On 24 June 2011, the Hong Kong Government released the conclusions to the three-month public consultation process that took place during 2010 and its detailed proposals for the proposed framework for the establishment of an Independent Insurance Authority (IIA). Overall, there appears to be strong public support for the IIA, which will initially be funded by the Government and thereafter by insurers in the form of a levy.
With a view to providing policyholders with better protection and to facilitate the stable development of the Hong Kong insurance industry, the Government proposed establishing an IIA. The IIA, which will be both operationally and financially independent of the Government, will replace the Office of the Commissioner of Insurance (OCI) and regulate the entire insurance industry in Hong Kong. It will also assume the regulatory responsibilities of the three current self regulatory organisations (SROs):
- The Insurance Agents Registration Board
- The Hong Kong Confederation of Insurance Brokers
- The Professional Insurance Brokers Association
Key features of the proposals
In addition to the OCIs current functions it is proposed the IIA will also:
- Regulate the conduct of insurance intermediaries
- Organise public education programmes
- Conduct research and studies on the insurance industry
- Assist the Financial Secretary in maintaining the financial stability of Hong Kong by taking appropriate steps in relation to the insurance industry
The IIA will be given power to initiate investigations, to search and seize materials, to prosecute offences summarily and to impose a range of regulatory sanctions for misconduct by insurers.
The IIA will take over the regulation of insurance intermediaries from the SROs by granting licences to insurance agents and brokers. To ensure a smooth transition, an intermediary registered with an SRO will be deemed to be licensed by the IIA for three years so it can continue to carry on its business whilst applying for a new licence from the IIA.
The SROs will continue to organise professional development programmes, training courses and carry out other trade promotion activities.
The IIA will work closely with the Hong Kong Monetary Authority (HKMA) in the regulation of the insurance intermediary activities of banks, but the IIA will be the primary and lead regulator of those activities. It will delegate specified powers to the HKMA to perform certain front-line regulatory functions but disciplinary powers will be vested in the IIA, and the HKMA will participate actively in the disciplinary process.
Insurance Appeals Tribunal
An independent Insurance Appeals Tribunal will handle appeals by insurers and insurance intermediaries against IIA regulatory decisions.
The Government will provide an initial lump sum of HK$500 million to fund the establishment of the IIA.
Thereafter it will be funded by:
- A fixed licence fee payable by all insurers and insurance intermediaries
- A variable licence fee payable by insurers based on their individual liabilities
- User fees for specific services such as applications for transfers of business, changes of shareholding structure or key personnel
- A levy of 0.1 percent on premiums for all insurance policies (subject to certain capping arrangements) apart from reinsurance contracts
The IIA will be a statutory body with a Governing Board to ensure the proper exercise of its powers.
The Government will refine its proposals with a view to producing draft legislation by early 2012.