Caution 101

It’s already been withdrawn in Hong Kong. But rumour has it, it may be introduced here. A high commission-paying investment-linked assurance scheme (ILAS) product.

Insurers are eyeing the sale of an investment-linked assurance scheme (ILAS) product that charges high upfront commissions in Macau despite the fact the product has already been withdrawn from Hong Kong under tightened ILAS sales procedures. Hong Kong’s insurance authority has banned upfront commission payments on long-term policies.
The ILAS product is what is often dubbed a ‘101 Plan or ‘Harvest 101’, an insurance plan under which the death benefit is 101 per cent of the insurance account value.
An ILAS is one that combines life insurance, investment and estate planning and allows investors to spread small sums of money between different mutual funds.
Citing unidentified insurance industry sources, Hong Kong Chinese language newspaper The Sun reported that some insurance firms – licensed in both Hong Kong and Macau – are partnering with co-brokers from Hong Kong to sell the ‘101 Plan’ in Macau to Mainland Chinese clients.
Business Daily has approached the Monetary Authority of Macau and the Macau Insurers’ Association to verify the reported practice but had not received a reply by the time the story went to press.
The Macau Branch of AIA International Ltd., which is the second largest by market share in the city, told Business Daily that the company does not provide the ‘101 Plan’ to clients.
New rules imposed by the Hong Kong insurance authority, in effect since January 1 this year, stipulates that all ILAS products would provide a minimum death benefit of 105 per cent of the account value.
The new rules put forward by the Hong Kong authority have also banned upfront commission payments on long-term ILAS policies to better safeguard clients’ interests.
‘Indemnity commission, or any standing arrangement that offers advance payment of commission, is strictly prohibited. Insurers should only pay commission on an earned basis,’ say the rules, already in force since the beginning of the year.
‘Commission payable should also be spread over an appropriate duration to encourage good after-sale service and duly reward long-term relationships between intermediaries and policyholders,’ say the rules.
Such ILAS policies pay brokers indemnity commissions of up to 8 per cent of the account’s value immediately upon sale. The insurance firm is able to recoup these costs by imposing minimum payment terms and premium lock-ins on policyholders, Hong Kong’s South China Morning Post reported in August last year.