On 24 June 2011, the Government issued its consultation conclusions and the detailed proposals on the proposed establishment of an Independent Insurance Authority (the "Consultation Conclusions"). It also published an FAQ in relation to the Consultation Conclusions.
The Government will proceed with the establishment of the Independent Insurance Authority ("IIA"), which will in substance be operationally and financially independent of the Government. Similar to other Hong Kong self regulatory bodies such as the Securities and Futures Commission ("SFC"), the IIA will have express powers to initiate investigations, search and seize materials upon the issue of a warrant, prosecute offences summarily and impose a wide range of regulatory sanctions in cases of misconduct.
Further enhanced proposals in the Consultation Conclusions included that the IIA would be directly responsible for licensing and regulation of insurance intermediaries. Once the IIA has been established and relevant legislation implemented, all persons intending to undertake insurance regulated activities would need to be licensed with the IIA. The IIA would also be the primary regulator for the bancassaurance activities of banks instead of the Hong Kong Monetary Authority ("HKMA"), although the IIA would enter into a memorandum of understanding with the HKMA to set out the detailed arrangements for regulation of such bancassurance activities (such as the IIA being the sole authority to stipulate conduct standards and regulatory requirements for bancassurance activities and to be responsible for disciplining misconduct relating to bancassurance activities, although the HKMA would participate actively in the disciplinary process to ensure consistency).
The Government would also establish an Insurance Appeals Tribunal to handle appeals against relevant decisions made by the IIA, and set up two industry advisory committees to advise and make recommendations to the governing board of the IIA. This would ensure that the insurance industry could participate in the governing of the IIA. The IIA will be financed by a fixed and a variable fee paid by insurers and insurance intermediaries, certain user fees, and a 0.1% levy on insurance premiums for all insurance policies. It is currently proposed that this levy will be capped on non-life insurance policies with annual premiums at or above HK$5 million and on life insurance policies with single or annualised premiums at or above HK$100,000. Reinsurance contracts would not be subject to the levy.
To facilitate a smooth transition once the IIA is established and to minimise the impact on pre-existing insurance intermediaries who are licensed with the other insurance regulators, the Government has proposed a three year migration period for such pre-existing insurance intermediaries upon establishment of the IIA. During the migration period, these pre-existing intermediaries will be able to carry on their business while applying for licenses from the IIA. The draft legislation for establishing the IIA is expected to be issued in early 2012.
Remarks - It is not at all clear that the history of insurance regulation in Hong Kong or any faults in the performance of the insurance industry under the prevailing "light touch" regime, really calls for the full court dress regulatory authority, but that is now the clear intent. Although "welcomed" by the Hong Kong Federation of Insurers, it is not clear where this will leave the close collaboration and closed door communications now enjoyed between the Commissioner of Insurance and the insurance industry bodies. It is also not clear whether the proposed licensing regime will bring any substantial changes to the requirements and qualifications of persons now operating as insurers or agents.