The future of financial planning in Hong Kong, in a new era of regulation for insurance companies and advisers, will be based on clear segmentation, said Mr Ben Worthington, Head of Zurich Life Insurance in Hong Kong in an article on Hubbis, "Staying relevant in Hong Kong's life industry".
For insurance companies such as Zurich, recent far-reaching regulatory reforms (e.g. GN15, GN 16) are leading to changes in terms of how it conducts its interactions with customers and distribution of insurance products going forward. “For everyone, in fact, staying in business now relies on building a sustainable business which focuses on the client value proposition – not maintaining a sales-oriented, transactional culture,” said Mr Worthington.
Tiering customer needs
More time and energy needs to be spent firstly identifying and then designing products the different needs, income brackets and affordability levels of each type of customer.This then makes it possible to know when an individual is ready for a certain type of pure protection, protection with savings, pure savings, or pure investment, he said. This will then determine the level of involvement required by a financial planner, broker, agent or other practitioner.
For example, where customers’ needs are relatively simple, there is little advice needed, in cases he refers to as “basic necessity insurance”.
The majority of customer complaints in the past have been due to a lack of understanding of how the products work, explained Mr Worthington, with customers focusing on short-term gains from “bonus” allocations rather than the longer-term benefit of regular saving, making the most of diversified investments in ever-changing markets.
He gave an example where a broker’s approach today might be to sell a scheme where the insurer takes the investment risk and delivers a 3-4% conservative return to the customer. This may not fit higher customer segments, as they have the appetite to take on market risk and exposure without doing the required research, and need to have a conversation with a broker, agent or financial adviser.
For High Net Worth (HNW) clients, Mr Worthington sees demand for both insurance and investment products as succession planning continues to be an important aspect of the HNW financial plan – which has typically been met in the form of Universal Life (UL) policies. However, the potential risks of such policies needs understanding, given that they have essentially been used as single-premium vehicles with a guaranteed return.
A more relevant offering
There is the need to identify customer segments to be able to then build relevant solutions.
“Whereas previously products were created and sold, technological advancements now allow product providers to engage with customers and potential customers, enabling an understanding of needs, with products designed to meet specific needs,” Mr Worthington explained. Once people understand the product, and there is a platform for them to purchase, more and more of them will do so directly when they feel they no longer need professional advice.
This will stem from better communication in the first place, which will lead to greater results from the digital connectivity that Zurich is driving. Hong Kong, he points out, has a higher tendency within Asia to transact and purchase online. Mr Worthington thus believes digital marketing holds the key to creating the real potential for growth, along with the education of customers to give them a greater propensity to buy.
Change in approach
At the same time, individuals working within the various insurance distribution channels in Hong Kong need to evolve the way they approach customers. Needs-based conversations are the way forward.For many local IFAs, reinventing their value proposition to survive in Hong Kong’s new, advice-driven environment comes back to the need to be more customer centric.
This means a mind-set shift. They need to take the time to do proper research into their customers to first understand their needs. At the same time, they must gain the required knowledge about the variety of products available.
Wider recognition of the fact that financial planning is a career – and one which can be very rewarding and lucrative – would help. “It shouldn’t be viewed as get-rich-quick option,” said Mr Worthington.
It should also be the responsibility of product providers to influence the market in this way. Whether banks or insurance companies, they should be giving basic salaries and basing remuneration on behaviour as opposed to pure financial metrics.
As always, the key ingredient is financial planning education from a young age on what the industry is. If people can view their role first and foremost as providing a service, then they will be more likely to be able to earn a good income for delivering this over the longer term, Mr Worthington said.
“We need people to be life-long financial advisers, not just seeing it as a stepping stone to something else,” he explains. Yet the customer education must happen in tandem.
“Ultimately, there is no point changing the behaviour of the sales force if the behaviour of the customer is still motivated by short term investment gains, and the belief that there should be double-digit returns without paying any fees or taking any risk,” he adds.