Introduction

This update expands on two previous updates focusing on the overall framework introduced by the Insurance Companies (Amendment) Bill 2014 and the establishment of the Independent Insurance Authority (IIA) (for further details please see "Establishment of the Independent Insurance Authority: the way forward" and "The Independent Insurance Authority means business").

The Insurance Companies (Amendment) Bill 2014 was passed by the Hong Kong Legislative Council on July 10 2015. The Insurance Companies (Amendment) Ordinance 2015 (to be renamed the 'Insurance Ordinance') provides for, among other things, the establishment of the IIA and a statutory licensing regime for insurance intermediaries to replace the existing self-regulatory system.

Establishment and composition of IIA

Under the Insurance Ordinance, the IIA will be a body corporate with a chairperson (ie, a non-executive director), a chief executive officer (who will be an executive director) and no less than six other directors. All directors are to be appointed by the Hong Kong chief executive. In order to ensure effective oversight of executive decisions, the number of non-executive directors must be more than the number of executive directors. The Insurance Ordinance also specifies that at least two of the non-executive directors should have knowledge of and experience in the insurance industry.

IIA to administer statutory licensing regime

The Insurance Ordinance replaces the existing self-regulatory regime for insurance intermediaries with a statutory licensing regime to be administered by the IIA. Under the new regime, a person ('person' including any body of persons, corporate or unincorporated) must not carry on or hold out to carry on a regulated activity in the course of the person's business or employment, or for reward, unless the person is licensed by the IIA. Any contravention of this licensing requirement will be liable to a fine and even imprisonment. The Insurance Ordinance provides that 'regulated activity' includes:

  • negotiating or arranging a contract of insurance;
  • inviting or inducing a person to enter into a contract of insurance;
  • advising on insurance; and
  • providing sale and after-sale services relevant to insurance policies.

Licensing power of IIA

The Insurance Ordinance empowers the IIA to grant five types of insurance intermediary licence:

  • the insurance agency licence;
  • the insurance broker company licence;
  • the individual insurance agent licence;
  • the technical representative (broker) licence; and
  • the technical representative (agent) licence.

The categorisation of licences mirrors the existing categories of registration under the self-regulatory regime. This is to ensure a smooth transition to the new regime by avoiding possible confusion caused by recategorisation of licences. The IIA may review the categorisation of licences after the three-year transitional period in light of market developments.

The IIA must not grant a licence unless it is satisfied that the applicant is fit and proper. The Insurance Ordinance sets out the factors for considering whether a person is fit and proper, which include qualifications, integrity, financial status and compliance history.

Responsible officers of business entity licences

The Insurance Ordinance requires a business entity licensee to appoint at least one responsible officer to oversee the conduct requirements of the entity's insurance intermediary business in Hong Kong and to seek the IIA's approval for the appointment. The IIA has the power not to grant approval unless it is satisfied that the individual is a licensed technical representative and is fit and proper to discharge the responsibilities of a responsible officer.

IIA to determine whether applicants are fit and proper

The Insurance Ordinance sets out all of the factors that the IIA will consider when determining whether a person is fit and proper, including the education background, qualifications, experience, reputation, integrity, financial status and criminal records of an individual applicant. Moreover, the IIA must also take into consideration any past disciplinary actions against the person by any regulatory bodies in Hong Kong.

Register of licensed insurance intermediaries

The IIA must maintain a register of licensed insurance intermediaries for free inspection by the public and licensees must provide updated particulars contained in the Insurance Ordinance to the IIA within 14 days after the date on which the change takes place. Failing this, the licensed insurance intermediary will be liable to a fine.

Authorised insurers, licensed insurance agencies and licensed insurance brokerage companies are also under a statutory duty to notify the IIA at least 14 days before their intended appointment of a licensed insurance agency, a licensed individual insurance agent, a licensed technical representative (agent) or a licensed technical representative (broker). This 14-day notification period allows the IIA to verify whether the intended appointees are fit and proper persons.

Comment

The Insurance Ordinance will be implemented in three stages:

  • In the first stage, the Provisional Insurance Authority (PIA) will be established tentatively by the end of 2015. The PIA will be given administrative powers to undertake necessary preparatory work for the new insurance regulator to take over the work of the Office of the Commission of Insurance (OCI).
  • In the second stage, the PIA will be renamed the 'Insurance Authority' – the official name of the IIA referred to in the Insurance Ordinance. It will then take up the existing duties of the OCI, such as conduct regulating of insurers and anti-money laundering regulation.
  • In the third stage, the IIA will commence the licensing and regulatory regime for insurance intermediaries. The government estimates that the whole transition process will take up to three years, and that the new regulatory regime will ensure the steady development of the insurance industry and provide better protection for policyholders in Hong Kong.

The Insurance Ordinance is set to bring the Hong Kong insurance market into line with the markets in London and the United States from a regulatory perspective. There can be no doubt that the ordinance contains some onerous administrative requirements. Any companies operating in the insurance market should ensure that they are fully aware of the provisions relevant to their operation in order to avoid possible heavy penalties, including significant fines.

For further information on this topic please contact Kevin Bowers or Adrian Sargent at Howse Williams Bowers by telephone (+852 2803 3648) or email (kevin.bowers@hwbhk.com or adrian.sargent@hwbhk.com). The Howse Williams Bowers website can be accessed at www.hwbhk.com.

This article was first published by the International Law Office, a premium online legal update service for major companies and law firms worldwide. Register for a free subscription.