On 12 July 2010, the Hong Kong Government (HK Government) published a public consultation paper to solicit views on its proposals for the establishment of an independent insurance authority (IIA). Following the consultation in June this year, the HK Government released a paper (Proposals), which sets out the consultation's feedback and conclusions and the HK Government's detailed proposals on the proposed establishment of an IIA.
The insurance industry in Hong Kong is currently regulated by the Officer of the Commissioner of Insurance (OCI), which is a government department, and three self-regulatory organisations (SROs) who perform the supervisory role in respect of insurance intermediaries. Insurance intermediary activities conducted by banks are regulated by the Hong Kong Monetary Authority (HKMA).
To ensure consistency, the IIA shall be the sole authority to regulate the insurance sector, which shall include all insurers, insurance intermediaries and banks and their employees, and the sole authority to stipulate conduct standards and prudential regulatory requirements. The IIA would also be responsible, in place of the three SROs, for the licensing and direct regulation of insurance intermediaries, which should enhance public confidence and align industry developments with international practices. However, the HK Government has proposed, given the different clientele and sale environment in banks, that the IIA work closely with the HKMA in respect of the regulation of bancassurance activities and that the IIA should delegate to the HKMA specified powers to perform front-line regulatory functions, although disciplinary powers would vest in the IIA.
In order to enhance the accountability of the IIA in the exercise of its powers and to modernize the existing appeal mechanism it is proposed to establish an independent insurance appeals tribunal (Appeals Tribunal). The Appeals Tribunal have jurisdiction to review all the IIA's decisions, including all disciplinary decisions. As the IIA is to be a statutory body subject to checks and balances, the HK Government proposes to appoint a governing board (Board) of those broadly representative of the IIA's key stakeholders and equipped with knowledge of the industry. Industry advisory committees are also intended to be set up to provide expert advice and recommendations to the IIA and the Board in respect of non-life and life insurance.
The HK Government intends the IIA to be self-funding, although it will provide an initial HK$500 million lump-sum subsidiary on the IIA's inception. The Proposals intend that the IIA shall recover its costs by continuing the existing fees charged by the OCI and charging a levy of 0.1% on non-life insurance policies with annual premiums of at least HK$5 million and life insurance policies with single or annualized premiums of at least HK$100,000.
The next steps in respect of establishing the IIA, include embarking on the next phase of engagement with the industry and relevant stakeholders, with a view to refining the detailed proposals for the drafting of legislation. The draft legislation is expected to be ready early in 2012 for consultation with stakeholders and the public.
It is important that insurers and insurance intermediaries are aware of the proposed establishment of the IIA, although the nature of insurance regulation in Hong Kong should not greatly change. Insurance intermediaries, in particular, should keep abreast of developments as, once the IIA is established, they shall no longer be self-regulating under the SROs but will be directly licensed and regulated by the IIA.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.