Insurance authority loses access to funding
Agency independence is likely to mean rises in licensing fees for companies
Hong Kong's insurance authority will have to fend for itself after being made independent from the government, and is likely to increase licensing fees to make good the resulting shortfall in its finances.
Insurance commissioner Richard Yuen Ming-fai said the government would finalise its spin-off plan in the new year.
'It would be meaningless to spin off the insurance authority if the government continues to fund it,' Mr Yuen said.
The authority's annual $100 million operating budget is funded 50-50 by the government and Hong Kong's 180 registered insurance companies, each of which pays a fixed annual licensing fee of $225,000. Mr Yuen noted that the fixed-fee structure could be replaced by one linking payments to annual turnover, with a cap for Hong Kong's largest insurers.
The government first proposed independence for the insurance authority last year. It believes the move is in keeping with international practice and will allow the authority more flexibility in hiring key executives.
The Hong Kong Federation of Insurers is opposed to the plan. It argues there is no urgent need for the authority to be independent.
'We would like more information about staff arrangements and the insurance authority's cost structure after it is split from the government,' said Bernard Charnwut Chan, a legislator for the insurance sector.
'We do not want to see the new authority hire many more expensive staff members or maintain offices in new commercial buildings in Central,' he added. 'Many insurance companies have moved to cheaper offices in Wan Chai or Tsim Sha Tsui to save on costs. The authority should do the same.'
The government will not endorse a proposal to merge the authority with either the Securities and Futures Commission or the Mandatory Provident Fund Schemes Authority. Proponents of that arrangement argued it made sense with more and more insurance companies selling investment-linked products.
'The insurance sector has a lot of unique features and it would like to see the authority continue to stand alone,' Mr Yuen said.
Separately, Mr Yuen has issued a written warning to insurance companies which slashed prices for employees' compensation insurance by as much as 40 per cent over the past three months.
'The insurance authority does not have power to interfere with insurance companies' pricing practices,' Mr Yuen said. 'But the regulator is concerned that these insurance companies have been too aggressive in competing for new business. All insurance companies should charge enough to cover the future repayment risks.'