The two-year hiatus is intended to give the industry breathing space to prepare, but the time lag creates its own problems as the industry is already undergoing significant change before the new requirements are made clear. Extending personal liability to individual members of senior management beyond Directors and the Chief Executive Officer is a principal mechanism by which the new regime seeks to restrain unlawful and undesirable behaviour within the insurance industry. The bills amending the Insurance Ordinance (Cap.41) (the IO) which are expected to help Hong Kong grow its insurance sector have now been published in the Gazette.. Regulation of Insurance Intermediaries and Authorised Insurers by the Hong Kong Insurance Authority - Increased Focus on Responsible Officers and Senior Management 8 October 2019. The new statutory regime for the regulation of insurance intermediaries in Hong Kong takes effect today. Growing Focus on Sales Practices and Fair Customer Treatment. Indeed, we see this same mechanism being used by other industries (eg, the new Manager-In-Charge regime instituted by the Securities & Futures Commission in its circular of 16 December 2016). Key persons in control functions must be approved by the Insurance Authority (the “IA”) under section 13AE of the Insurance Ordinance Cap. Make the need for the key person to report, a standing item at board and board committee meetings. This requires, among other things, details of the key person’s reporting lines and where they fit in within the insurer’s management organisation. It also requires demonstration that the proposed key person meets the “fit and proper” requirements laid out in the revamped Guideline issued by the Insurance Authority on the subject. Further, this new licensing regime is expanding beyond existing brokers and agents to encompass any person carrying on “regulated activities”. Charltons advises insurers, reinsurers and intermediaries such as brokers and agencies on regulatory compliance and investigations. New distribution channels embracing technology are continually being rolled out across the board to improve customer experience. Online platforms which automate quoting and binding of insurance contracts are set to become the norm for more than just plain-vanilla consumer insurance products. ), Corporate Governance Code Amendments and Guidance for Boards and Directors, Steering Group Announces Green and Sustainable Finance Strategy for Hong Kong, Hong Kong 2021/2022 Budget – Market Highlights, HKEx Publishes Findings of Latest Review of Issuers’ Annual Report Disclosures, SFC Consults on Proposed Code of Conduct on Hong Kong Bookbuilding and Placing Activities and Proposal on HKEx Sponsor Coupling, SFC consults on changes to Competency Requirements for Licensed Intermediaries and Individuals, licensed technical representative (broker), licensed technical representatives (agents). Following the authorization of the first life virtual insurer under the Fast Track scheme (an expedited licensing initiative for digital-only insurance providers) in late 2018, the Hong Kong Insurance Authority has granted the first authorization of a non-life virtual insurer under the scheme in October 2019. They include virtually all core insurance processes, such as arranging, negotiating or inviting persons to enter into insurance policies, giving advice on applying for insurance, exercising a right under an insurance contract, and making and settling insurance claims. If you continue to use this website, you consent to our Privacy and Cookie Policy. Section 13AE(12)(f) of the Insurance Ordinance provides for a regulatory regime relating to the intermediary management function, being one of the control functions of an authorised insurer. The IA was established on 7 December 2015 as part of the enhancement of Hong Kong’s insurance regulatory regime, by putting in place a regulator which is financially and operationally independent of the government and the industry in compliance with international standards. Key persons can also instil this culture by making sure it is known what information they expect colleagues to provide when seeking “sign off”. The Insurance Ordinance (Cap. Unlike its predecessor, the Insurance Authority meets international standards of regulation because it is deemed operationally “independent” from Government. Section 90 of the Ordinance requires that insurance intermediaries act honestly, fairly, in the best interest of the policy holder and with integrity while exercising a level of care, skill and diligence that may reasonably be expected of a person who is carrying out a regulated activity. A change has occurred in Hong Kong’s insurance regulatory regime. For the substance, as well as the form, of the key-person regime to be adopted, legal practitioners would do well to assist their insurer clients with the following practical tips, as well as assisting with the submission of the Form 1As: (1) Sit down with each key person and explain the personal responsibility and expectations that comes with the role of being a key person. A good starting point would be by looking to where the new provisions of the Insurance Ordinance originated, namely the Insurance Core Principles (“ICPs”) promulgated by the International Association of Insurance Supervisors. These help us improve our services by providing analytical data on how users use this site. The Law Society of Hong Kong | Sweet & Maxwell | Westlaw Asia | Contact Us. Legal practitioners would do well to equip themselves to advise on these issues. Cookies that are necessary for the site to function properly. For the insurance industry, however, this is merely the end of the beginning. However, it also means that implementing the Levy is no easy task, considering the plethora of different scenarios to which the Levy must apply (multi-year policies, policies involving different currencies, treatment of cancellation and reinstatement, etc). The Key person will be responsible for establishing and maintaining internal control measures of the authorised insurer. 2 The Insurance Authority •A new independent insurance regulator to comply with the requirement of the International Association of Insurance Supervisors (IAIS) •New regulatory initiatives and … Insurance intermediaries include both insurance agents and insurance brokers. Established in 1997 as an office within the Hong Kong Government, the Office of the Commissioner of This is more than about drawing reporting lines on a chart. The Insurance Authority (IA), head of the Office of the Commissioner of Insurance (OCI) administers the Insurance Companies Ordinance (ICO) which has provisions governing the regulation of insurers and insurance intermediaries (agents and brokers) in Hong Kong. Insurance brokers negotiate or arrange contracts of insurance as agents of policyholders or advise on insurance related issues. (4) Ensure the potential exposures of the key person are properly managed from the outset. On 23 September 2019, the Insurance Authority (IA) succeeded the three self-regulatory organisations in the regulation of insurance intermediaries. As such, the appointment of key persons is the first of the “new requirements” on the to-do list when it comes to the governance requirements of the new Insurance Ordinance. In short, all key persons need a substantive seat at the senior management table. These are used to track user interaction and detect potential problems. (2) An appropriate letter of appointment should be drawn up for the key person role. The Ordinance establishes five types of insurance intermediaries. InsureTech is fast turning from buzzword to reality. ... Hong Kong: Norton Rose Fulbright advises China Taiping on partnership with Ageas. The four financial regulators are the Hong Kong Monetary Authority (HKMA), the Insurance Authority (IA), the Mandatory Provident Fund Schemes Authority (MPFA)and the … So where to begin? Insurance regulation in Hong Kong. On 26 June 2017, the new Insurance Authority formally took over from the Office of the Commissioner of Insurance as the industry’s regulatory body. Certain common sense questions which view the process from the customer’s standpoint should be asked, such as: Giving advice on legislation which has not yet come into force (and codes of conduct or guidelines that have yet to be issued) is no easy task. Make sure the indemnity provisions in the company’s Articles of Association are up-to-date and extend to key persons. Drafting and Making Legislation in Hong Kong Drafting Legislation in Hong Kong— A Guide to Styles and Practices How Legislation is Made in Hong Kong— A Drafter’s View of the Process At some point within this two-year period, the current self-regulatory regime for insurance agents and insurance brokers will be replaced with direct regulation by the Insurance Authority. The new law, designed to make Hong Kong’s insurance industry more competitive, strengthen policyholder protection and comply with the international principle that regulators be operationally and financially independent from government and industry, overhauls Hong … China Insurance Regulatory Commission and the Hong Kong Office of the Commissioner of Insurance, and will be in force for a one-year trial period from the date of its promulgation. The temporary measures are aimed at reducing the risk of Covid-19 infection from face-to-face meetings between insurers, intermediaries and clients.Hong Kong's IA (Insurance Authority) has announc Hong Kong Insurance Authority Allows Non-face-to-face Product Sales This would certainly assist in setting the insurer up for success when the legislation finally bites. Key persons in control functions of certain authorised insurers. The Ordinance introduced and established the Independent Insurance Authority (the “IA”), which replaced the Office of the Commissioner of Insurance (the “OCI”). All rights reserved. The applications for approval for existing key persons in each of these functions (apart from intermediary management) must be submitted to the Insurance Authority by 30 September 2017. This will give key persons the platform they need to communicate awareness of the expected standards of behaviour that all employees should adopt in order to stay within the lines, thereby building the right culture. 41 of the Laws of Hong Kong) (the “ Ordinance ”) is the principal legislation regulating the insurance industry in Hong Kong. Financial assets are derivatives of physical or real assets, derivatives being property rights of property rights that are not "lumpy" or asset specific, a… The Ordinance requires all persons who carry on regulated activities to be licensed. AIG Insurance Hong Kong Limited, General Counsel. The regulation of financial markets therefore concerns us all. (5) Encourage all key persons to make time to sit down with each other regularly and exchange views on what they are seeing in the organisation. Consultation on the introduction of R BC framework in Hong Kong . It also serves as a means of spotting problems, before they materialise into something substantive. On 26 June 2017, the new Insurance Authority formally took over from the Office of the Commissioner of Insurance as the industry’s regulatory body. These are welcome steps and show that the Insurance Authority, which became the insurance regulator in Hong Kong just this June, is taking seriously its statutory … A New Era of Insurance Regulation in Hong Kong On 10 July 2015, the Insurance Companies (Amendment) Ordinance 2015 was enacted bringing Hong Kong into a new era of insurance regulation. As a concept, the application of the Levy sounds simple, but Hong Kong is a market where insurance policy design is not dictated by the regulator, but subject to the common law principle freedom of contract. Insurers and insurance intermediaries operating in Hong Kong now face the hard work of implementing the changes needed to align their governance, practices and processes with the new requirements in the legislation. The wide diversity of innovative coverage structures to which this has given rise, serves as one of the Hong Kong insurance market’s strengths. In this regard, “regulated activities” are widely defined. The key persons in this respect are the individuals employed by the insurer, who are responsible for the performance of the control functions of risk management, finance, compliance, internal audit and intermediary management. A request which includes a description of the attributes of the proposal which ensure fair treatment of customers, demonstrates that the business is benchmarking itself against the right standards from the outset. Through Answer No.1, Mainland insurance companies that cede business to qualified reinsurers in Hong Kong will benefit from a generally lower reinsurance The Ordinance requires all licensed insurance agencies and brokers to appoint a Responsible Officer (an RO), who must be a licensed technical representative and fit and proper to discharge the responsibilities of an RO. Are key terms and exclusions being brought to the customer’s attention? So significant in fact, that the industry has been given a two-year hiatus to ready itself. The IA is now responsible for the regulation of insurance intermediaries, issuing codes and guidelines, approving licences, and is responsible for investigations and enforcement. Insurance Regulation in Hong Kong John Leung CEO, Insurance Authority 10 October 2017. A one-line e-mail confirming that the person is now a key person will set the wrong tone and treats the approval process as a “tick-the-box” effort. “It is a testament of the government’s commitment to reinforce Hong Kong’s status as an international financial centre and establish Hong Kong as a preferred base for large insurance groups in Asia Pacific.” To date, only the UK, Australia, Bermuda and Singapore have implemented group-wide regulation for insurance. Consent (i) to the processing of your personal data for the purposes specified in our, Financial institutions & securities companies, Hong Kong Takeovers Code Amendments 2018 (cont. Regulation; Transactions, including M&A and securities; Awards and accolades. The IA is the main insurance regulator in Hong Kong. Hong Kong Insurance Regulator Launches Insurtech Initiatives. Hong Kong SAR; T: +852 3405 2584. A change has occurred in Hong Kong’s insurance regulatory regime. 41 of the Laws of Hong Kong) (the “Ordinance”) is the principal legislation regulating the insurance industry in Hong Kong. Hong Kong's Insurance Companies (Amendment) Bill 2014 was gazetted on Friday 25 April 2014 and presented to the Legislative Council (LegCo) for a first reading on 30 April 2014, representing a paradigm shift in insurance regulation in Hong Kong. These are the 'Insurtech Sandbox' and 'Fast Track'. Key persons must also have untrammelled access to the Chief Executive Officer, so that issues can be raised to the right levels of management as and when needed. However, in late 2014 the existing regulation was deemed to be not strict enough and an in-depth consultation was launched. Getting this right will set your insurer clients up for success going forward. The ICPs are, after all, the international standards with which the Insurance Ordinance seeks to align. The Ordinance has also established statutory conduct requirements applicable to licensed insurance intermediaries (section 90 of the Ordinance) as well as statutory conduct requirements which are applicable to insurance agencies (section 91 of the Ordinance) and insurance brokers (section 92 of the Ordinance). The Ordinance introduced and established the Independent Insurance Authority (the “ IA ”), which replaced … Business in a Pandemic: When Directors Need Help. The Insurance Ordinance (Cap. The foreign exchange market turns over US$1.2 trillion daily, roughly one quarter of annual world exports. image building for the insurance industry and enhancing the public’s understanding of insurance. As such, legal practitioners would do well, when advising on the new purchase pathways and other mechanisms that technology is enabling, to benchmark these processes against some basic customer fair treatment principles. Is the prospective customer given the opportunity to review policy terms and conditions before making a purchase? The transition marks the blossoming to life of a seed planted back in 2010 when the first consultation paper on the subject was circulated, citing … Mr. Gregoire is also an Honorary Lecturer at Hong Kong University where he serves as a part-time tutor for the Commercial Dispute Resolution Elective on the PCLL course. For those who have followed the passage of the legislation, which has seen the old Insurance Companies Ordinance be given a 21st century make-over to become the Insurance Ordinance, the empowerment of the new Insurance Authority marks the end of a very long road. By going to the ICPs which have provided the basis of the new legislation, however, legal practitioners can at least encourage insurers to set some common-sense benchmarks around the principle of “customer fair treatment” when rolling out new systems, sales processes and products. Being a key person comes with the prospect of personal liability, in the event the insurer itself is found to have committed an offence under the Insurance Ordinance and this is attributable to any neglect or omission on the part of a key person (see s. 124 of the Insurance Ordinance). The Levy is payable by policyholders, but is to be collected by insurers, although insurers do have a discretion to shoulder it themselves if, for example, the cost of collecting it outweighs the Levy amount. Hong Kong’s regulatory environment – with lower capital requirements – is friendlier relative to China. The new Insurance Ordinance and the new Insurance Authority mean the beginning of a period of great regulatory change for the insurance industry at a time when it is going through change itself through the general embracement of technology. A significant part of that independence comes from the fact that the Insurance Authority’s long-term funding is not to come from tax payers, but from the insurance industry and insurance policyholders. ROs will be required to use best endeavours to put in place proper controls and procedures to ensure compliance with the conduct requirements specified in the Insurance Companies Ordinance. Partner . Emma de Ronde. The Insurance Authority has recently launched two new initiatives to promote the use of insurtech in Hong Kong. 1 The self-regulatory organisations are the Insurance Agents Registration Board established under The Hong Kong Federation of Insurers, The Hong Kong Confederation of Insurance Brokers and the Professional Insurance Brokers Association. Regulation of the insurance industry in Hong Kong is effected by a mix of statutory requirements, regulatory supervision and self-regulation by the participants in the industry. Employees of insurance companies who carry out these activities now without being individually licensed may therefore need to be licensed in future. This paper covers the What, Why, Who and How of financial regulation. Looking through the lens of a lawyer working in an insurance company, the following should be priorities. Stress the importance of adopting common-sense techniques such as the need to document discussions, decisions and sign-offs and the rationale behind them. He double-hats as commercial lines legal counsel for AIG across the APAC region. The Legislative Council Brief and Bill are available from the LegCo website at: Briefand Bill. The functions of the IA are inter alia to regulate and supervise the insurance industry for the promotion of the general stability of the insurance industry and the protection of existing and potential policy holders. Insurance (For future hires of key persons, these matters should be embedded as part of their employment contract). 3.1 To align Hong Kong's regime with the international standards, IA has planned to move towards the RBC regime, under which the capital requirements for an insurance company are determined in relation to … Nevertheless, the system changes its demands on insurers, making it a priority for them to update policy documentation and communicate it in advance to policyholders, whilst advising Finance, IT and business teams on the minutiae of the detail. A firm may have its licence suspended if it does not have an RO at any time. The regulation of insurers, which has just commenced, is the first phase in the IA’s assumption of … Of more significance to legal practitioners is the requirement for insurers to obtain approval from the Insurance Authority for their “key persons in control functions”, per the new s. 13AE of the Insurance Ordinance. The healthcare industry in Hong Kong, like other industries, does have regulations in place to help ensure that the quality of care available in the city is at a high enough level and all care offered meets ethical standards. A golden thread which runs through the ICPs, is the need to ensure “fair treatment of customers”. Changes in insurance regulation: China / Hong Kong / Singapore / Indonesia / Vietnam 5 Subject Update Key date(s) Link laws and regulations. Rectification of Industry Chaos by the CBIRC in 2019 In a bid to contain activities in the insurance intermediary sector that are in violation of existing laws and regulations, (3) Ensure that the key person is empowered to perform their role. This individual who is approved by the IA to be a key person in intermediary management function of an authorised insurer must be employed by the licensed intermediary and must be a fit and proper person (the “Key Person”). Dawn Breaks on Hong Kong’s New Era of Insurance Regulation On 7 December 2015 the first part of the Insurance Companies (Amendment) Ordinance (“Amendment Ordinance”) came into force, marking a key milestone in what has been described as “the most important regulatory reform in the insurance sector in the past 30 years” 1 . It is about ensuring the key person is given the opportunity to raise issues directly to the board. The transition marks the blossoming to life of a seed planted back in 2010 when the first consultation paper on the subject was circulated, citing the need to modernise Hong Kong’s insurance regulatory regime. 3. Similarly, legal practitioners would do well to advise insurers that key persons should be insured persons under the company’s own Directors’ & Officers’ insurance coverage. Legal 500 Asia-Pacific, Hong Kong: Insurance, The Legal 500, 2019; Contacts. Financial markets today are the biggest markets in the world. We use cookies to offer you a better browsing experience. What is the Current Insurance Regulatory System in Hong Kong? There is a new Form A1 which has been issued for these purposes. (6) Finally, ensure that all key persons are announced to the company, so everybody knows their role as gate-keepers and the importance of it to the company’s everyday functioning. The IA took over the responsibilities of the OCI of Insurance and also the regulation of insurance intermediaries from the self-regulatory organisations. All insurance policies (with certain exceptions) incepting on and from 1 January 2018, will attract a Levy on premium which will be used to fund the Insurance Authority’s existence. Legal practitioners have a key role to play in advising insurers in this changing environment. In his spare time, he writes fiction and has published two novels. The regulation of insurance intermediaries in Hong Kong currently runs under a self-regulatory system, with the Hong Kong Federation of Insurers administering the regime for insurance agents and the Hong Kong Confederation of Insurance Brokers and the Professional Insurance Brokers Association administering the regime for insurance brokers. Should the Courts Be Making Vesting Orders Against Banks in Email Fraud Cases? An insurer must be authorized by the IA before it carries on insurance business in or from … Beyond the immediate changes which came into effect on 26 June 2017, looms the most significant expansion of regulatory power wrought by the new legislation. With the commencing rate set at 0.04 percent of premium due on each insurance policy and graduating to 0.1 percent by 2021 (subject to an overall cap), some would say the Levy falls within a de minimis range. © Copyright Charltons 2020. Its principal function is to regulate and supervise the insurance industry for the promotion of the general stability of that industry and for the protection of existing and potential policy holders. 41 of the Laws of Hong Kong) (the “Insurance Ordinance”). Insurance agents, advise on, or arrange, insurance contracts in or from Hong Kong as the agent of an insurer. What is the approach to handling complaints. That’s when you know you have the culture right. As with everything in Hong Kong, finances come first and funding the new regulator takes priority. Corporate governance becomes nothing more than words on a page, if those operating the corporate governance regime are not given the leeway to be practical.

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