Insurance shopping can be complex, and the Insurance Authority (IA) in Hong Kong is taking a significant step to help consumers make more informed decisions about participating policies. Starting July 1, 2025, new illustration rate caps will be implemented to address growing concerns about potentially misleading sales practices in the insurance market.
The core issue stems from intense competition among insurers that has led to increasingly aggressive benefit illustrations. Some insurers have been using exceptionally high expected returns in their policy presentations without adequately explaining the risks and volatility associated with non-guaranteed components. This practice can create unrealistic expectations, showing potential customers overly optimistic financial projections that may not reflect real-world outcomes.
Under the new guidelines, insurers will be restricted in how they present potential policy returns. For Hong Kong dollar-denominated policies, the illustration rate cap will be 6%, while non-Hong Kong dollar policies will have a slightly higher cap of 6.5%. It’s crucial to understand that these caps apply only to the illustration rates shown at the point of sale – they do not limit the actual returns insurers can ultimately provide.
This nuance is important. The illustration rate caps are designed to prevent misleading marketing practices, not to restrict an insurer’s ability to generate returns. Participating policies will continue to have non-guaranteed components that can fluctuate based on various factors, including investment performance, claims experience, and operational expenses.
The IA’s motivation is clear: to ensure customers receive transparent, realistic information when considering a participating policy. By implementing these caps, the authority aims to promote fairer sales practices and help consumers make more informed decisions. The initiative aligns with the principle of “treating customers fairly” by reducing the potential gap between illustrated and actual policy returns.
Prospective policyholders should remain aware that participating policies inherently carry risks. The non-guaranteed components mean actual returns can vary significantly from initial illustrations. The IA encourages consumers to carefully review risk warnings and utilize available resources, including thematic webpages about participating policies and fulfilment ratios.
The insurance industry has reportedly responded positively to these new guidelines. Insurers are preparing for compliance by updating their systems and providing additional training to sales teams. This suggests a collaborative approach to improving market transparency and consumer protection.
It’s worth noting that these regulations do not diminish the potential value of participating policies. Insurers can still innovate, optimize asset allocation, and compete effectively. The focus is on ensuring that competition happens on a more transparent playing field, with clearer communication about potential policy performance.
For consumers, the key takeaway is to remain vigilant and informed. While the new illustration rate caps provide an additional layer of protection, they should not replace individual due diligence. Carefully reading policy documents, understanding risk factors, and asking detailed questions remain essential steps in selecting the right insurance product.
The IA’s initiative represents a balanced approach to market regulation – protecting consumer interests while maintaining the fundamental dynamics of insurance product innovation. As the implementation date approaches, consumers can look forward to more transparent and reliable policy illustrations.
