Watchdog must help small insurance brokers adapt to new regime
The 500 stockbrokers operating in Hong Kong have been through it. Now it’s the turn of the 700 plus insurance brokers to get to grips with a new regulatory regime.
To help the insurance brokers to comply with the new rules, it is absolutely essential for the Insurance Authority to quickly announce exactly what its requirements are. They will then know whether they need to change their business model to fit in with the new rules.
In Hong Kong, people can buy insurance policies from either an agent representing an insurance company or from a broker. The difference is that the former is acting on behalf of the insurer while the latter is acting on behalf of the customer.
They all currently operate under a so-called self regulatory model. The 90,000 agents, who work for insurance companies or banks to sell insurance products, are members of the Insurance Agents Registration Board, while the 759 (as of December 31) authorised insurance brokers are members of two approved industry bodies, namely The Hong Kong Confederation of Insurance Brokers and the Professional Insurance Brokers Association.
In addition, there were 9,489 people registered as chief executives or technical representatives of these authorised brokers as of December 31.
The establishment of the Insurance Authority in June last year – the new watchdog which will introduce licences to regulate all these agents and brokers – will put an end to the self-regulatory era.
For the 90,000 agents, the insurance companies and banks they work for will negotiate with the Insurance Authority about the licensing requirements. Many of those institutions are big players, capable of providing the necessary training and assistance to their salesperson.
But for the insurance brokers, how they will cope with the new regulations is a major concern. Many of them are small- and medium-size enterprises which, under the current system, means they only need capital of HK$100,000 to operate. Many of them are worried that the Insurance Authority might substantially increase the minimum capital requirement which they may find it hard to complied.
They also worry that the authority could add new regulations on conduct, money laundering and reporting requirements.
Since many of these companies are small, with only a handful of staff, their concerns are reasonable.
That’s why when several hundred members of the Professional Insurance Brokers Association attended their 30-year anniversary event last week, they urged Insurance Authority chairman Moses Cheng Mo-chi not to adopt a regime that is too harsh for them.
The authority is now working on the licensing requirement which will be implemented two years later. It may need to compare notes with the SFC on how to implement a regulatory regime that could allow the small players to remain in the market.
As an example, stockbrokers who do not handle clients’ money but only give advice could have a lower capital requirement than those brokers who look after clients’ money. If the same model was adopted for insurance brokers, some small players could change their business model to act as agencies.
Many of these small insurance brokers have operated for decades and have a role to play in the insurance market. The Insurance Authority should work on a plan to allow them to continue to operate effectively under the new regime.