A stitch in time
Everyone knows about the success of HSBC's call centre in Swatar but perhaps less attention is paid to other outsourcing by the group. Perhaps it is the numbers... The call centre employs hundreds while the other sections being brought over to Malta...
Everyone knows about the success of HSBC's call centre in Swatar but perhaps less attention is paid to other outsourcing by the group. Perhaps it is the numbers... The call centre employs hundreds while the other sections being brought over to Malta employ just a handful.
However, the head of insurance at HSBC, Richard Jones, believes that these represent a significant breakthrough into much more high value-added work.
For example, having successfully brought insurance-related back office work from Dublin 18 months ago, HSBC is now looking at taking over more captive and investment middle-office work from around the group, such as customer support and accounting.
"HSBC Insurance Management manages captive insurance, a market which is really beginning to take off," he said.
"We recently set up a scheme for a big French insurer who compared all the captive jurisdictions in Europe and chose Malta, ahead of Dublin and Luxembourg.
"They like Malta because it is the most attractive captive destination due to a combination of factors like excellent staff, who are dedicated and technically skillful. In economic terms, relative to places like the UK, it is still very cost-effective. It is very good for middle-office value-added work. This will enable Malta to play a central role in European finance."
Mr Jones thinks that this role will grow as passporting (cross-border activity) takes off. Indeed, he does not see passporting as a threat to local financial institutions who might lose custom to overseas competitors, but rather as an opportunity to extend Maltese products into new markets.
"I don't think that you should just passport products in from overseas because there is a raft of legislation here that is unique to Malta. You may have an annuities product which works in the UK because it may have a tax incentive, which will therefore not work as well here.
"The reality is that passporting is as yet much more feasible in theory than it is in practice because every market still has its own variations. But we think that Malta is actually a very good place from which to passport to Europe," he said.
There are problems, however. One of those is the lack of pension legislation. If you don't have a pension law, how do you attract overseas pension funds? Can you have pension legislation for the offshore market if it does not apply to the onshore market?
"Captive insurance legislation was a great example of someone having a vision, getting the global experts to come in and put legislation in place that reflects best practice. It has taken a while to build up but it is now happening.
"It would be good to get the same vision for pensions as for captives. What Finance Malta can do is look at the whole equation and stress that while this might not be felt to be appropriate locally at this particular point in time you have to look at the broader implications," he said.
The government has put the second (occupational) and third (private) pillars of pension reform on hold but in the meantime financial institutions are pushing ahead with products for retirement. The crucial difference between a retirement product and a pension is that the latter has fiscal incentives to encourage people to forego spending and to save now for their future.
"The question is one of liquidity. Do I put a sum into a scheme that allows me to withdraw it next week or do I commit it in the longer term? The tax incentive compensates for the lack of liquidity. But it does not mean that you cannot save if there are no pension schemes..."
Indeed, pensions are only part of the savings equation.
"Asset managers would tell you that 70-80 per cent of money invested in mutual funds probably is there for retirement," he said.
What happens if people do not save enough to boost their retirement income? The implications for governments, particularly those in welfare-sensitive countries in Europe, are well documented. The burden will fall increasingly on state shoulders as the dependency ratio narrows, with taxes from fewer working people supporting more retired people, who are living longer.
The fourth report of a research programme Mr Jones had been involved with at Oxford University, out in May, will again look at the impact of global aging.
"It will look at the impact on society of an aging population and what it means to move from a population pyramid (where the frequency in the age groups shows a rise in the centre but tapers off at the extremes) to parellel lines (where you have more or less equal numbers of people in each age category).
"The key is the dependency ratio. Traditionally pension schemes were worked out on a ratio of between three to five working people who pay taxes to sustain each retiree.
"Another factor is that people are living longer and the next generation may inherit when they are 20 or 25 years older than they would have been post-war. And the fact that the older generation is living longer also means that they will have spent more of the inheritance...
"It is really profound shift with so many aspects... from health care to demand for housing. It is dangerous to make predictions but at least the report provides a framework," he said.
The financial services industry is also aware of the implications for its clients.
"In Malta, the traditional approach was for people to expect to be looked after by the government and by their family in retirement. But people will need to be more independent now.
"The Oxford University report I worked on two years ago was titled 'Help me help myself'. The emphasis was that you could not expect the government or employers to be able to shoulder the entire burden but that people needed to put savings away every month."
There is another way to save for the future, albeit your family's future rather than your own: life insurance. This is another area where Mr Jones wants to raise awareness.
He starts off with a confession: He only took out a policy at the age of 40, when he realised his wife and four children would be left high and dry if anything happened to him. This makes him empathetic to others who put off financial planning.
"Why did I wait so long? Because you do. You don't think about these things when you are younger and don't have the responsibility of a family and dependents.
"If you break down financial planning into sections then there is a lifecycle as you progress from being a student to working, to buying a car or a home, and then you begin to invest for your retirement. I don't know if a 20-year-old should take out a pension fund because it depends on their financial situation. If they are running up huge credit cards bills and paying high interest shouldn't they focus on repaying the debt?
"But you need to think about the future once you have moved beyond the need to borrow. Part of our job is to get people to start to think about these issues.
"Life insurance is a gift to your family. It is not something that you buy for yourself. It is there to protect your family if something were to happen to you."
There is considerable scope in the market. Mr Jones believes that not enough people are insured and that those who are, are underinsured.
"The penetration level is lower than in many other Western countries, for males but especially for females. People have a good level of understanding about tying insurance into their financial planning, like loans. But I am not sure if the mentality is the same as in the UK, whether the understanding extends beyond loan security. The challenge is to make them question whether there is a value to taking more insurance. I would argue that there is."
Because clients' circumstances vary so much, HSBC would love to have the chance to bring more of their standard products here, customised to meet local requirements. The problem is one of scale. An insurance product works by spreading individual risk across the collective clientele - but once the size of the collective community gets too small, then the formula simply does not work efficiently. This is why, for example, insurers cannot offer incentives for categories like non-smokers.
One thing, though is clear: It pays to think early, whether the issue is insurance or retirement.
"The earlier you do so, the better and the cheaper it is. You do need to get into the habit of saving and this is much easier to do if it is a regular deduction from your salary than if you have to go to the bank to make a deposit now and then. The effect of compounding is quite significant," he concluded.
However, the head of insurance at HSBC, Richard Jones, believes that these represent a significant breakthrough into much more high value-added work.
For example, having successfully brought insurance-related back office work from Dublin 18 months ago, HSBC is now looking at taking over more captive and investment middle-office work from around the group, such as customer support and accounting.
"HSBC Insurance Management manages captive insurance, a market which is really beginning to take off," he said.
"We recently set up a scheme for a big French insurer who compared all the captive jurisdictions in Europe and chose Malta, ahead of Dublin and Luxembourg.
"They like Malta because it is the most attractive captive destination due to a combination of factors like excellent staff, who are dedicated and technically skillful. In economic terms, relative to places like the UK, it is still very cost-effective. It is very good for middle-office value-added work. This will enable Malta to play a central role in European finance."
Mr Jones thinks that this role will grow as passporting (cross-border activity) takes off. Indeed, he does not see passporting as a threat to local financial institutions who might lose custom to overseas competitors, but rather as an opportunity to extend Maltese products into new markets.
"I don't think that you should just passport products in from overseas because there is a raft of legislation here that is unique to Malta. You may have an annuities product which works in the UK because it may have a tax incentive, which will therefore not work as well here.
"The reality is that passporting is as yet much more feasible in theory than it is in practice because every market still has its own variations. But we think that Malta is actually a very good place from which to passport to Europe," he said.
There are problems, however. One of those is the lack of pension legislation. If you don't have a pension law, how do you attract overseas pension funds? Can you have pension legislation for the offshore market if it does not apply to the onshore market?
"Captive insurance legislation was a great example of someone having a vision, getting the global experts to come in and put legislation in place that reflects best practice. It has taken a while to build up but it is now happening.
"It would be good to get the same vision for pensions as for captives. What Finance Malta can do is look at the whole equation and stress that while this might not be felt to be appropriate locally at this particular point in time you have to look at the broader implications," he said.
The government has put the second (occupational) and third (private) pillars of pension reform on hold but in the meantime financial institutions are pushing ahead with products for retirement. The crucial difference between a retirement product and a pension is that the latter has fiscal incentives to encourage people to forego spending and to save now for their future.
"The question is one of liquidity. Do I put a sum into a scheme that allows me to withdraw it next week or do I commit it in the longer term? The tax incentive compensates for the lack of liquidity. But it does not mean that you cannot save if there are no pension schemes..."
Indeed, pensions are only part of the savings equation.
"Asset managers would tell you that 70-80 per cent of money invested in mutual funds probably is there for retirement," he said.
What happens if people do not save enough to boost their retirement income? The implications for governments, particularly those in welfare-sensitive countries in Europe, are well documented. The burden will fall increasingly on state shoulders as the dependency ratio narrows, with taxes from fewer working people supporting more retired people, who are living longer.
The fourth report of a research programme Mr Jones had been involved with at Oxford University, out in May, will again look at the impact of global aging.
"It will look at the impact on society of an aging population and what it means to move from a population pyramid (where the frequency in the age groups shows a rise in the centre but tapers off at the extremes) to parellel lines (where you have more or less equal numbers of people in each age category).
"The key is the dependency ratio. Traditionally pension schemes were worked out on a ratio of between three to five working people who pay taxes to sustain each retiree.
"Another factor is that people are living longer and the next generation may inherit when they are 20 or 25 years older than they would have been post-war. And the fact that the older generation is living longer also means that they will have spent more of the inheritance...
"It is really profound shift with so many aspects... from health care to demand for housing. It is dangerous to make predictions but at least the report provides a framework," he said.
The financial services industry is also aware of the implications for its clients.
"In Malta, the traditional approach was for people to expect to be looked after by the government and by their family in retirement. But people will need to be more independent now.
"The Oxford University report I worked on two years ago was titled 'Help me help myself'. The emphasis was that you could not expect the government or employers to be able to shoulder the entire burden but that people needed to put savings away every month."
There is another way to save for the future, albeit your family's future rather than your own: life insurance. This is another area where Mr Jones wants to raise awareness.
He starts off with a confession: He only took out a policy at the age of 40, when he realised his wife and four children would be left high and dry if anything happened to him. This makes him empathetic to others who put off financial planning.
"Why did I wait so long? Because you do. You don't think about these things when you are younger and don't have the responsibility of a family and dependents.
"If you break down financial planning into sections then there is a lifecycle as you progress from being a student to working, to buying a car or a home, and then you begin to invest for your retirement. I don't know if a 20-year-old should take out a pension fund because it depends on their financial situation. If they are running up huge credit cards bills and paying high interest shouldn't they focus on repaying the debt?
"But you need to think about the future once you have moved beyond the need to borrow. Part of our job is to get people to start to think about these issues.
"Life insurance is a gift to your family. It is not something that you buy for yourself. It is there to protect your family if something were to happen to you."
There is considerable scope in the market. Mr Jones believes that not enough people are insured and that those who are, are underinsured.
"The penetration level is lower than in many other Western countries, for males but especially for females. People have a good level of understanding about tying insurance into their financial planning, like loans. But I am not sure if the mentality is the same as in the UK, whether the understanding extends beyond loan security. The challenge is to make them question whether there is a value to taking more insurance. I would argue that there is."
Because clients' circumstances vary so much, HSBC would love to have the chance to bring more of their standard products here, customised to meet local requirements. The problem is one of scale. An insurance product works by spreading individual risk across the collective clientele - but once the size of the collective community gets too small, then the formula simply does not work efficiently. This is why, for example, insurers cannot offer incentives for categories like non-smokers.
One thing, though is clear: It pays to think early, whether the issue is insurance or retirement.
"The earlier you do so, the better and the cheaper it is. You do need to get into the habit of saving and this is much easier to do if it is a regular deduction from your salary than if you have to go to the bank to make a deposit now and then. The effect of compounding is quite significant," he concluded.