Give new insurance regulator power to examine pay and products
New authority should also look at employer's role in mis-selling, with pressure on agents
The legislative process for setting up an Independent Insurance Authority began last week, and lawmakers are set to spend months debating what the new regulator should and should not do to protect Hongkongers with their nine million policies.
The new regulatory regime will end the existing self-regulatory model. The city's 80,000 insurance salespeople will need to apply for licences from the new regulator, just as the staff of stockbrokers and fund managers have to be licensed by the Securities and Futures Commission.
This makes sense, as many insurance salespeople at agencies and banks now sell not only simple life insurance policies but also risky investment-linked policies.
But the reform should go further. Regulating sales agents or bank staff alone is not enough; lawmakers should also consider the role of their employers - insurance agencies and banks.
While some agents may mislead customers to earn more in commissions, another reason some use questionable selling tactics is the pressure from their employers to meet a quota.
Many salespeople are forced to lean on their parents, relatives and friends to buy policies that may be unsuitable, so that they can keep their jobs.
Some retirees end up buying investment-linked policies with 25-year terms to save the jobs of their children working in the insurance industry.
If the new regulator wants to stop mis-selling, it must have the power to check whether insurance companies and banks exert undue pressure on their salespeople and to properly regulate sales methods.
Some firms offer high commission rates to encourage staff to sell their products. HSBC has set a good example by paying a fixed salary instead.
Pay packages and performance incentives should fall under the new regulator's scrutiny to prevent mis-selling.
The new authority should also examine the nature of the insurance products sold. This is not to say Hong Kong should follow the mainland, which severely restricts product features.
But if an insurance firm introduces a product with features that are unfair to investors, such as a high penalty fee for not renewing the policy, the regulator should be able to step in on behalf of the customer.
In a similar way, the SFC requires insurance companies that create investment-linked insurance products to ensure the products are fair. Similar power should be given to the Independent Insurance Authority.