The Hong Kong government released on 25 March 2011 a proposal to build up a safety net of almost HK$2 billion for the city's insurance policyholders (Proposal). The Proposal is open for public consultation until 25 June 2011.

The proposed PPF comprises two separate and independent schemes, one covering life insurance policies and the other covering general insurance. It is intended that the PPF will offer policyholders more protection in the event of insurer insolvency, while enhancing market stability and minimising moral hazard.

A progressive funding model is proposed, under which an initial target fund will be built up through a moderate levy on insurance premiums, with the option to impose a higher levy as necessary upon occurrence of an insurer insolvency. The Proposal suggests that the initial levy rate should be set at 0.07% of the applicable premiums. To ensure that the PPF can make timely compensation payment to affected policyholders, it is proposed that the PPF would be allowed to borrow from a third party to bridge any liquidity gap. The PPF would pay a maximum of HK$1.225 million in respect of any one policy claim in the event of relevant insurer insolvency. For those life policies and accident and health policies with guaranteed renewability which continue in force, the policies would be transferred to another insurer where possible.

It is proposed that the PPF be established by statute and administered by a governing board to be appointed by the Hong Kong Financial Secretary. An appeal board would also be established to handle appeals. The Proposal, which is expected to be put to legislators later this year, is expected to commence in 2013 or 2014.

Source: HK Government website.