Hong Kong: Regulatory Minefield: Exploring The New Hong Kong Insurance Regulatory Landscape

According to the Legislative Council brief issued on 19 April 2017 by the Financial Services and the Treasury Bureau and the Provisional Insurance Authority, 26 June 2017 is the commencement date for the next phase of changes to Hong Kong's insurance regulatory framework. As with any journey, preparation is crucial, so this bulletin explores some of the key changes and their potential impact on insurers in the Hong Kong market.

Further changes to the Insurance Companies Ordinance (Cap.41) (ICO)

Although the Insurance Companies (Amendment) Ordinance 2015 (Amendment Ordinance) was enacted in July 2015, it was designed to commence in stages, with the first stage coming into force in December 2015. On 26 June, the second phase will commence bringing into operation over 100 amendments to the ICO. Some of the most significant of these are highlighted below.

Enhanced regulatory, investigatory and enforcement powers

The Provisional Insurance Authority, established under the first phase of amendments, will become the independent Insurance Authority (IIA). The IIA will take over the regulatory functions of the Office of the Commissioner of Insurance (OCI) and the OCI will cease to exist. The ICO will be renamed the "Insurance Ordinance" (IO) and provisions that come into operation on 26 June will significantly widen and enhance the scope of the IIA's regulatory, investigatory and enforcement powers.

The IO will empower the IIA to appoint inspectors to conduct inspections to ascertain whether an authorised insurer is complying with the IO or any condition of authorisation to carry on insurance business in Hong Kong. At any reasonable time and without a warrant, an inspector may enter the premises of an authorised insurer and make copies of business records.

Where the IIA has reasonable cause to believe there has been a breach of the IO or a person has carried on insurance business in a manner that is not in the interests of the policyholders or the public, the IIA may appoint an investigator to conduct an investigation. The investigator may require a relevant person to produce any document related to the investigation in the person's possession and require the relevant person to give an explanation in respect of such document or answer a question relating to any matter under investigation.

In the event that the IIA conducts an inspection or investigation on the authorised insurer or its employees, the employees of the insurer should fully cooperate with, and provide all necessary assistance to, the inspector or investigator. A person commits an offence if he, without reasonable excuse, fails to comply with a requirement imposed by an inspector or investigator and may be liable to a maximum fine of HKD200,000 and imprisonment of up to one year.

Additionally, magistrates are empowered to issue a warrant authorising a person (such as an inspector or investigator) to enter the authorised insurer's premises, and to search for, seize and remove a record or document relevant to the inspection or investigation. If the authorised insurer is found guilty of any misconduct, including a breach of the IO, the IIA may revoke or suspend the authorisation of the insurer to carry on insurance business.

It remains to be seen how the IIA will use its regulatory, investigatory and enforcement powers in practice. Further guidance is needed on certain aspects, for example, what constitutes reasonable cause for the IIA to launch an investigation.

Insurers should have sufficient and adequate internal controls in place to ensure that the insurer fully complies with the IO and other relevant rules and regulations in order to minimise the risk of the insurer being the subject of any IIA investigation or disciplinary action.

Insurers should also review their internal manuals in relation to handling regulatory inspections/investigations and provide the appropriate training to employees. This is to ensure that if an inspection or investigation does occur, the insurer and its employees will be ready to provide all necessary assistance and address the IIA's concerns without jeopardising the insurer's interests.

Enhanced corporate governance

Amendments coming into operation on 26 June will also require enhanced corporate governance within authorised insurers. The concept of "control functions" will be introduced: functions that are likely to enable the individual responsible for the performance of the function(s) to exercise a significant influence on the business. Control functions include risk management, financial control, compliance, internal audit and actuarial functions. The Financial Secretary may specify others by notice.

The revised IO will provide that appointments by authorised insurers of certain controllers, directors, key persons in control functions, and appointed actuaries of long term insurers will require the IIA's prior approval, a pre-condition of which is that the IIA has to be satisfied of the proposed appointee's fitness and probity. The IO codifies the 'fit and proper' criteria, which we anticipate will be supplemented by regulatory guidelines.

Under the new Section 14A of the IO, in determining whether a person is fit and proper, the IIA must have regard to the person's education; qualifications; ability to act competently, honestly and fairly; reputation, character, reliability and integrity; financial status; and whether any disciplinary action has been taken against the person by any authority or regulatory organisation in Hong Kong or elsewhere.

This is a significant development, since not only are the minimum fitness and probity requirements codified in legislation, authorised insurers will also need to seek the IIA's approval prior to appointing directors, appointed actuaries (of life insurers), key persons in control functions, and additional controllers. Insurers will need to implement procedures and controls in terms of personnel selection for the various roles having regard to these requirements.

However, it is unclear if persons already in the position of key persons in control functions before the commencement of the second phase of amendments will have to be approved by the IIA and, if so, when. The legislation does not contain an express grandfathering provision. We anticipate that the IA will release further guidance on this issue in the future.

(For further details regarding corporate governance of authorised insurers, please see our analysis on the recently-revised Guidance Note on the Corporate Governance of Authorised Insurers (GN10) here.)

What about changes affecting insurance intermediaries?

The second phase of amendments will not effect the overhaul of the way in which insurance intermediaries are licensed and regulated. This will take place in approximately two years' time. According to the Hong Kong Government press release (please click here for further details), this arrangement allows "time for the [IIA] to prepare the necessary tools, such as guidelines on conduct, for regulating insurance intermediaries".

At present, insurance agents and brokers are regulated by self-regulating professional bodies. The Amendment Ordinance will amend this by introducing a statutory insurance intermediary licensing regime, empowering the IIA to directly license and supervise all insurance intermediaries in Hong Kong, and introducing new conduct requirements for them. When the relevant provisions of the Amendment Ordinance come into operation, any person who carries on a regulated activity in the course of the person's business or employment or for reward will require a licence.

The definition of "regulated activity" under the revised IO will be broad and will extend beyond negotiating or arranging a contract of insurance to include, "inviting or inducing, or attempting to invite or induce, a person to make a material decision" or enter into a contract of insurance. A material decision includes the making of an application or proposal for a contract of insurance; the issuance, continuance or renewal of a contract of insurance; the exercise of a right under a contract of insurance; the change in any term or condition of a contract of insurance; and the making or settlement of an insurance claim. A "regulated activity" will also include "the act of giving regulated advice", which is advice in connection with the aforementioned activities.

Although the amendments relating to the regulation of insurance intermediaries and conduct requirements have yet to come into operation, insurance industry stakeholders should carefully consider their implications and make preparations. In particular, insurance industry stakeholders should be aware of any future guidelines issued by the IIA, especially in relation to the definition of "regulated activities" as well as the relevant code(s) of conduct, in order to avoid contravening the provisions of the IO.


Currently, insurers have to pay an annual authorisation fee to the OCI at a fixed rate. This is HKD227,300 for non-captive, general insurers and long term insurers. The fee for captive insurers is HKD22,600 and the fee for existing composite insurers is HKD454,600.

Pursuant to the new regime, as of 26 June, the annual authorisation fees will comprise two parts: a fixed fee of HKD300,000 (for a captive insurer, HKD30,000; and for a composite insurer, HKD600,000) and a variable fee calculated on the insurer's insurance liabilities. Initially this will be a variable amount of 0.0001% and will be increased incrementally up to 0.0039% from 26 June 2022 onwards. The variable fee will be capped at HKD7 million annually, so the maximum annual authorisation fee (i.e. the aggregate of the fixed and variable fees) payable by a non-captive insurer will be HKD7.3 million. The cap will be reviewed from time to time having regard to factors including overall market situation, the IIA's financial position and the impact on industry.

User fees will also be introduced for 11 frequently used services including: applications for the approval of controllers, directors, key persons in control functions or appointed actuaries; notifications for the appointment of certain controllers, directors, key persons in control functions, auditors or actuaries; updates to the insurer's information on the register of authorised insurers or obtaining a duplicate certificate of authorisation.

Separately, it is proposed to introduce a levy on insurance premiums by way of further subsidiary legislation, which has been indicated will likely commence on 1 January 2018. It is anticipated that the IIA's target levy will be 0.04% in the first year, increasing incrementally to 0.1% in the sixth year, subject to a cap of HKD100 for life policies and HKD5,000 for general insurance policies. It is also proposed that reinsurance contracts will be exempt while certain group life policies with medical protection will be subject to the same cap as applicable to general insurance policies. The levy will be imposed on policyholders and collected by insurers to remit to the IIA.

Concluding comments

Given the uncertain nature of how some of these amendments will be implemented in practice, all insurance industry stakeholders should carefully consider the changes coming into effect in June, pay heed to future guidelines to be issued by the IIA (including supplements and revisions to existing guidance notes), and take steps to comply with the requirements of the new regulatory regime.

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.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:
  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.
  • Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.
    If you do not want us to provide your name and email address you may opt out by clicking here
    If you do not wish to receive any future announcements of products and services offered by Mondaq you may opt out by clicking here

    Terms & Conditions and Privacy Statement

    Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

    Use of www.mondaq.com

    You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


    Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

    The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


    Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

    • To allow you to personalize the Mondaq websites you are visiting.
    • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
    • To produce demographic feedback for our information providers who provide information free for your use.

    Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

    Information Collection and Use

    We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

    We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

    Mondaq News Alerts

    In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


    A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

    Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

    Log Files

    We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


    This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

    Surveys & Contests

    From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


    If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


    From time to time Mondaq may send you emails promoting Mondaq services including new services. You may opt out of receiving such emails by clicking below.

    *** If you do not wish to receive any future announcements of services offered by Mondaq you may opt out by clicking here .


    This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

    Correcting/Updating Personal Information

    If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

    Notification of Changes

    If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

    How to contact Mondaq

    You can contact us with comments or queries at enquiries@mondaq.com.

    If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.

    By clicking Register you state you have read and agree to our Terms and Conditions