(Yicai) July 8 -- Digital banks backed by internet companies based in China's mainland are making inroads into Hong Kong’s growing insurance market, prompting new partnerships and a rethinking of virtual-only business models.

Several of these digital banks have recently entered the special administrative region’s insurance sector -- targeting both mainland and local residents -- in an effort to diversify revenue sources amid slowing user growth.

For instance, in March, PAO Bank, an online-only bank backed by Shenzhen-based conglomerate Ping An Insurance Group, obtained an insurance agency license and partnered with Ping An Insurance Hong Kong and digital-first insurer FWD Hong Kong to distribute insurance products.

Similarly, Ant Bank, an affiliate of mobile wallet giant Ant Group, began working with YF Life Insurance International late last year to offer insurance services through its AlipayHK mini-program.

According to the Hong Kong Monetary Authority, half of the region's eight licensed digital banks -- including ZA Bank and Livi Bank -- now offer insurance products. In the race for market share, players have launched promotions to attract customers. For example, Ant Bank offered first-year premium discounts, while PAO Bank introduced a savings plan featuring a guaranteed annual return of 4.7 percent over eight years.

Part of Hong Kong’s insurance boom stems from offshore demand. Last year, new premiums from mainland residents purchasing insurance in Hong Kong reached HKD62.8 billion (USD8 billion), up 6 percent from 2023, according to the Insurance Authority. A recent drop in dividend-paying life insurance interest rates also spurred renewed demand.

However, digital banks may need to consider offline services to scale their insurance offerings. A local insurance expert told Yicai that digital banks face significant challenges in distributing complex insurance products, such as savings or investment-linked policies, which typically require in-depth consultation. Whether current digital platforms are equipped to provide such services remains uncertain.

Moreover, key processes -- like underwriting and claims -- often depend on offline support, such as physical exams or vehicle inspections. A fully online model risks service disruption and could negatively impact the customer experience, the expert added.

One digital bank executive noted that Hong Kong’s insurance industry still relies heavily on offline agents, while digital channels primarily serve to generate traffic. For mainland customers, contract signing still requires traveling to Hong Kong.

In her view, digital banks are not yet the main distribution channel for insurance in the territory. Most marketing content on platforms like RedNote is created by individual agents and is not affiliated with the banks’ official channels. The insurance sector in Hong Kong remains constrained by its traditional regulatory environment and service delivery models, the executive concluded.

Editor: Emmi Laine