Hong Kong bans upfront commision

Hong Kong banned the payment of indemnity commission on life insurance policies from the start of 2015.

Indemnity commission are high upfront commission paid during the first few years, and are considered as advanced payment of commission for premiums paid in subsequent years. The regulators banned indemnity commission as it has led to the mis-selling of life insurance policies by agents who were motivated by the high commission.

The background and reason for this ban are explained in this article. After the ban came into force, the sale of ILAS (investment linked life assurance) had dropped by 50% since the start of this year.

Singapore has the same practice of paying high upfront commission on the sale of investment-linked and traditional life insurance policies. However, the regulators still allow high commission or indemnity commissions to be paid on these policies. The incidence of mis-selling is just as bad in Singapore.