Insurance Companies (Amendment) Ordinance
After extensive debate, Hong Kong will shortly be bringing into effect laws to move the insurance industry from its current self-regulated basis to that of an independent regulator.
The Insurance Companies Ordinance (Cap. 41) (“ICO”) will now be renamed as the Insurance Ordinance (“IO”). The ICO was introduced was introduced as The Insurance Companies (Amendment) Bill 2014 and it was passed by the Hong Kong Legislative Council on 10th July 2015. It is expected that the ICO will be fully effective in 3 years’ time following conclusion of a three-stage process outlined below.
Other major changes being introduced to the regulation of the insurance industry are as follows:-
Establishment of an independent insurance regulator and its powers
The IO will introduce the Independent Insurance Authority (“IIA”), which will take over the role and functions of the existing Office of the Commissioner of Insurance (“OCI”). However, the IIA will be an independent regulator that will act, unlike the OCI, independently from the Government. The IIA’s funding will come from licence and user fees and the introduction of premium levy (which is at an increasing scale until it reaches the target level of funding six years after the IIA establishment).
In December 2015, the Chief Executive of Hong Kong appointed Dr Moses Cheng Mo-chi as the Chairman of the IIA and seven persons as Non-Executive Directors of the IIA for a term of three years from December 28, 2015, to December 27, 2018. (i)
The IIA will now have powers to conduct its own investigations and inspections into the affairs of insurance companies and also allow for wider and discretionary disciplinary actions as against insurance companies and intermediaries. Similarly, fines for misconduct have increased, with a maximum fine of HK$10 million in place. The IIA’s scope of powers in respect of regulated activities are wide and include pre-sale inducement and post-sale administration activities, meaning that service companies not currently subject to licensing could potentially be required to apply for licences.
Licensing regime changes
Currently, insurance intermediaries are required to joint one of two self-regulating bodies; the Hong Kong Confederation of Insurance Brokers or the Professional Insurance Brokers Association. Insurance agents are required to be registered with the Insurance Agents Registration Board, set up by the Hong Kong Federation of Insurers.
Under the new statutory regime, all insurance intermediaries must be licensed by the IIA. The IIA will directly supervise all insurance intermediaries. There will now be a consistent set of standards as opposed to different standards set by different self-regulators.
There will be a 2-year transition period for pre-existing licensees of current self-regulated organizations, given that there are a lot of insurance brokers and insurance agents based in Hong Kong.
The timetable is as follows:-
Stage 1 – establishment of the provisional Insurance Authority to co-exist with the OCI. This provisional authority will not have any regulatory functions.
Stage 2 – IIA will take over the provisional Insurance Authority’s roles and functions
Stage 3 – commencement of the licensing regime for insurance intermediaries to replace the self-regulatory regime.
The IO will impose heightened standards for insurance intermediaries to follow in their dealings with the public. There will be a framework as regards to conduct relating to treating customers fairly, honestly, with integrity and competency. There will be requirements imposed as to the extent of disclosure required, assessment of suitability for products as well as mechanisms to deal with conflicts of interest and ensuring that licensed bodies are always acting in the best interests of policyholders.
There will also be a requirement to appoint at least on Responsible Officer, who will be in charge of internal compliance. There must also be a key person in charge of control of insurance intermediaries, such as smaller brokers and agencies.
The ICO’s introduction and the changes it brings to the insurance industry in Hong Kong is part of an active and ongoing effort to continuously enhance Hong Kong’s state as a leading and reputable financial services market in the region.
This will also bring Hong Kong in 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. This further ensures that the professionalism and reputation of the insurance industry in Hong Kong remains of high standards.
For more information on other commercial matters, please contact:-
Chris Gordon | firstname.lastname@example.org | +852 2861 8413
Chris Lambert | email@example.com | +852 2861 8417
Jennifer Wong | firstname.lastname@example.org | +852 2861 8318
(i) “Appointments to Independent Insurance Authority announced”