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13 May 2014
On April 25 2014 the Insurance Companies (Amendment) Bill 2014, which proposes the establishment of the Independent Insurance Authority (IIA) in 2015, was published in the Official Gazette. The bill was introduced on April 30 2014. Passage of the bill will bring Hong Kong into line with other countries such as the United Kingdom, Singapore and Australia, which have already established similar insurance regulators that are financially and operationally independent of the government.
At present, insurance intermediaries in Hong Kong operate under a self-regulatory system administered by three self-regulatory organisations.(1) The industry is regulated by the Office of the Commissioner of Insurance, which is a government department empowered under the Insurance Companies Ordinance (Cap 41) to oversee the financial conditions and operations of the entire insurance industry in Hong Kong.
Although the government first proposed the establishment of the IIA in 2003, the proposal was shelved in face of strong opposition from the insurance industry. It was not raised again until eight years later (in 2011), when both the government and the insurance industry saw the urgent need for reform, especially in view of the increasing number of complaints about intermediaries and their involvement in investment-linked insurance policies.
By setting up the IIA, the bill proposes a statutory licensing regime for insurance intermediaries to replace the existing self-regulatory system. The objectives are to:
The bill makes several key proposals. The salient points are summarised below.
The IIA will have approximately 240 staff and an annual budget of HK$200 million. It will be a body corporate that is financially and operationally independent of the government, comprising a chairperson, chief executive officer and no less than six directors appointed by the Hong Kong chief executive. At least two directors will be required to have knowledge of or experience in the insurance industry. The majority of the directors will be non-executive directors, so as to ensure the effective running of the IIA and the objectivity of all executive decisions.
Licensing of insurance intermediaries
Under the new regime, insurance intermediaries will be required to hold a licence granted to them by the IIA before they can carry on with their business. The IIA will issue five types of intermediary licence, which will mirror the existing five categories of registration under the present self-regulatory system.
To ensure a smooth transition, all pre-existing insurance intermediaries that have validly registered under the present system before the establishment of the IIA will be deemed licensees for three years after commencement of the new statutory regime.
It has been proposed that primary legislation, subsidiary legislation and non-statutory codes and guidelines will set out conduct requirements for insurance intermediaries to ensure that they act professionally and in good faith.
At least one responsible officer will be appointed by a licensed insurance agency or broker company to ensure that conduct requirements are complied with. IIA approval will be needed to appoint a responsible officer to ensure that he or she is fit and proper for the position.
IIA regulatory powers
The IIA will be empowered to conduct inspections and investigations and to impose disciplinary penalties such as fines and suspension of intermediary licences. The IIA will publish guidelines on fines as required by the statute. Any person aggrieved by the IIA's disciplinary decisions may appeal to the Insurance Appeals Tribunal, which will be chaired by a person qualified to be appointed as a High Court judge. The tribunal may confirm, vary or set aside any such decisions of the IIA.
Regulations over IIA operations
The bill stipulates that certain powers, such as the power to make subsidiary legislation, are not delegable. The Independent Commission Against Corruption will have the power to examine all of the IIA's practices and procedures. The IIA's budget and corporate plan will need the approval of the financial secretary. In addition to this oversight, the director of audit may conduct value for money assessments on the IIA.
Financing the IIA
The IIA will be financed by a levy of 0.1% on insurance premiums for all insurance policies. An incremental approach will be adopted in order to reach the target level on the first five years after the IIA's establishment. The levy will also be subject to a cap of HK$100 per life insurance policy and HK$5,000 per non-life insurance policy.
The IIA's other source of income will be licence fees payable by insurers and insurance intermediaries and user fees for providing specific services. The IIA will waive licence fees for insurance intermediaries for the first five years. Thereafter, the IIA will charge a licence fee of HK$410 for an insurance agent or agency and around HK$7,000 for an insurance broker company.
The proposed establishment of the IIA is a milestone in Hong Kong's insurance industry. By bringing Hong Kong closer to the international standard, the new IIA should have adequate powers and financial resources to regulate the 80,000 insurance salespeople in the industry effectively and offer better protection to policyholders.
The checks and balances over the operation of the IIA ensure that the authority will be accountable and that its decisions will be objective. Given that the IIA has the power to conduct inspections and investigations and to impose disciplinary penalties, insurance intermediaries should comply with conduct requirements, so as to maintain their professionalism and the reputation of the insurance industry in Hong Kong as a whole.
For further information on this topic please contact Kevin Bowers at Howse Williams Bowers by telephone (+852 2803 3648), fax (+852 2803 3608) or email (firstname.lastname@example.org). The Howse Williams Bowers website can be accessed at www.hwbhk.com.
(1) The Insurance Agents Registration Board, the Hong Kong Confederation of Insurance Brokers and the Professional Insurance Brokers Association.
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