Hong Kong's financial regulators have introduced a number of measures since 2013 to enhance the disclosure, product design and sale of ILAS products to protect you throughout the sales process.
- All ILAS must comply with the enhanced disclosure requirements for ILAS Product Key Facts Statement (Product KFS) in order to be marketed to the Hong Kong public. The requirements include disclosures on statements of purpose, total fees and charges, long-term features and the remuneration of sales intermediaries.
- An Important Facts Statement (IFS) must be provided by the intermediary to clients who apply for an ILAS policy or apply for top-up premium. Through the IFS, the intermediary can:
- confirm (Note) the client's reasons/considerations for procuring an ILAS as set out in the "Statement of Purpose" paragraph of the IFS for assessing whether a particular ILAS product is suitable for the client; and
- disclose and explain to the client some important facts of the ILAS product to increase the client's awareness of these facts such as the long-term nature of ILAS policies, fees and charges, early termination penalties etc and disclose the remuneration receivable by the intermediary in selling this product.
For the remuneration disclosure in the IFS, all intermediaries (including insurance agents, brokers and banks) selling ILAS are required to provide a standardised statement to disclose the remuneration receivable by the intermediary using “all-year-average” methodology (ie all remuneration receivable by the intermediary directly attributable to the sale of the ILAS policy as a percentage of the total premiums payable over the entire premium payment period).
- The SFC introduced the Guidance on Internal Product Approval Process applicable to providers of various products including ILAS. The guidance explains the requirements for a robust internal product approval process for product providers, covers the entire chain from inception of the product to post-sale, and reminds product providers their duty to consider investors' interests as part of the product-design process.
- The Insurance Authority (IA) issued the Guideline on Underwriting Class C Business which sets out proper standard of conduct and business practices for authorised issuers underwriting ILAS business, including duty of the board and the controller, product design, clarity of information, suitability, advice, disclosures, post-sale control etc.
- With effect from 1 January 2015, insurance companies should provide a minimum death benefit of 105% of the account value for all ILAS products, and ensure that fees and charges paid by the customers should be fair and commensurate with the insurance protection offered by the ILAS product concerned.
- ILAS issuers ie insurance companies are required to conduct an audio-recorded post-sale call for all ILAS buyers if the sales process is not conducted at the insurance company's office and not recorded. In the case of banks selling the products, no post-sale call by the insurance companies is required because the sales process is audio-recorded. The purpose is to confirm that the buyers understand the important product features after the product sale.
Generally speaking, intermediaries selling ILAS, whether they are banks, insurance agents or brokers, should, among other things, have sufficient understanding of the products' nature and structure, conduct financial needs analysis and risk profile assessment for client to ensure product suitability for the client, and explain product risks and features to clients.
Note: Before recommending any ILAS product to the client, banks and other insurance intermediaries are required to (i) request the client to set out his/her reasons/considerations for procuring an ILAS product in the “Statement of purpose” paragraph in the IFS; and (ii) take due account of the reasons/considerations set out by the client, together with other relevant information, in assessing whether or not the ILAS product is suitable for the client.