A key provision of the Insurance Companies (Amendment) Bill 2014 is the formation of an independent Insurance Authority (IA) to take over from the Office of the Commissioner of Insurance.

Tucked away in clause 84 of the Bill is a proposed new section 92 to the Insurance Companies Ordinance (Cap. 41). This provides that the IA may make "Rules on conduct requirements for licensed insurance intermediaries" (including, licensed insurance agents and brokers).

One such rule (section 92(2) of the Bill) would allow the IA to make rules requiring insurance intermediaries to take steps to ensure that they (among other things) disclose to their clients any commission or advantage received in relation to policies recommended to insureds.

This provision is not, of itself, controversial.  More important will be the wording of the proposed rules providing for such disclosure and how they are enforced.

Following the case of Hobbins v Royal Skandia Life Assurance Ltd & Anor [2012] 1 HKLRD 977, the issue of such commissions with respect to (for example) ILAS products (Investment Linked Assurance Schemes) attracted quite a bit of press coverage; possibly, in part, instigated by disgruntled investors.

In that case, the High Court of Hong Kong held (among other things) that, in a civil context, commission paid by an insurer to a broker with respect to business placed did not contravene section 9 (Corrupt transactions with agents) of the Prevention of Bribery Ordinance (Cap. 201).

At paragraph 89 of the judgment, the judge stated:

"The practice of insurers paying commission to insurance brokers may or may not be unsound. It ought possibly to be strictly regulated or even prohibited altogether. I express no view on the matter. That is a question of policy best left to the legislature, not the Court, to tackle."

The provision in the Bill for proposed rules of conduct should be seen against this background.

The Bill was gazetted in April 2014 and is currently before the relevant Legislative Council Bills Committee. The latest timetable is for the Bill to be passed in 2015. However, given Hong Kong Legco's current backlog of Bills, some slippage would not be unexpected.

In the meantime, best practice is for brokers to give clients written confirmation of: (i) the brokerage services to be provided and (ii) the usual percentage range of commission (depending on the type and nature of the policy in question) payable out of the premium charged by insurers with respect to new or renewed policies.