New Hong Kong Insurance Authority regulator to bring stability and protection

Replacing the Office of the Commissioner of Insurance (OCI), the Hong Kong government’s new insurance regulator, the Insurance Authority (IA), has begun its work on 26 June. Established in December 2015, the IA has begun its phased transitional takeover of the regulatory functions the OCI previously administered, as well as the expanded scope the government has set out for it.

The changes mean some big things for the insurance industry and Pacific Prime Hong Kong has a quick rundown for how it might affect us brokers and our clients.

The look of the new Insurance Authority

The new insurance regulator was established under the Insurance Companies (Amendment) Ordinance 2015 to be a government-authorized, yet independent, authority in the insurance sector. The IA has a number of tasks set ahead of it, with its main objectives being:

• To modernize the insurance industry regulatory infrastructure to facilitate the stable development of the industry;
• To provide better protection for policyholders; and
• To comply with International Association of Insurance Supervisors requirements regarding financial and operational independence from the government and industry.

Heading the Insurance Authority is new CEO Mr John Leung Chi-yan, previously the Commissioner of Insurance. Seconded to the IA from the government, Leung’s current term is for one year and ends on 25 June 2018. This short term appointment is also a transitional move, and one the government expects will ensure smooth sailing for the new regulator until a more suitable candidate is able to fill the CEO post.

Joining Mr Leung will be the following Executive Director appointments:

• Ms Carol Hui Mei-ying, Long Term Business
• Mr Simon Lam Sui-kong, General Business
• Mr Stephen Po Wai-kwong, Market Conduct
• Mr Raymond Tam Wai-man, Policy and Development

The appointees come with a wealth of financial regulatory and managerial experience, and were selected through an open recruitment process by panels chaired by the Chairman of the IA, Dr Moses Cheng. Their terms are for three years.

The road ahead for the insurance industry

So how does this change the insurance industry? Initially, we won’t see many immediate changes. The point of the transitional period is to embed the new insurance regulator into the Hong Kong industry and then embark on its ambitious platform for change. For brokers and their clients, there is one significant change earmarked for the future that will have an impact once it’s implemented.

One of the government mandated roles of the Insurance Authority will be to take over the direct regulation of insurance intermediaries from the three current self-regulatory organizations; the Hong Kong Federation of Insurers’ Agents Registration Board (ARB), the Confederation of Insurance Brokers (CIB), and the Professional Insurance Brokers Association (PIBA). This includes introducing a statutory licensing regime to further protect policyholders.

Obviously, the concern is that insurance brokers and agents will be subject to more regulatory burden; increased filing and security enhancements, increased administration, and increased compliance costs. As the IA is required to be financially independent, it could be that the costs to support the work of the regulator might come from licensing fees charged to insurers and intermediaries.

Benefits for insurance consumers

As part of its consultation paper on a proposed Policyholders’ Protection Fund (PPF) the Insurance Authority stated it followed these principles:

• The proposed PPF should strike a reasonable balance in enhancing protection for policyholders and minimizing additional burden to the insurance industry;
• The proposed PPF should enhance market stability while minimizing the risk of moral hazard;
• The proposed PPF should provide certainty on the level of compensation payment to policyholders when an insurer becomes insolvent, and a reliable system should be put in place to facilitate the collection, custody, investment, and administration of levy contributions to the PPF; and
• The establishment of the PPF should not in any way compromise the regulatory standards and requirements laid down by the IA under the Insurance Companies Ordinance (ICO).

The PPF has been proposed to better protect consumer interests, as well as maintain stability in the event of insurer insolvency, and enhance confidence and competitiveness in the industry. Existing Hong Kong schemes, such as work-related injuries/employees’ compensation schemes and the Motor Insurers’ Bureau of Hong Kong’s (MIB) Insolvency Fund Scheme, provide some context as to how the Insurance Authority may implement the PPF.

A lot of these policy directives come as part of a regional concern regarding the integrity of insurance in both China and around Asia. Our mainland partner, Pacific Prime China, reported on a number of regulation changes that occurred last year, motivated in part by the Chinese government’s desire to better protect people from risky short-term life insurance plans.

By comparison, it looks like the Hong Kong government has similar goals in mind with their Insurance Authority changes. How these changes will play out remains a wait-and-see game.

Are there any impacts on Pacific Prime and it’s clients?

The new insurance regulator is a challenge and an opportunity for insurance brokers. Regulations installed by the new body are destined for change, yet their independent-of-the-government nature provides an opportunity to be involved in what the desired state for insurance in Hong Kong might be. Pacific Prime is hopeful that the direction of the Insurance Authority is one that can indeed offer consumers better protection without unduly burdening insurance players in the process.

How are Pacific Prime clients affected by the 26 June transfer date? At this stage, not at all. The wheel of bureaucracy will take its time to turn and fall into a steady rhythm, so until then Pacific Prime Hong Kong continues to be your first-choice advisor in all things insurance. Whether we’re finding you an insurance policy, providing analysis on your business needs, or discussing the current change for HK’s insurance regulator, we’re your experts.

For more information or a free quote, contact the team of advisors at Pacific Prime Hong Kong today!

The press release for the commencement of the Insurance Authority on 26 June is available here.