A police investigation into allegations of fraud by Shanghai’s largest insurance dealer has stirred the insurance market and created jitters over the possible loss of customers’ insurance contracts

August 18, 2013 Leave a comment

08.16.2013 16:26

Probe Launched over Insurance Dealer for Sales Fraud

Shanghai Fanxin Insurance Agency Co. found by insurance regulator to have sold unauthorized fixed-income agreements

By staff reporter Wang Shenlu

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(Beijing) — A police investigation into allegations of fraud by Shanghai’s largest insurance dealer has stirred the insurance market and created jitters over the possible loss of customers’ insurance contracts. The Shanghai branch of the China Insurance Regulatory Commission said on August 15 that insurance sales agent Shanghai Fanxin Insurance Agency Co. was found selling unauthorized fixed-income financial agreements. Shanghai police have launched a formal investigation into the company’s alleged misconduct, said the regulator. Rumors have circulated in the market since August 14 that Chen Yi, general manager of Fanxin has fled to Canada with 500 million yuan. Caixin learned from a source close to the company that Chen is no longer the legal representative of the company and has left the country as the company is facing financial turmoil.Established in 2007, Fanxin began to focus on life insurance products in 2010 after Chen joined the company. The company has experience aggressive expansion and became Shanghai’s largest insurance dealer with clients including Sunshine Insurance Group, Happy Life Insurance Co., Kunlun Health Insurance Co., Taikang Life Insurance Co, AEGON-CNOOC Life Insurance Co. and Sun Life Everbright Life Insurance Co.

In 2011, Fanxin clinched new insurance contracts with premiums totaling 150 million yuan, and in 2012, premiums revenue reached 480 million yuan.

However, Fanxin’s business model has raised fears on the scale of fraudulent activity within the industry. A source close to the company said Fanxin has asked for high commission fees from insurance companies for new contracts signed. A report by Beijing Business Today said commission fees are usually about 100 percent to 150 percent of the first premium payment.

After receiving the high commission fees, Fanxin is alleged to have used the funds for other investments, or offer extra returns to attract new customers. The company is also said to have used the funds to forge new insurance contracts in order to get more money from insurers, according to the source.

“However, the commission fee for follow-up premium payments are much lower than that for the first payment, thus, when there is a decline in clients, Fanxin is unable to pay the premiums (for the forged contracts), and suffers a shortage of capital,” the source said.

Beijing Business Today also cited an unnamed source as saying Fanxin sold insurance contracts with premiums paid by installments to customers but asked for one-time payments, and used the funds for investment.

On March 1, the CIRC fined Fanxin 50,000 yuan when its sales representatives were found to have misled customers.

A manager at an insurance company told Caixin that the company has stopped working with Fanxin about two years ago due to concerns of high commission fee payment.

The investigation into Fanxin has triggered concerns over similar practices adopted by insurance dealers and the potential risks for insurance buyers.

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Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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