Special Report – Hengqin waiting for Macau insurers

Macau Business | November 2022 | Special Report | Macau’s insurance industry

While, in the banking sector, “as requested by the MSAR Government,” the number of pilot banks for free trade accounts in the Guangdong Free Trade Zone approved by the Central Government’s financial supervisory authorities has been increased to four, AMCM pointed out, in the insurance sector, the same Monetary Authority “has been striving for the Greater Bay Area insurance service centre to be set up in the Guangdong-Macau In-depth Cooperation Zone (ICZ) and coordinating with the insurance sector to prepare for the implementation of the ‘unilateral recognition’ of cross-boundary motor insurance for Macau’s motor vehicles entering Guangdong province” [see text on these pages about cross-boundary motor insurance].

The main problem is essentially legal.

As Professor Henry Lei explains to Macau Business, “as the new laws and regulations governing the insurance operations in the ICZ have not yet been released, the extent of liberalisation in the opening up process is far from clear, local insurance companies are hesitating to set up their service centres in the ICZ.”

Currently, insurance companies from Macau are allowed to provide insurance related services in ICZ for Mainland customers with packages which do not involve foreign investment, “which are not the core products/services offered by the local insurance companies,” the Associate Head of Department of Finance and Business Economics, Faculty of Business Administration, University of Macau, adds.

“Consequently, the value-added of opening service centres in ICZ is limited, which can partially explain the hesitations of the insurance companies, Professor Lei sums up. “All in all, this is not exactly the confidence factor, but the local insurance companies are waiting for the renewed laws and regulations, expecting improved business potential from the liberalisation and opening, allowing them to engage in investment-related services providing to Mainland customers from the ICZ and other regions of the country.”

To the questions raised by Professor Lei, her colleague at the School of Business Administration, Susan Ren adds others to Macau Business: “In my view, Hengqin needs at least three conditions to gain a niche in this business. 1) licensing of foreign insurers to sell products in Hengqin, 2) high quality professionals, including insurance agents, actuaries in insurance design and pricing, and fund managers to manage asset portfolios, and 3) sound regulations in fund transfer and anti-money laundering.”

The Associate Professor in Finance says she is “especially worried” about the first point. “Hong Kong insurance is attractive mostly because of its global asset allocation (and associated better asset return and cheaper insurance premium). Allowing foreign insurers to recruit capital on the mainland and invest globally would incur problems such as capital control and quota issue. I am not sure whether Macau alone can push it forward.”

“The creation of the GBA Insurance Service Center in Hengqin will be very difficult to implement” – António Félix Pontes

António Felix Pontes, former director of the Macau Institute of Financial Services, also expresses many doubts about which form this GBA insurance service centre will take and whether it will be successful.

“The option to incorporate an entity with a head office in Hengqin, in which the Macau authorised insurance companies are the shareholders, or even the Macao Insurers Association (MIA), will not be easy to materialize,” he began to explain.

“Firstly, because the potential interested insurance companies are limited to the life insurance business as they sell, in Macau, their insurance products to Mainlanders, but they have already, or will have, their own service centres (in Macau or elsewhere). So why are they interested in joining with the competitors to have a common service center?,” asks Mr Pontes, currently one of the founding partners of the new FnA Financial and Insurance Consulting Limited (the other is Leonel Alves).

“On the other hand, the non-life insurance companies are not allowed to grant insurance cover to property located in China, unless they have a partnership with a Chinese insurance company, in which the latter acts as the primary insurance company issuing the insurance policy and afterwards reinsures the total risks to a Macau insurance company (‘fronting reinsurance’),” adds Mr Pontes. “Finally, a formal structure requires a capital of a certain dimension to be funded by the interested companies, or the Macau Insurers’ Association (MIA).”

According to this former Executive Director and Insurance Commissioner’ of AMCM, “two critical issues emerge for this alternative: the share of each insurance company in the capital due to the very disproportional dimension of them in the Macau insurance market and the lack of financial resources of MIA. In all honesty, I don’t believe this is possible! If the option is an informal structure, its functioning will involve very high costs and the above mentioned issues will arise again… unless the governments will financially sponsor the project!”

“Therefore, the creation of the GBA Insurance Service Center in Hengqin will be very difficult to implement,” concludes  António Félix Pontes.

“Meanwhile,  AMCM will continue to solicit policy support to lower the market access criteria of Macau’s insurance institutions establishing insurance companies in Mainland cities, explore the applicability of cross-boundary insurance service facilitation policies in the ICZ and the feasibility of setting up an insurance service centre for Macau’s insurance sector in the ICZ,” the Monetary Authority states in its latest Annual Report.

Cross-boundary motor vehicle

“To implement the Outline Development Plan for the Guangdong-Hong Kong-Macau Greater Bay Area and to promote the integration of insurance services in the GBA, the AMCM continued to liaise with the CBIRC Guangdong Bureau and Macau’s insurance industry to jointly study on “unilateral recognition” of Guangdong-Macau cross-boundary motor vehicle insurance for Macau’s motor vehicles entering Guangdong, striving to support the implementation of relevant policies,” AMCM indicates.

Could the implementation of the “unilateral recognition” of cross-boundary motor insurance for Macau’s motor vehicles entering Guangdong province be the first step in the GBA?

“This is probably one of the issues that has to be resolved in the processing of the integration, especially when the government has removed the quotas to encourage more Macau vehicles to enter into the ICZ,” answers Professor Henry Lei.

“It is expected that the short-term solution of cross-border motor insurance is to have insurance companies, and very likely those with operations in the Mainland, to provide one-stop service to the customers to launch packages covering both ICZ/GD and Macau,” Mr Lei adds.

“In practice, this is not hard to implement but the solution may not be ‘mutual recognition’ but a ‘two-in-one’ package with essentially two sub-contacts and different terms. The differences in the legal systems are not easy to resolve, and in the short-term, the solution is likely to be the introduction of an “extra-term” or “special arrangement” (such as the tax preference provided to Macau residents working in ICZ) implemented in ICZ to smoothen the legal gap between ICZ and Macau.

“Is complicated”

“Connecting the mainland, Hong Kong and Macau social insurance systems is complicated because of the difference among the systems. It is difficult to construct the Guangdong-Hong Kong-Macau Greater Bay Area because it is built within the scope of one country, two systems, and three currencies, which has resulted in various systems in Hong Kong, Macau and Guangdong incompatible,” state two Shenzhen-based scholars.

Bing Hu and Dan Yao, Jinan University, consider that “that the social insurance in Shenzhen, Hong Kong and Macau cannot achieve cross-border connectivity is the most typical representative of this. This leads to the issues of discrimination in treatment, restrictions in usage, and restrictions in transition mentioned above.”

“From the perspective of management, there are some specific difficulties in dealing with the transition of social insurance between Shenzhen, Hong Kong and Macau: The first one is institutional differences. The three regions have different political systems and different social insurance systems, leading to great differences in management, which makes it difficult to renew social insurance in Shenzhen, Hong Kong and Macau. Secondly, the levels of economic development are inconsistent, and many problems need to be solved. For example, how to adjust the different payment rates and social insurance bases in Shenzhen, Hong Kong and Macau? How to solve the problem of receiving social insurance benefits in different places? Can both the funds of social pooling accounts and personal accounts be “portable”? How to connect? Finally, how to achieve fairness in different places is a question worth studying.

(from Issues and Solutions Concerning Social Insurance in Shenzhen for Hong Kong and Macau Residents—from the Perspective of Talent Flow in Guangdong-Hong Kong-Macau Greater Bay Area, 2019)

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