The Insurance Authority may change the way it calculates licence fees paid by insurance companies as a decline in their number threatens the regulator's revenue. The authority's latest figures show that the number of insurance companies in Hong Kong fell to 199 as of the end of last week - the first time it has dropped below 200 and 26.8 per cent down from the industry's peak. In 1990, the number was 272. The drop was a result of intensive industry consolidation over the past decade, Insurance Commissioner Benjamin Tang Kwok-bun told the South China Morning Post. 'There has been a worldwide trend of consolidation in the insurance industry. Hong Kong cannot be an exception,' he said. Many big insurers had combined to increase their capital strength and expand their technology platforms, Mr Tang said. Competition in the industry and a fierce price war in the mid-1990s had led small players to withdraw from the market. According to figures from the Insurance Authority, general insurance companies lost HK$380 million last year, following a loss of HK$559 million in 2000. The life insurance sector does not issue performance figures. Mr Tang said it should be noted that Hong Kong's insurance market had kept growing despite the falling number of players. Gross premiums grew by 18.5 per cent last year to HK$76.3 billion, representing 5.9 per cent of gross domestic product. That is up from gross premiums of HK$54.18 billion in 1998, HK$57.82 billion in 1999 and HK$64.38 billion in 2000. When small players exited the market, they sold their portfolios to larger players, Mr Tang said. Larger players also had a wider sales network, enabling the overall industry to grow. But the falling number of insurance companies had cut into the Insurance Authority's revenue, he said. 'This will be a problem that needs to be addressed.' The authority requires all insurance companies to pay a fixed fee of HK$227,300 per licence each year, irrespective of the size of their businesses. As a result, when the number of insurance companies drops, so does the income received by the regulator. 'It is highly likely that the consolidation trend will continue in the coming years. This means the Insurance Authority will also expect to see falling revenue.' Mr Tang said the authority was considering changing the fixed-charge scheme to one that is tied to a company's premium income. This means the more premiums sold by insurers, the more they would have to pay for licences. Mr Tang said linking licence fees with premium income would be fair as large insurance companies' books were larger and more complex than those of smaller firms. The proposed move would also bring Hong Kong in line with the international market, where fees typically were based on premium income. Mr Tang said the authority would soon start to consult market players on the issue. It would also need to wait for Financial Secretary Antony Leung Kam-chung to decide on government policies for fees and charges.
