the large-scale infrastructure projects and promote networking.

It is providing a significant opportunity for the growth of the insurance industry in the context of Hong Kong.

Digitalization in the insurance sector

Over the time period of 3-5 years, it is estimated that almost 82% of the financial institutions are planning to have Fintech participation with the start-up companies.

Along with this, the Hong Kong FinTech Survey has found that more than 47% of the participants will adopt the automation process over the next year.

Increasing the use of digital technologies is widening the opportunities to develop more efficient and flexible insurance platforms, which will ultimately favor the significant development in the insurance companies and their market value.

Market Trends

Increasing aging population

In the context of Hong Kong, the resident population is estimated to reach 8.22 million by the year 2043 at a peak of 7.34 million. Along with this, it is also projected that the proportion of the elderly population will be doubled by the year 2050 and will reach 32% from 16% in 2015.

It is expected to constitute one-third of Hong Kong’s population. As the elderly populations are more prone to chronic illnesses, it will increase the rate of life and health insurance as well as retirement-focused saving plans. It will significantly drive the growth of this industry.

Rising consumer penetration in health insurance

In the context of Hong Kong, the proportion of the population being enrolled and covered in the individual health insurance has been increased from 20% to 34% within a period of a decade. Health insurance penetration has been increased by almost 78%.

The market premium from health insurance has also been increased by almost three-times and reached USD 1.33 billion. Increasing enrollment in health insurance is driving the growth of the overall insurance industry in Hong Kong.

Changes in the industry structure

The financial institutions engaged in the insurance industry are in declining trends because of the mergers. For instance, the total number of insurance firms has been declined from 169 to 162 in the year 2019.

Along with this, the existing one is also selling a wide range of financial products outside their core business area i.e. insurance schemes. This form of consolidations and convergence might restrain the growth and development of the insurance industry in the context of Hong Kong.

Industry Challenges

Increased claims from auto insurance, vandalism and business loss

Within the time period of three years, the severity of the bodily injury is increased by 15.3%, property damage is by 17.2, personal injury protection is by 10%, and collision by 12.4.

The frequency of the bodily injury has also been increased by 3.4%, property damage by 2.9%, personal injury protection by 8.6%, and collision by 4.4%.

Along with this, the insurance claims from vandalism and loss of business had reached USD 76.5 million and were the third highest in Hong Kong’s history. So, it is quite challenging for the insurance company to deal with the increasing cases of claims from property loss and auto insurance.

Technology Trends

In the sector of the insurance industry, the advancing technology is driving the favorable environment for the development of this industry. Technological changes such as AI, machine learning, advanced analytics etc are driving the market growth.

Insurers are using digital technology and making the investment in the InsurTech to develop less time consuming standard business processes. Some of the key technological trends are discussed as follows:

Block chain: Proactive approaches to this technology are initiated to develop distributed ledger technology to improve the efficiency of the financial sector in Hong Kong.
InsurTech: The financial institutions are offering online facilities for self-services and invested in the InsurTech models to increase efficiency.
Digital ID and Know your Customer utility: Through the use of this technology, customer identity can be easily verified. It supports the insurance claims by the insured person.
Robo-advice or chatbots: The customers can interact in their natural language processing with the robots for virtual advice, which is more comfortable for them.
Medical advances: It helps to minimize the health risks for the customers as the insurer can give customers more control over their own healthcare.

Pricing Trends

The premium amount of the insurance products depends upon the type of insurance, concerned insurance company’s policy, and insured item.

On average, the cost of the individual private health insurance is USD 6,432 per annum while the premium of the family-based health insurance is USD 18,494 per annum. and is the 2^nd most expensive one globally.

The premium amount for life insurance depends upon the age of insured one, their health condition and the trend of risky behavior.

For instance, the premium cost of 10-year term insurance for the age of 35 years individual is about USD 3,153 per annum while it costs about USD 22,760 per annum for 60 years old individual.

The total gross and net premium of insurance in Hong Kong is increased by 10% and 5% respectively.

Regulatory Trends

The office of the Commissioner of Insurance is the leading organization regulating the insurance industry in Hong Kong. It authorizes and monitors the insurance companies in order to comply with the requirements.

Insurance authority is responsible for the regulation of the insurance industry. Some of the regulatory trends related to the insurance industry are as follows:

Guideline on Application for Authorization to carry on Insurance Business: This document consists of the authorization requirements and procedures. According to it, the authorization will be granted to those insurance companies who meet the authorization requirements stated in it.

Insurance determination of long-term liabilities rules: It sets out the bases for the determination of the amount required for the long term business liabilities.

Insurance Valuation Rules: It provides the standard and basis for the valuation of the assets and liabilities of an insurer carrying on general business.

Adequate solvency: The insurance companies should maintain the excess of assets over liabilities not less than the required solvency margin, which safeguards against the risks.

Market Size and Forecast

The Insurance industry in Hong Kong accounts for almost 1.27% of total world premium volume holding the seventeen position globally in terms of it.

The expenditure of the residents for insurance per capita premium is the highest worldwide and the gross premium of this industry accounts for 18.2% of GDP of this country.

On the basis of the type of business

The non-linked individual life and annuity segment is leading the market with 83% of the total insurance industry of Hong Kong. Its market is estimated to value at USD 61.21 billion in 2019.
The linked individual life and annuity segment accounts for 7% of the total insurance industry in Hong Kong with its estimated market size of USD 5.16 billion in 2019.
The retirement segment holds a market share of almost 9% of the total insurance industry in Hong Kong. Its market size is valued at USD 6.63 billion in 2019.

On the basis of the distribution channel

The bank segment is dominating the insurance market with a market share of almost 39.8% of the total insurance market. Its market size was valued at USD 29.35 billion.
The insurance agents segment holds the market share of 38.5% of the total insurance industry in Hong Kong with the estimated market size of USD 28.39 billion in 2019.
Insurance brokers account for 20.7% of the total insurance market with market size of USD 15.26 billion in 2019.

On the basis of the premium payment pattern

The regular interval segment is dominating the insurance industry with a market share of 99% of the total insurance industry in Hong Kong. Its market size is valued at USD billion in 2019.
The non-single premium segment accounts for the remaining market share of 1% of the total insurance market size.

Market Outlook

The insurance industry in Hong Kong is expected to grow at the CAGR of 8.6% within the forecasted time period of 2020-2025 because of the rising consumer penetration in the health insurance, increasing aging population and adoption of digital technology. It will reach USD 120.98 billion by the year 2025.

Technology Roadmap

The technological changes such as occurring in this market such as digitalization, machine learning, block chain are driving the industry towards the more efficient system of processing, more satisfaction among customers, and more flexibility for all market stakeholders. or restraining market size.

The wide adoption of automation and data analytics, artificial intelligence and InsurTech are creating the customer-centric insurance system, which will finally develop as a roadmap to move towards the significant growth in the insurance industry in Hong Kong.

Distribution Chain Analysis

The key financial institutions involved in the operation of this insurance market are commercial banks, savings and loan institutions, credit unions, life and health insurers, property and casualty insurers, mutual funds, securities brokers and dealers, private and state pension funds, and government-related financial institutions.

At first, the insurance premium is calculated through the rate-making and then the applicants for the insurance are selected, classified and price out as underwriting process.

The financial institutions engaged in the insurance sales the insurance schemes to the insured persons. Once the claim is made against insurance, the insurers settle and make the prompt payments. In some instances, the insurers might transfer the insurance to another insurer which is called reinsurance.

As the insured person made the premium payment in advance, this amount is needed to invest to pay the claims and expenses.

Competitive Landscape

As life insurance in Hong Kong is considered, Prudential life is leading the insurance industry in Hong Kong with a market share of 17.2% of the total insurance market size.

The other key market players are AIA International, China life, HSBC life, Manulife, BOC LIFE, AXA China, FWD Life, Hang Seng Insurance, Sun life Hong Kong and Others. As non-life insurance is considered, AXA General Insurance is dominating the insurance market with a market share of 8.3%.

The other key market players are Hong Kong limited, Bupa Limited, China Taiping Insurance, and Zurich Insurance

Key Market Players

There are almost 162 authorized insurers in 2019 who increased from 155 insurance companies in 2013. Out of this, there are 50 long term authorized insurers, 91 general authorized insurers and 21 composite insurers.

There are almost 2413 insurance agencies, 78245 licensed individual insurance agents and 25642 licensed technical representatives. There are 819 licensed insurance broker companies. Short profile of some of the key market players are presented as follows:

ACE Insurance Limited: It is the global insurance company that offers accidental, life, property, automobile, homeowners and personal insurance.

AIG United Guaranty Insurance Limited: It is the insurance company with underwriting financial responsibility insurance, which has headquartered in Hong Kong.

Alliance Insurance Services: It is the insurance broker providing a range of insurance and financial services in Hong Kong and other international countries.

Zurich International Life Limited: It offers corporate insurance, individual insurance, and Small and mid-sized businesses insurance.

Wing Lung Insurance company Limited: It underwrites general insurance ranging from commercial to personal insurance products.

Tencent and Hill house capital: It is the first online insurance company in the context of Hong Kong.

Strategic Conclusion

The Insurance Industry in Hong Kong is growing at a rate of 8.6% because of the rising aging population, increasing consumer penetration in health insurance and digital transformation in the insurance sector.

However, changes in market structure and increasing fraud claims of insurance might restrain the growth of its market.

References

Appendix

GDP= Gross Domestic Product
USD= United States Dollar
CAGR= Compound Annual Growth Rate