THE Insurance Commissioner is planning a crackdown on the sale of unauthorised, offshore insurance products. It follows growing concerns that concessions allowing restricted use of specialist products could be used as a loophole to avoid the territory's regulatory regime. The acting commissioner, Ros Lam is planning to warn brokers about advertising unauthorised products or setting up agency agreements Mr Lam has also written to the Life Insurance Council seeking its support in tightening controls. Companies breaching the code could face fines of up to $1 million with directors liable for jail sentences of two years. Local authorised insurance companies have been lobbying the regulators because of fears that their business could be poached. They also claim that the territory could become a target for 'fly-by-night' sales staff using the territory as a short-term base to do business. Under existing regulations, unauthorised companies are not allowed to sell their products either directly or through agency arrangements. However, under the Insurance Companies Ordinance there is an exemption if the client specifically requests a product or the broker has to go outside the local market to meet the client's need. In these circumstances, the broker must warn the client that the company offering the product is not authorised and regulated in the territory. Barry Lea, regional director of financial services for Hill Samuel, said: 'There are precious few good reasons to sell the protection products of unauthorised insurers. 'The requirement to slip just another piece of paper in front of the unsuspecting client so as to provide the necessary protection is surely borne of gross naivety. The net result will simply be that the 'cowboys' will source the 'very best' overseas products which undoubtedly and 'coincidentally' will pay the highest commissions in the business.' Dennis Pedini, managing director of East Asia Aetna Insurance Group, added: 'We are concerned that a lot of time, effort and money has been spent to create a solid regulatory regime covering the regulation of agents and complaints procedures. 'Yet there are offshore companies being able to sell services without having to contribute.' The commissioner of insurance is believed to be investigating a letter sent by UK-based Friends Provident to local brokers stating that its products would be available to local expatriates through registered brokers. The letter, sent by manager Richard Duxbury, lists eight products on offer, ranging from endowment mortgages to permanent health insurance. Mr Duxbury, who admitted the letter was 'loosely' expressed, denied that it breached the local regulations. He said: 'Any suggestion that the amendment provides a loophole for overseas insurers is misplaced, as any close reading of the legislation clearly reveals.' But Mr Lam said he was investigating the contents of the letter to see whether they breached local guidelines. Mr Lam added: 'We will take the appropriate action.' He said brokers were agents of their clients and must therefore always act in their best interests. 'I have also written to the Life Insurance Council seeking their opinion on how to identify those circumstances where an unauthorised product could be offered because there is no suitable local equivalent,' he said. 'Offshore authorised insurers will also be approached to improve on this area.' 'It may be open to abuse to unscrupulous agents or unauthorised companies.' He said cheap premiums would not be enough to qualify an unauthorised product for exemption from the existing rules.