Hong Kong ushers in IA broker regulatory eraSeptember 18 2019 by Andrew Tjaardstra
The Hong Kong Insurance Authority has issued a flurry of announcements and consultations in preparation for the move on Monday September 23 away from self-regulation.
Intermediaries have been awaiting for the changes for a long time as the Insurance Authority (IA), which replaced the Office of the Commissioner of Insurance, took far longer than expected to be established; it is now heavily staffed at its Wong Chuk Hang-based office on Hong Kong Island and busily working on market changing initiatives such as the RBC (risk-based capital) requirements for insurers.
Kenny Siu, regional director Asia Pacific for the Chartered Insurance Institute, told InsuranceAsia News: “The new regime will enable the Insurance Authority to develop a better regulated business environment with professionalism, knowledge upgrade, standards and trust.”
He added: “I expect the regime will bring new practices for market players, brokers and agents which help strengthen professional development, build customer confidence, drive better business growth for Hong Kong and benefit to the Greater Bay Area development as well.”
Overseen by chief executive Clement Cheung, a previous chief executive at the Commissioner of Insurance, the IA is hinting at evolution rather than revolution.
One of the main changes will be an increase in the minimum capital requirements for smaller brokers which could lead to some sector consolidation and some retirements.
Meanwhile the minimum indemnity limit under professional indemnity insurance policy will remain at HK$3 million (US$382,000).
Speaking to InsuranceAsia News in April, Tiffany Lung, director at local broker MI Insurance Brokers said: “There will be more scrutiny than before and the move should help raise standards and increase professionalism.”
The Insurance Authority said that in order to allow sufficient time for transition, the regulator will adopt a flexible approach in considering intermediaries’ compliance with the codes and expect licensees to fully comply with the codes from January 1 2020 onwards.
In a commentary Mayer Brown partner Tow Lu Lim and counsel Jenny Yu warned that business referrals, in particular, will be under scrutiny. They wrote: “One particular issue discussed in the consultation conclusions for both codes of conduct was about “referral of businesses” which refers to when a person refers a prospective client to an insurance agent or an insurance broker.”
They added: “The Insurance Authority expressed that referrals are not entirely free from regulatory concerns and if the person making the referral is not licensed, the person must not carry on any regulated activities. The Insurance Authority also expressed concerns about referral fees linked with referrals and that they must not in any way incentivise unlicensed persons to carry on regulated activities. Referrals may be an issue that requires further regulatory consideration.”
Meanwhile, although no longer involved in market regulation, the Confederation of Insurance Brokers has pledged to continue to help promote higher professional standards, assist members on compliance matters and to support CIB’s objectives to “promote a breed of brokers that…society can rely upon”.
We await to see the effects as the regulatory regime unfolds, but if there any big slip ups from intermediaries – it will not be for lack of communication from the regulator.
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