In January 2012, we wrote about the landmark decision by the High Court in Jeremy Paul Egerton Hobbins v Royal Skandia Life Assurance Ltd & Anor., HCCL 15 of 2010. Following this case, the Hong Kong Confederation of Insurance Brokers (CIB), the Professional Insurance Brokers Association (PIBA) and the Hong Kong Federation of Insurers (HKFI) formed a Joint Task Force in late April to evaluate the present market practice in relation to the disclosure of commission received by an insurance broker (acting as the agent of the insured) from the insurer concerned.

The CIB and the PIBA have recently issued circulars to their members requesting them to prepare for the implementation of new regulations on disclosure of insurance brokerage commission with effect from 15 April 2013. The new regulations are set out in section 14.8 and section 3A in the CIB's and the PIBA's membership regulations respectively.

The new regulations prescribe that as a minimum standard for good practice, insurance brokers should state in their client agreement that: "[Broker Name] (the "Company") is remunerated for its services by the receipt of commission paid by insurers. Your agreement to proceed with this insurance transaction shall constitute your consent to the receipt of commission by the Company." For insurance business transacted electronically, a similar statement would be required to be placed on the broker's entrance webpage or be included in its telemarketing script.

The HKFI has also issued a Position Paper on Commission Disclosure for Brokers under the Prevention of Bribery Ordinance (Cap.201) (PBO) (Position Paper) which sets out a minimum standard for good practice for insurers to be implemented by 15 April 2013. The Position Paper requires insurers (both life and general) to adopt prescribed clauses in their proposal or application forms to obtain informed consent from the policy holders or potential policy holders to payment of commission by the insurer to the broker concerned.

It is important to note that the new regulations introduced by the CIB, the PIBA and the HKFI are of general guidance only. Where the commission exceeds the amount normally paid in the market (e.g. the remuneration is higher than the range of commission customarily paid for the particular class of insurance or includes any other form of remuneration including but not limited to volume or profit commissions, service fees or marketing allowances paid by the insurers), insurers and insurance brokers are advised to take additional measures for disclosure and express consent from the policy applicants may be required to comply with the provisions of the PBO.

Insurance brokers and insurers should start reviewing their operations manual/programme, client agreements, distribution agreements, IT systems etc. and provide adequate staff training to prepare for the full implementation of these new regulations soon.