The China Insurance Regulatory Commission (CIRC) reiterated on Friday that insurance companies registered in Hong Kong or Macao special administrative regions are not allowed to sell policies on the mainland unless they have a mainland branch. 

The industry watchdog pledged penalties or even criminal charges on agents who sell policies to local residents on the mainland for insurance firms based in HKSAR and MSAR.

Prohibiting such policy sales is "necessary in maintaining order in the mainland insurance market and protecting the interest of mainland policyholders," a CIRC spokesperson said.

But the commission stressed that it is legal for mainland residents to buy insurance policies when they are traveling in the special administrative regions.

In the past few years, many insurance agents were found selling policies for Hong Kong and Macao-based insurance companies in neighboring mainland regions, especially prosperous Guangdong Province.

The CIRC said there are no official statistics on such sales, but some media reports put the figure at more than 10 billion Hong Kong dollars (US$1.3 billion).

Regulators from the mainland and the two special administrative regions joined hands last year in cracking down on such illegal practices, but recent media reports said many agents have not stopped doing so.

Many residents in Guangdong, who travel frequently to Hong Kong and Macao, have found policies sold by the two special administrative regions' insurers more appealing than those by their mainland competitors largely due to lower premium rates and better services, analysts said.

And the small size of the markets in Hong Kong and Macao has also been pushing insurance agents to look for new clients in Guangdong Province.

"It is totally driven by market forces," said a manager at a Hong Kong-based insurance company.

But it's not necessarily a better choice for mainland residents to buy policies from Hong Kong and Macao, the CIRC said.

While the two special administrative regions' insurance policies typically offer higher interest rates, they charge higher management fees, and the yield on policies sold by mainland insurers, most of which are new products with the potential of sharing the insurers' investment returns, is not necessarily less attractive, the CIRC spokesperson said.

Being outside Hong Kong and Macao will make it difficult for policyholders to report claims and receive pay-outs, and the verification of policies remains a problem, he said.

More importantly, in the event of legal disputes, holders of such illegally sold policies will have to bring the case to a court in the two special administrative regions as their purchases of the policies are not protected by mainland laws, the spokesperson said.

(China Daily March 20, 2004)