New Insurance Authority faces danger of becoming too rich

In a couple of weeks time, millions of insurance policy holders in Hong Kong will begin funding a new regulatory body -- the Insurance Authority.

From the new year, all insurance policyholders will start to pay a levy based on their annual premium to support the authority, which will have oversight of approximately 80,000 insurance salespeople.

In addition to the levies, the authority will have HK$650 million in government funding to help see it through its first five years. After that it will break away from government support, funding itself 70 per cent via levy income and 30 per cent from the license fees paid by insurance companies and salespeople.

The funding model has come under fire from lawmaker Leung Kwok-hung, who criticised it as unfair to average people who, as policy holders, must bear most of the financial burden to fund the future operating cost of the new regulator.

However, the funding model as proposed is a good one, as it means the big insurance providers won’t be in a position to exert influence over the regulator -- something which tends to happen when the relationship between regulators and the financial sector gets too cozy.

Since the Insurance Authority will be checking up on insurance companies and the agents, it would be a conflict of interests if all the salary and operating cost of the regulators are paid by the industry.

To illustrate another potential problem, lets turn the spotlight on the Securities and Futures Commission, which has become excessively wealthy thanks to its HK$7 billion reserve, which represents more than four years of its annual operating expenses.