Historical Development 歷史發展

Development from Traditional Life Insurance 由傳統壽險到投資相連產品

Life insurance began about 400 years ago to meet a need for financial security. Term life and ordinary whole life are the two traditional forms and have accounted for most of the world’s individual life insurance market; changing customer needs later encouraged developments such as universal life, variable life and variable universal life.

Universal life is permanent life insurance offering flexibility in premium amounts and payment frequency, adjustable death benefits, and transparency of administrative expenses and the cost of insurance. The policyholder has no freedom to choose a preferred investment portfolio: flexibility in paying premiums and freedom to select investments are separate features.

Variable life is also permanent life insurance, but the policyholder can choose from a range of investment options and bears the investment risk. Investment earnings increase the cash value of the relevant account, so both investment choice and responsibility for risk matter when identifying the product.

Variable universal life combines universal life’s flexibility in premiums and death benefits with variable life’s investment choice and risk. Regional names associated with this development include variable universal life in the US, unit-linked in the UK and investment-linked in Asia.

The UK: Distribution and Product Development 英國：銷售安排與產品發展

Unit-linked policies first appeared in the UK in 1957. In 1958, unit trusts became subject to rules allowing sales only through intermediaries or newspaper advertisements, with very modest commissions; the difficulty of sustaining regular unit sales encouraged managers to offer regular savings through life policies whose premiums would effectively be invested in unit trusts.

The customer entered a life insurance contract rather than holding the unit trust directly. Life insurance regulation allowed salespeople to sell directly to the public for higher commissions, encouraging unit trust companies to write policies or work with life insurers, while insurers developed their own products. Major UK banks subsequently established life insurance subsidiaries concentrating on unit-linked products; Association of British Insurers data recorded 5.2 million investment and savings policies in force in 2019.

Single-premium business also emerged during this development. Early UK unit trusts could not invest in property because of its illiquidity, while single-premium life insurance faced no such restriction, making it the only route for investing a lump sum in property units. Insurers’ internal managed, or balanced, funds could also mix fixed interest securities, equities, property and cash without fixing exact proportions at the outset; unit trusts then could not offer these managed funds.

Growth was supported by favourable economic conditions and product performance, consumer appeal, aggressive marketing, limited regulation of sales methods, tax relief on premiums, and advances in information technology that made administration feasible. These are factors in the UK’s historical development and should not be treated as Hong Kong product benefits or sales rules.

The US: Launch Dates and Market Changes 美國：推出時間與市場變化

Universal life and variable life were first introduced in the US in the mid-1970s, with both achieving modest initial success. After successful marketing in the UK, Canada and the Netherlands, variable life reached the US as a product seen as helping to offset inflation’s effect on the purchasing power of death benefits; variable universal life followed in 1986.

US life insurance premiums grew steadily from 1995 to 2005. Following the Global Financial Crisis of 2007–2008, sales fell significantly in 2008 and 2009, possibly because consumers had less purchasing power and premium finance was withdrawn from institutional buyers; individual life insurance sales began recovering gradually from 2010.

LIMRA’s figures for the fourth quarter of 2022 showed new-premium shares of 32% for fixed universal life and indexed universal life combined, 38% for whole life, 19% for term life and 11% for variable universal life. The 32% covers two product types together, and all these percentages use that quarter’s new premiums as their basis.

Hong Kong: Introduction, Growth and Statistical Measures 香港：引入、普及及統計口徑

Hong Kong developed investment-linked long term insurance later than overseas markets, first introducing it in the late 1980s. Its growing popularity reflected demand for higher policy returns and increasing familiarity with investment funds, especially following the introduction of the Mandatory Provident Fund Scheme in 2000; demand for higher returns does not amount to a guarantee of policy returns.

Insurance Authority figures at the end of 2021 showed office premiums of HK$55,035 million for investment-linked individual life in-force business, representing 11.8% of total individual life in-force office premiums; the number of relevant policies rose by 1.9% over the previous year. The 11.8% measures a premium share, while the 1.9% measures annual growth in policy numbers.

For 2021, investment-linked individual life new business recorded office premiums of HK$30,663 million, representing 20.1% of individual life new business office premiums. In-force business covers policies still in effect, while new business concerns business added during the period; comparisons require attention to the year, business category and whether the measure concerns premiums or policy numbers.