The new independent Insurance Authority (IA) is envisioned as being in place by 2012 and would be financially and operationally separate from the government, according to Hong Kong’s secretary for financial services and treasury, KC Chan.
Under the plan, Hong Kong insurance intermediaries – which since 1995 have been overseen by three self-regulatory bodies, the Hong Kong Confederation of Insurance Brokers, Professional Insurance Brokers Association and Insurance Agents Registration Board – would be supervised and licensed by the new entity.
Under this plan the CIB, PIBA and IARB would revert to ordinary trade associations.
Banks that sell insurance products, however, would be regulated instead by the Hong Kong Monetary Authority which, under the plan, “should be given powers similar to those of the independent IA for regulating the conduct of bank employees” involved in insurance sales, according to a government statement.
Funding for the new IA eventually would come from the industry under a “progressive” arrangement, although the government would provide a start-up fund of HK$500m ($64.3m, £42.15m, €49.87m).
The consultation document, which may be downloaded from the Hong Kong government’s Financial Services and the Treasury Bureau website, says a fee structure has been proposed that would include a fixed licence fee payable by all insurers and intermediaries; a variable licence fee payable by insurers only, and calculated on the basis of their individual liabilities; and a user fee for specific services, such as an application for transfer of business, change of shareholding structure, or change in key personnel.
A levy of 0.1% on insurance premiums for all insurance policies is also among the sources of revenue proposed.
The plan for a new and independent insurance regulator is in line with international best practice, and has been described as having been mooted as long ago as the mid-1990s. It is the latest in a raft new efforts in Hong Kong to tighten up on the financial services industry, in the wake of a 2008 mis-selling scandal there involving Lehman Brothers minibonds.
More than 29,000 Hong Kong investors bought the high-risk derivatives before the New York-based investment bank collapsed. Last year, a number of Hong Kong banks agreed to a deal which partially compensated many of the investors for their losses.
‘Better regulation’
In its statement, the Hong Kong Government noted that the proposed independent insurance regulator would enable “better regulation of insurers and insurance intermediaries through [its] professional and agile operation”.
This, it added, would “help enhance protection for insurance policyholders [and] maintain market stability and competitiveness”, while at the same time strengthening Hong Kong’s status as an international financial centre.
Professor Chan said the current plan is for the new regulator to be given the required regulatory powers to issue licenses, conduct routine supervision, inspection, and imposing disciplining sanctions against breaches of the special administrative region’s laws.
"Such regulatory powers [would] apply not only to insurers but also to insurance intermediaries, including insurance agents and insurance brokers,” he said.
Some advantages
Among the advantages of the proposed system for insurance industry regulation is that the new IA would have the advantage of not being subject to “intricate Government rules and procedures”, potentially permitting it “greater nimbleness and agility in coping with market dynamics and in attracting professionals to join as regulators, thereby enabling Hong Kong to better meet new challenges of the ever-changing financial market,” the consultation document notes.
“In order to facilitate more effective regulation of insurance companies and insurance intermediaries, we propose to provide the independent IA with the necessary supervisory powers, including the power to supervise the conduct of insurance intermediaries directly through administering a licensing system,” it says.
Lawmakers ‘critical’
In article in yesterday’s South China Morning Post, meanwhile, noted that some Hong Kong lawmakers have come forward to criticise the element of the proposal that would let the new insurance regulator share its duties with the Hong Kong Monetary Authority.
According to the article, the HKMA would become responsible for investigating any insurance complaints filed against the 18,000 bank staff who currently sell around 30% of all insurance policies sold in Hong Kong.
“The proposal shows that the government has not learned from its past mistakes in letting two regulators – the HKMA and the Securities and Futures Commission – regulate the securities industry,” James To Kun-sun, a legislator, was quoted by the paper as saying, a reference to the Lehman minibonds matter.
The SCMP story also quoted Chan Kamlam, chairman of the Hong Kong Legislative Council’s financial affairs panel, as saying the plan could lead to double standards of regulation. But another legislator noted that "banks have different types of clients and sales models from insurance companies. As such, we should let the HKMA regulatore the banks’ insurance sales."
