The Financial Services and Treasury Bureau (FSTB) recently completed a public consultation on its plan to establish an Independent Insurance Authority (IIA) in Hong Kong and published its conclusions and detailed proposals. FSTB’s proposals follow international practices to establish a regulator financially and operationally independent of the government. It is proposed that the IIA will be responsible for overseeing the entire insurance industry and regulating both insurers and insurance intermediaries (including agents and brokers). In addition, the FSTB recently concluded a three month public consultation on the proposed establishment of a Policyholders’ Protection Fund (PPF) in Hong Kong. The proposals seek to provide a safety net for policyholders against insurer insolvency, maintain market stability and enhance public confidence in Hong Kong’s insurance industry. FSTB’s conclusions and detailed proposals on the PPF are expected to be published in late 2011.
The Government’s proposal to unify the insurance regulatory system, if enacted, would be a substantial step forward in bringing Hong Kong up to speed with international standards in financial regulation. However, insurance stakeholders are likely to experience an increased burden of compliance in addition to a likely increase in operating costs if the new regulatory system and levies are introduced. Moreover, it remains to be seen whether the PPF consultation will receive positive and supportive feedback, particularly from the insurance industry players who might naturally be concerned about the impact the proposed levy system would have on insurance premiums and their business.