A premium paid by the agent, a surrender of existing cover and a misleading social media post
Mr Lam is a licensed technical representative of an insurance agency. He is HK$18,000 short of his quarterly target. A client, Mr Ho, has agreed to buy a savings policy with an annual premium of HK$60,000 but says he cannot pay until next month. Mr Lam pays the first premium from his own bank account and tells Mr Ho to repay him 'whenever'. At the same time, Mr Lam advises Mr Ho's wife to surrender her existing whole life policy, which has a surrender value of HK$210,000 and a death benefit of HK$1,000,000, saying 'the old policy is a waste of money; the new one is much better'. He does not complete a replacement of life insurance policy form and does not mention that the new policy will have almost no surrender value for the first three years. He also posts an Instagram story describing the product as 'capital guaranteed with 6% annual return'.
1. Assess Mr Lam's conduct in relation to the premium payment and the replacement.
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Premium payment. Paying the premium from his own account is an inducement to buy and is prohibited. It creates a conflict of interest, disguises the client's true ability to pay, and raises anti-money-laundering concerns because the source of funds is a third party. Mr Ho may believe he has cover when the premium has not come from him, and the arrangement can later be characterised as a rebate. The agent should never lend or pay premiums to close a sale.
Replacement. Advising Mrs Ho to surrender a policy with a HK$1,000,000 death benefit and a HK$210,000 surrender value to fund a new savings policy is a replacement. The agent must complete the replacement declaration, disclose the disadvantages to the client, compare the old and new policies, and give the client the information needed to make an informed decision. Telling her the old policy is 'a waste of money' without analysis is misleading, and failing to mention the new policy's low early surrender value is a material omission. The transaction looks like twisting: the client loses existing cover and pays early charges in order to generate new commission. The suitability of the switch is highly doubtful.
2. Explain the regulatory consequences that may follow.
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The Insurance Authority can investigate the conduct and take disciplinary action against Mr Lam and, where relevant, the agency. Possible outcomes include a warning, a pecuniary penalty, suspension or revocation of the licence, and a requirement to take remedial action. The agency is likely to terminate his appointment and review his other cases. The insurer can decline the business or cancel the policy, and the client may have a right to cancel within the cooling-off period or to complain.
Offering an inducement and making false statements about a product can also amount to a breach of the conduct requirements and, depending on the facts, to a criminal offence. The misleading Instagram post is advertising: it must be fair, clear and not misleading, and it should have been approved under the agency's procedures. 'Capital guaranteed with 6% annual return' is false for a savings product with no guarantee. The post should be removed immediately and the agency's compliance function informed. Mr Ho's wife may have a civil claim, and the replacement may be reversed or compensated through the complaints process.
3. What should Mr Lam have done differently?
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He should have let Mr Ho pay the premium himself. If Mr Ho needed time, the agent could have arranged a later commencement date, a different premium mode or a smaller policy, but not funded it. He should have documented the source of funds.
For Mrs Ho, he should have completed a proper replacement analysis, compared the death benefit, cash value, surrender value, charges, guarantees and insurability of the old and new policies, and explained the disadvantages of surrendering. If the old policy was suitable, he should have recommended keeping it and possibly adding a separate savings plan. He should not have criticised the old policy without evidence. He should have disclosed his remuneration and any conflict.
For marketing, he should have used only approved material, avoided guarantees and return claims, and made clear that investment returns are not guaranteed. He should have kept records of the advice and the client's decisions. If he was short of a target, the answer is not to buy business or churn policies.