Insurers urge rethink on terror fund
Insurance industry representatives have urged the Insurance Authority not to adopt a first-come, first-served approach to a HK$10 billion credit facility covering insurers' claims arising from any terrorist attack in Hong Kong.
In an hour-long meeting with Insurance Commissioner Benjamin Tang Kwok-bun yesterday, insurance executives warned of increases in premiums if the Government pursued its goal of establishing a special facility for attack compensation.
Today, legislators will vote on the proposed facility, which would be used to compensate workers injured in terrorist attacks, or their families in the event of death.
The proposed scheme follows the September terrorist attacks in the United States, which is estimated to have cost the insurance industry more than US$60 billion.
In the wake of those attacks, individual reinsurance companies said that from this month, they would no longer cover such huge terrorist-related claims. The SAR's direct insurance companies, in turn, said they would stop selling employee compensation policies from January, as they would be unable to pass on any of the risk to reinsurers.
The Government unveiled details of the proposed facility in a paper distributed to legislators yesterday.
Under the plan, insurance companies can draw on the Government's stand-by facility if they receive a claim from a worker relating to a terrorist attack.
The Government guarantees to pay up to HK$10 billion to participating insurers.
The Government will finance the scheme in part by imposing a 3 per cent levy on employee compensation policies issued by insurance companies. Businesses must take out a policy for each staff member to compensate them in case of any injury sustained at work.
Most insurers will pass this fee on to employers in the form of higher premiums.
The facility will be offered on a first-come, first-served basis. Insurers who try to draw on the facility after the HK$10 billion has been used will not get any money from the Government and will have to pay the claims themselves.
Insurance executives rejected this approach, saying any insurer that contributes to the fund should be allowed to call on it.
'This would create a claim-settlement contest, and this is not a fair scheme,' one insurance executive who attended the meeting said.
It would force insurance companies to rush through applications to draw on the Government facility regardless of whether they had sufficient documentation to back up their claims, he said.
It would create panic among insurers in the wake of a terrorist attack and administrative chaos for the Government, he said.
The insurers said the Government should allow a reasonable amount of time after a terrorist attack for insurance companies to apply to draw on the facility.
They suggested the fund be distributed on a pro-rata basis if claims exceeded the HK$10 billion limit.
Legislator Eric Li Ka-cheung, however, supported the proposal, saying it effectively capped the Government's liability at HK$10 billion.
'This would be a good move as we don't want to see the Government take on unlimited liabilities,' he said.
'We would need to ensure the Government would not promise too much in a bid to ensure the interest of the taxpayers are protected.'
He believed legislators would have a fierce debate on the proposal today, but many would vote for the proposal.