Insurers give a guarded welcome to new proposals

HONG KONG insurance companies have responded cautiously to proposals that will ease restrictions on the sale of unauthorised products.

National Mutual marketing manager John Snelgrove said the new regulations could be dangerous and potentially unfair to firms that had gone through the authorisation procedure.

'We welcome competition and at the moment we are competing on a level playing field,' he said. 'But this does seem to be throwing the door open.' Peter Saunders, Royal Life's Far East general manager, said overseas insurance companies which could not get into Hong Kong but which wanted to sell long-term investment products would be rubbing their hands with glee.

'To comply with the new rules, unauthorised companies would only have to make some organisational changes, such as appointing a trustee and making their investments in Hong Kong-authorised unit trusts,' he said.

'This would be onerous but wouldn't take much time.' The new measures are based on guidelines being used in Australia and are due to come into effect in June.

They require brokers who sell term life policies - those which contain no investment component - from an unauthorised insurer to give buyers a written warning. The buyers must sign a declaration saying they understand Hong Kong legislation gives them no protection if problems develop.

As things stand, insurance products from unauthorised companies or firms that have not been granted a licence to sell their policies in Hong Kong can be sold legally only if a client requests the broker's service.

The broker cannot promote or advertise policies issued by unauthorised insurers.

The new rules relate only to term life insurance or long-term investment-linked policies and not to general insurance cover.

Ros K. T. Lam, assistant commissioner for general insurance, said the declaration form was one of the new minimum requirements for insurance brokers.

'As a regulator, we acknowledge that we should not limit the choice of insurance policies available to the public,' he said.

'There may be circumstances where an insurance product that will suit the special circumstances of a client cannot be sourced locally.

'But we need to safeguard the interests of the policyholder and make them aware that the product they are buying comes from an unauthorised insurer.' The declaration would also list points the buyer should establish with the broker, including: The name and address of the insurance company; The country in which it is incorporated and whether it has a compatible legal system; The financial standing of the insurer; and Which country's law would decide disputes.

The new rules will have different effects on different policies and how they can be sold.

Insurance brokers will be able to sell term life insurance from unauthorised companies, provided the client has signed the declaration.

Unauthorised firms will be able to sell investment-linked savings products or the long-term savings plans popular with expatriates provided they: Do not include any life cover in the policy; Appoint an independent trustee to oversee funds; and Place the investment element of their funds only in authorised unit trusts.

One concern about the new rules is the possibility of confusion in a self-regulated industry, especially when it comes to policing or distinguishing brokers who are promoting and selling unauthorised products from those who are supplying them only on request or when they represent the best policy for the client.

However, Mr Lam said the annual audit of a broker's financial records would identify a broker's income from overseas and from unauthorised insurers.

Francis Chan, chairman of the Confederation of Insurance Brokers (CIB), said the new rule was supposed to allow brokers to sell suitable policies to clients when they could not be obtained from a local insurer.

Raymond Tam, assistant commissioner for life insurance, said legal action would be taken against any company or intermediary who was selling products outside of the new regulations.

'If an unauthorised insurer maintains an office in Hong Kong or an agency then they are breaking the law. If there is prima facie evidence to support this, we would not hesitate to take action.'