Chinese government limits purchasing of insurance outside of China

Posted on Mar 15, 2016 by Rob McBroom

According to the World Bank, the Gross Domestic Product (GDP) of China grew by 7.7% in 2013. This is a strong indicator of the strength of the economy in the country. While the GDP in China is among the highest in the world, the growth in the economy has been slowing over the past few years, with GDP predicted to be 6.5% by 2018.

You can bet that the recent slowdown in the Chinese economy has been directly related to the current economic troubles being seen in various countries around the world. In China, this includes the somewhat volatile stock market, which in late 2015 and early 2016 has seen numerous periods of consecutive losses and suspensions of trading.

This uncertainty has resulted in an increasing capital outflow out of the country. For example, the Financial Times reported that in January 2016, Chinese nationals sent over USD 110 billion out of the country; the 22nd month in a row with a net capital outflow from the country. There are a number of popular ways people are investing their money outside of the country, and one of the most popular is the purchase of insurance from Hong Kong or other nearby countries.

Finance experts predict that this outflow is expected to increase in the coming months and, when you combine this with the volatile stock market, you can bet the economy will be hurt even further. Obviously, this is not a good thing for China, so the government has been implementing emergency measures that are aimed largely at stemming monetary outflow. These measures have had an impact on almost every industry, including the insurance industry. Especially in relation to people looking to purchase insurance outside of China. Here, we take a look at this impact, what it means for those considering purchasing insurance, and recent actions taken by the government that you should be aware of.

Buying insurance outside of China...

Over the past half decade or more there has been an upswing in the percentage of people from China purchasing insurance outside of China, usually in markets like Hong Kong and Singapore. For instance, a report in the SCMP found that in 2013 mainland Chinese business accounted for around 13% (HKD 15 billion) of all insurance policies sold in Hong Kong during that year. The Office of the Commissioner of Insurance in Hong Kong estimated that this figure increased to 22% in the first three-quarters of 2015 (around HKD 21 billion).

While the majority of the premiums sold to Chinese in Hong Kong are life insurance policies, Pacific Prime has noticed an increase in the number of health insurance policies sold to mainland Chinese citizens in Hong Kong. According to our experts, there are three main reasons as to why mainland Chinese are buying insurance outside of China:

Cities like Hong Kong and Singapore offer much better servicing of their insurance products. This has led to stronger brand recognition than mainland counterparts, which is often seen to mean that these products are more trustworthy.
Insurance policies, more particularly life insurance policies, often offer higher rates of return. This is primarily due to the fact that the life expectancy in Hong Kong is higher than in China, and the fact that Hong Kong policies are issued in Hong Kong Dollars, which are pegged to the US Dollar. This makes these policies appear to be a better investment.
Local health insurance plans are, for the most part, cheaper in Hong Kong than their counterparts in China. This makes the plans more desirable for many, especially those who travel on a regular basis.

Beware of recent regulations

The Chinese government is well aware of the fact that people like to leave China to purchase insurance, and has recently implemented a number of measures that are aimed at reducing this.

The first came into effect in early February and set limits on how much one can spend on insurance outside of China. According to Asia Insurance Review, "The State Administration of Foreign Exchange enforced a cap of USD 5,000 per transaction on the purchases of insurance products overseas [outside of China] using UnionPay cards."

The second measure was enacted by the People’s Bank of China, on March 12, 2016, and bans the use of electronic payment services to purchase life insurance and investment-related products. However, According to an article on Yahoo! "Individuals can still use those payment systems for personal accidents, medical and transportation insurances, with a transaction and policy cap of 30,000 yuan (US$4,600), the notices showed."

To clarify: If you are planning to purchase insurance outside of China using a UnionPay card issued in China, you will be subject to a transaction limit. If you try to use your UnionPay card through an electronic payment service, this will not be allowed.

What are your options?

While this may seem like a drastic measure, this is by no means an end-of-days scenario. If you do decide to go to Hong Kong or Singapore to purchase insurance, just be aware that you will be limited to USD 5,000 per transaction, but not in total. You will need to do multiple transactions if your premium is over that amount, or pay with a card not on the UnionPay network.

That being said, there are actually a number of options available within China that are proving to be solid investments. For example, international health insurance plans sold in China offer almost exactly the same level of coverage as those sold outside of China, at premiums similar to or even a bit cheaper than in other locations around China.

There are also an increasing number of life insurance solutions that appear to have solid returns. Our recommendation would be to talk with the experts at Pacific Prime China, as we will be able to help advise on a sound insurance solution that is within the regulations.