Tighter regulations ahead
Steps are being taken to reorganise regulation of Hong Kong's insurance sector and streamline a system which, many have said, lacks logic and clarity.
The basic plan is to set up an independent insurance authority (IIA), with financial and operational autonomy. The government is now consulting relevant stakeholders for their views on a detailed framework of proposals.
In essence, the aim is to tighten regulation of insurance companies, implement international standards, and provide better protection for policyholders. The new authority will supersede the Office of the Commissioner of Insurance, which is now the only local financial services regulator operating as part of government machinery.
Other expected changes will see the planned IIA responsible for the licensing and supervision of insurance intermediaries, the frontline sales agents. This will replace the current system, in place since 1995, which depends on three self-regulatory bodies - the Professional Insurance Brokers Association, the Insurance Agents Registration Board and the Hong Kong Confederation of Insurance Brokers - overseeing these activities. In future, these three bodies will continue as trade associations, no longer having a direct role in the licensing, conduct, inspection or disciplining of agents.
According to the latest timetable, the government intends to make available draft legislation provisions in early 2012. A period for further discussion and feedback will follow but, on the whole, insurance industry leaders in Hong Kong seem to be behind the imminent changes and confident things are on the right track.
'We are supportive of the government's proposal to reinforce market regulations,' says Stuart Harrison, CEO of AXA Hong Kong. 'This will help strengthen customer confidence and the professionalism of the industry. We are ready to work closely with the authority and other key stakeholders during the development of the legislation.'
A priority, Harrison notes, must be to align local codes and standards with international practice. This is fundamental in bolstering Hong Kong's regional role and standing in the sector. It is also essential to design measures that give better protection to policyholders and allow a level playing field for all insurance intermediaries.
'In drafting any new legislation, there is bound to be disagreement from different parties,' Harrison says. 'But we believe a single regulatory body with a unified set of codes of conduct and industry standards avoids the multiple standards, which may [otherwise] occur.' He adds that whatever legislation is ultimately enacted, AXA will be fully compliant.
Michael Huddart, CEO for Manulife (International) Hong Kong, also believes an independent regulator and streamlined structures will bring clear positives.
On one level, he suggests, the new authority can facilitate opportunities and create an environment that encourages industry growth.
On another, it must see that day-to-day practice moves with the times by laying down the right rules and guidelines for the efficient operation of a specialised financial market.
'The primary role of any regulator is to ensure companies have adequate capital and, of course, there are already plans here to build up a policyholder protection fund as a final safety net,' Huddart says.
'However, the government should also take the opportunity to review the regulatory regime from a holistic point of view. The increasing complexity of financial institutions [means they can] offer a range of insurance, banking and investment services.'
Pending such a wholesale review, the IIA, when set up, should have oversight of all institutions offering insurance products in Hong Kong, Huddart says. However, around 18,000 bank staff handle about 30 per cent of all policies sold in the local market. If, in the first instance, their employers are subject to a different authority, the potential for discord and different standards clearly exists.
With regard to funding the new IIA of perhaps 200 staff, the government will provide a one-off subvention to cover set-up costs. After that, the plan for recurrent revenue is to impose a levy of 0.1 per cent on premiums for all policies issued. '[There should be] a cap on the levy on premiums,' Huddart says. 'And we hope such a levy will not have a significant impact on insurers' administration costs.'