Hong Kong: Regulatory developments

The market is advised to be aware of a number of regulatory reforms being implemented in Hong Kong, and associated implications for both insurers and intermediaries.

The Independent Insurance Authority (IIA)

As a result of the Insurance Companies (Amendment) Ordinance 2015, the Independent Insurance Authority (IIA) is being established to take over the functions of the current regulator, the Office of the Commissioner for Insurance (OCI).

Under the new regulatory regime, a licence from the IIA is required to undertake “regulated activities”, which includes activities related to giving advice on insurance and the sale and after-sale administration of insurance policies. Lloyd’s underwriters will continue to be able to operate under the existing Hong Kong licence.

The transition from the OCI to the IIA is occurring over three stages;

• Stage 1 – the Provisional Insurance Authority (PIA) was established in December 2015, and is responsible for preparatory work including development of guidelines and necessary subsidiary legislation.
• Stage 2 – the PIA will eventually be renamed the Independent Insurance Authority (IIA) and will formally take over the duties of the OCI. This is planned to take place in early to mid-2017. Insurance intermediaries will continue to be regulated by the three local Self-Regulatory Organisations (the Hong Kong Confederation of Insurance Brokers and the Professional Insurance Brokers Association for brokers, and the Insurance Agents Registration Board for agents) but preparations have commenced for the transition to a statutory licensing regime.
• Stage 3 – the new licensing regime for insurance intermediaries will be introduced, likely in late 2017 or 2018. Local coverholders should be aware of this change and prepare in advance for the change in regime.

The IIA is to be self-financed with income streams both from the insurance industry and a policyholder levy on premiums for all insurance policies written by a Hong Kong coverholder or service company.  The long-term target is for the IIA to be financially independent of the government, with about 70% of its expenditure being met by the levy and the remaining 30% by the various authorisation/licence and user fees.

The funding mechanism for the IIA and the operation of the policyholder levy is still under discussion, although it will not come into effect until 01 January 2018.

The Policyholder’s Protection Fund (PPF)

The new IIA will also be responsible for establishing and administering a new Policyholder Protection Fund (PPF) Scheme – one for life and one for general insurance business. The PPF is intended to enhance consumer protection and improve market stability in the event of insurer insolvency. At this stage we are discussing potential implications for Lloyd’s with the OCI.

Conclusion

Lloyd’s is actively engaging with the OCI and other local entities including the Hong Kong Federation of Insurers (HKFI) during this period of transition and will keep the market updated on developments and consult with the market through the LMA.

Further information

For further information please contact:

Lloyd's International Trading Advice

Primary point of contact for advice and information
on Lloyd's trading status worldwide.