The Government of Hong Kong has long planned to establish a safety net for Hong Kong policy holders in the event of an insurance company collapse. The first consultation exercise on a safety net for policy holders was held in 2003 where it was suggested two protection funds be established – one for life insurance and the other for general insurance, but the scheme was put on hold due to a lack of support from the insurance industry.
However, in light of the global financial crisis and the fact that schemes of a similar nature have been established in many major markets such as the United States, Japan, Singapore and mainland China, the Hong Kong government has been working with the Hong Kong Federation of Insurers (the "HKFI") on a new proposal.
Last week, the HKFI presented its protection fund proposal to the government insurance regulator with the aim of strengthening the public’s confidence in the insurance industry. The proposal sets a maximum compensation threshold at a level that will cover 90 per cent of the insured benefits of individual policy holders, with only one fund to cover all seven million life insurance and general insurance policies held by individuals. The proposed protection fund would not cover motor insurance and employees’ compensation policies, which already have safety net arrangements. Like the existing bank deposit-protection scheme, this protection fund for Hong Kong policy holders would be established by imposing a levy on every insurance policy and would be managed by a designated board.
Source: South China Morning Post