The Hong Kong Federation of Insurers (HKFI) is putting the final touches to five sets of guidelines covering the way so-called investment linked assurance schemes, or ILAS, are sold in the former UK territory, now a special administrative region of China.
The proposed guidelines were drawn up by two working groups, beginning in early 2009, as part of the Hong Kong insurance industry’s response to investor losses caused by the collapse last September of Lehman Brothers.
The first four cover how those selling ILAS should handle such elements of the transaction as the so-called Financial Needs Analysis (FNA), Risk Profile Questionnaire (RPQ) , Applicant Declaration (AD) and Suitability Check (SC).
The fifth set of guidelines, which deals with an area known as post-sales controls, is to be met by insurance intermediaries and brokers by the end of the year, according to a letter from the HKFI that was sent earlier this month for comment to industry members and other stakeholders.
While the insurance industry is broadly supportive of the first tranche of measures, next month’s deadline for compliance with them has caused consternation, with some companies claiming it does not give them enough time to prepare.
“No one is disputing that the guidelines are a good idea, it’s just that the time scale is a tricky one,” said one Hong Kong-based insurance company executive.
However, the HKFI has refused to budge on the issue, insisting the end of September compliance deadline for thr first four guidelines will not be pushed back.
Yet it is the final set of measures that has provoked the strongest backlash from the industry.
Post-sales controls
Having determined that the Hong Kong Monetary Authority’s requirement that banks make audio recordings of all ILAS sales “was not practical” for insurance companies to keep an eye on insurance product transactions after the sale has been completed, the HKFI sets out a range of alternative measures.
These include ensuring that customers buying ILAS are sent copies of the relevant risk disclosure statement and signed Applicant Declarations. There are also guidelines as to how clients over the age of 65 and or those with limited education or wealth – so-called “vulnerable customers” – should be handled.
Another concern for insurance companiesis that they appear to be about to be delegated the task of monitoring the advice of the intermediaries with whom they do business. It is understood that this area has not been resolved.
“We can’t do that [monitor our intermediary clients] because we are not licensed to give advice,” he explained. “This should be the job of the Confederation of Insurance Brokers or the Professional Insurance Brokers Association, which license insurance intermediaries in Hong Kong.”
Howard Clark-Burton, managing director of the Financial Partners advisory office in Hong Kong, noted that most of the HKFI’s members are insurance companies with their own direct sales operations, “so arguably they should be monitoring their employees’ activity”, and said that the question as to whether insurers should oversee the sales efforts of the intermediaries who distribute their products presented some potential issues.
Given that those intermediaries’ principals “are its clients, the individual investors”, he added, this “raises questions around client confidentiality and…to what extent does the liability for [new business advice provided by the intermediaries] rest with the insurance company [supplying the product]?”
