Hong Kong’s insurance sector is braced for the impact of the COVID pandemic as growth figures are set to be dwarfed those predicted before the virus struck.
It is expected the market, which is valued at HKD552 billion (US$66 billion) will report lower growth in 2020 due to the economic impact of COVID-19 outbreak according to new research by analytics firm GlobalData. Total insurance premiums, which grew by 6.3% in 2019, is expected to grow by 1.46% in 2020 said the firm, with both COVID and the ongoing social unrest having a negative impact on buying confidence.
The Hong Kong insurance industry is dominated by life insurance segment, which accounts for more than 90% share. It is expected to grow by 1.51% in 2020 against the pre-COVID forecast of 6.7%. Non-life insurance segment, which accounts for less than 10% share of the insurance market, is estimated to grow by 1.0% in 2020 against the pre-COVID forecast of 4.4%.
Swarup Kumar Sahoo, Insurance Analyst at GlobalData, explained: “The insurance business is expected to be adversely affected by the prevailing social unrest in the country, as significant part of the demand is based out of mainland China.”
Furthermore, the firm cautioned insurers face the risk of lower return on investments, especially those held in corporate bonds, due to the adverse economic impact by COVID-19. The central bank’s benchmark interest rates declined from 1.65% at the end of March 2020 to 0.5% at the first week of June 2020, indicating pressure on returns.
To mitigate the impact of lockdown on business, insurers are accelerating the shift towards digital channels. Manulife, Hong Kong’s fourth largest life insurer, recently set up virtual sales platform to enable customers to connect with agents online for product queries and transactions. The regulatory authority is also issuing new licenses for digital-only life insurance companies.
Mr Sahoo said: “The over-dependence on life insurance business makes it difficult for insurers as they will have to grapple with lower sales, uncertain returns and rising claims. The resurgence in COVID-19 infection rates and possible re-imposition of lockdown restrictions could further derail recovery prospect of insurance business.”