Even though the outlook for the online insurance business in Hong Kong remains unclear, some people have hopes riding high on future cross-border collaboration in the sector.

"I still find it hard to work out," said Andy Ng, Greater China insurance leader at Ernst & Young.

Mainland customers are big buyers in the city's insurance market.

According to the Office of the Commissioner of Insurance (OCI), mainlanders contributed HK$16.9 billion ($2.2 billion) of new life insurance sales in the first three quarters of 2014, accounting for 20.3 percent of the total individual insurance business in Hong Kong during the period.

That compares with 16 percent last year, 13 percent in 2012, 9 percent in 2011 and just 4 percent in 2010.

But insurance sits in a regulatory gray area in the marketplace as current rules ban Hong Kong agents from selling and promoting policies on the mainland while mainland customers can buy policies when they travel here, said Terrence Wong, director of insurance at Fitch Ratings. Since mainland customers are required to sign the policy in person, Wong does not see much room for cross-border collaboration through the Internet.

"It is no secret that many mainland customers buy insurance policies in Hong Kong with the purpose of investment immigration or spreading their domestic wealth," said Ng. "So you can hardly expect regulators to welcome the concept of cross-border cooperation."

Even if part of the insurance business on the mainland is allowed to be hived off, mainland reinsurance companies rather than Hong Kong-based insurers will be given the priority to obtain it, added Ng.

The concept of cross-border collaboration revolves not only around online insurance business but also around the thriving Internet finance sector.

Alvis Ma, researcher at Hong Kong-based Asia Financial Risk Think Tank, believes the nearly 400 financial companies in Qianhai economic zone can create more opportunities for Hong Kong-based peer-to-peer lending firms.

However, uncertainties including difference in regulations and currencies still loom over cross-border Internet finance cooperation, said Simon Loong - founder and CEO of WeLab, parent company of the city's first home-grown peer-to-peer player WeLend - who does not think the prospects look good.

Even setting aside the discussion about cross-border collaboration in the sector, the concept of Internet finance itself stands as a big challenge.

"As you are unable to deal with customers face-to-face, you have to overcome every single risk including fraud risk, legal risk and credit risk," Loong said. "That's why Internet finance demands huge investment of resources and know-how."

But the hard fact is Internet finance companies are "not well-versed" in risk management as many of their staff are from technical backgrounds, said Loong.

"Without in-depth understanding of how finance works, one can hardly expect to make a difference in Internet finance," noted Loong.

But Andy Chen, founding council member of Asia Financial Risk Think Tank, believes it is technology companies rather than traditional financial firms that will become the movers and shakers in the era of Internet finance.

The essence of traditional finance lies in the establishment of capital pools, which can buffer a set of risks such as those related to liquidity and maturity mismatch, a type of imbalance in assets and liabilities on a company's balance sheet, said Chen.

However, the initiatives of many financial firms that have aggressively shifted their business model toward Internet finance do not venture too far from the traditional format of building up capital pools, noted Chen.

"Internet sensations like Alibaba and Tencent, which are eager to get rid of the concept of capital pools, do have the power to disrupt the industry," said Chen.

What they rely on to manage the potential risks is big data, which is widely believed to prop up the on-going revolution in the industry, added Ma at Asia Financial Risk.

sophia@chinadailyhk.com