By Stella Yifan Xie
For years, popular stops in Hong Kong for mainland Chinese tourists have included the iconic Victoria Peak and its city views, the family-friendly Disneyland -- and the humdrum offices of some of the city's big insurance companies.
Sharp drops in visitor arrivals to Hong Kong in the past few months have dented a lucrative sales channel for large life insurers including AIA Group Ltd. and Prudential PLC, which had a roaring trade selling policies and savings products to mainland Chinese crossing the border into the semiautonomous region.
Months of antigovernment protests and social unrest in the city have led many Chinese tourists to cancel or postpone trips to Hong Kong. Pan-Asian insurer AIA in late October said its new business volumes in Hong Kong -- its biggest market -- fell in double-digit percentage terms in the third quarter from a year ago. It attributed the drop in sales to a decline in business from mainland Chinese visitors, which broadly tracked the overall decline in visitor arrivals to the city in July and August.
Hong Kong's tourism board said the number of mainland Chinese visitors plunged 42% in August, a month marked by an escalation in violent clashes between protesters and police, and was down 35% in September from a year ago, the most recent data available.
The problem isn't going away anytime soon. Since June, anti-Beijing sentiment among Hong Kong's populace has grown as peaceful demonstrations about a now-withdrawn extradition bill have turned into broader calls for democracy and criticism of the Hong Kong's police, its government, and China's Communist Party. Branches of Chinese banks in Hong Kong have been vandalized, and some mainland Chinese civilians have been scorned or even attacked.
As protests escalated into more violent clashes last week, hundreds of mainland Chinese students enrolled at colleges in the city fled across the border into Shenzhen. Early Monday, large fires burned at a university following some of the fiercest conflicts between police and militant pro-democracy activists since mass demonstrations began more than five months ago.
The city's insurers have drawn mainland Chinese visitors with policies and annuity plans that are mostly denominated in U.S. dollars or Hong Kong's local currency -- which is pegged to the greenback. Many of the products have savings or investment-like features that help them appreciate in value over time, and buyers see them as a way to protect their assets from a weakening in China's domestic currency, the yuan.
Wang Xiaorui, a freelance marketer who works in Beijing, came to Hong Kong in late September primarily to purchase a long-term savings plan denominated in U.S. dollars. The 28-year-old said she was greeted by her Prudential insurance agent when she arrived at the airport, and the agent escorted her in a taxi to Prudential's office building in downtown Kowloon to sign the contract.
The plan Ms. Wang bought requires her to pay $10,000 annually for at least five years, according to a term sheet she showed The Wall Street Journal. The funds would be invested in assets globally. After Ms. Wang turns 50, she would be eligible to withdraw a lump sum from the plan, which pays lifetime dividends and provides basic life insurance coverage.
Ms. Wang said she opened a bank account at a Hong Kong branch of China Merchants Bank to pay her first annual premium in U.S. dollars. She skipped all tourist activities because she was worried about her own safety, but spent some time meeting friends during the three-day trip. "I felt like I was walking on eggshells the whole time as a mainlander," Ms. Wang said, describing the atmosphere in Hong Kong as tense.
The business of selling insurance in Hong Kong to mainland tourists has previously drawn scrutiny from Beijing because it was a way for people to move large sums of money out of the country, often by using credit cards, and circumvent its capital controls, which limit personal transfers out of China to $50,000 a year.
After China's sudden devaluation of the yuan in the summer of 2015, sales of insurance products in Hong Kong to mainland Chinese visitors surged in 2016. That year, the country's largest credit-card issuer and network operator, UnionPay, said it would enforce a $5,000 cap on each transaction for customers purchasing savings-like insurance products abroad. It also banned mainland Chinese customers from using its debit and credit cards to buy overseas insurance products other than accident and medical-related policies.
Individuals have found ways to work around the limits. For larger purchases of, say, $10,000, some people use up the $5,000 limit on their Chinese credit cards, then pay the remainder in cash or mobile payments to their insurance agents or brokers. Other individuals open Hong Kong bank accounts to purchase insurance. Some insurance buyers have been known to make yuan payments in cash to their brokers, who help them convert the funds to foreign currencies, the brokers say.
Sales of insurance products in Hong Kong to mainland Chinese visitors peaked at 72.6 billion Hong Kong dollars ($9.3 billion) in 2016, according to data from Hong Kong's Insurance Authority. They fell the following year, but were climbing again before the protests escalated during the summer.
Both AIA and Prudential declined to comment. China UnionPay didn't provide further comment beyond pointing to its original statement released in late 2016.
Some analysts say Hong Kong's insurers operate in a regulatory gray area by selling large volumes of investment products to Chinese visitors. The city's insurers technically aren't supposed to advertise, market or sell their policies on the mainland. To attract visitors and potential customers, some insurers work through independent brokers on the mainland or use social media in China to disseminate educational material about the importance of insurance and savings products, and the relative safety and stability provided by insurers in Hong Kong.
Hong Kong's insurers have also recruited more mainland Chinese graduates as agents in recent years. Some have tapped their personal networks of friends and family members to recruit Chinese visitors to Hong Kong as customers.
Edwin Lam, a part-time insurance broker based in Guangzhou, said since protests began in Hong Kong, three of his four clients in China have canceled or delayed plans to travel to the city. The 29-year-old former investment banker said he tried to entice customers with free tickets to Hong Kong's Disneyland and vouchers for hotel stays, to no avail.
"If they are truly concerned about safety, I have no reason to force them to take risks," said Mr. Lam, who declined to disclose how much he gets paid in commissions for clients who decide to travel to Hong Kong to sign insurance contracts.
Pony Ma, a Beijing-based broker who has directed individual customers to insurance firms including AIA and Prudential, said since July about half of his clients have refused to visit Hong Kong. As a result, he said he recently referred one client who wanted to buy a $50,000 life insurance policy to a broker in Singapore.
Write to Stella Yifan Xie at firstname.lastname@example.org