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Levy To Fund Hong Kong Insurance Authority

by Mary Swire,, Hong Kong

01 November 2012

Hong Kong’s government has launched a three-month public consultation on the key legislative amendments to the Insurance Companies Ordinance (ICO) for the establishment of an Independent Insurance Authority (IIA).

The Secretary for Financial Services and the Treasury, Professor K C Chan, said: "The establishment of an IIA to replace the Office of the Commissioner of Insurance, a government department, is in line with the international practice for financial regulators to be independent of the government operationally and financially."

Chan added that, during a consultation exercise last year, there was general public support for the establishment of an IIA to provide better protection for insurance policyholders and enhance the regulation of insurance companies and intermediaries, so as to facilitate the stable development of the insurance industry in Hong Kong and help to reinforce its position as an international financial centre.

He confirmed that “the government has carefully considered the views of insurers, self-regulatory organizations (SROs) and insurance intermediary bodies. They seek to crystallize the detailed proposals published in 2011 and the outcome of further deliberation on industry feedback.”

The legislative amendments in the consultation document cover the functions and governance structure of the IIA, a licensing regime for insurance intermediaries, the regulatory powers of the IIA, regulatory arrangements for banks' insurance intermediary activities, the appellate mechanism and checks and balances, a funding mechanism, and transitional arrangements for insurance intermediaries.

For more effective regulation of insurers and insurance intermediaries, the government has proposed that the IIA will be provided with express powers to initiate investigations, search and seize materials upon the issue of a warrant, prosecute offences summarily and impose a range of regulatory sanctions in cases of misconduct.

The government proposes legislative amendments to define insurance intermediary activities as "regulated activities" which can only be carried on by IIA's licensees, and stipulate in the ICO the eligibility criteria of the categories of licensees, while every authorized insurer, licensed insurance agency or licensed insurance broker company will be required to appoint a responsible officer for implementing internal controls and procedures for the purpose of complying with conduct requirements.

To facilitate a smooth transition and minimize the impact on pre-existing insurance intermediaries, the government proposes that those who are validly registered with the existing self-regulated organizations (SROs) should be deemed to be licensed with the IIA for three years upon its establishment, so that they can carry on their business while applying for licences from the IIA.

The IIA will also be given the power to delegate to the Hong Kong Monetary Authority (HKMA) specified functions for the effective regulation of banks' insurance intermediary activities. These would include the delegation of the inspection, investigation and suspension powers to the HKMA.

An Insurance Appeal Tribunal (IAT) will be established to consider appeals against regulatory decisions of the IIA (or HKMA in respect of banks' insurance intermediary activities). The list of regulatory decisions reviewable by the IAT will be listed in a schedule to the ICO.

In addition, the IIA should be self-financed with income streams from licence fees, service charges to insurers and licensees, and a levy of 0.1% on premiums of all insurance policies. The licence fees for insurance intermediaries will be waived for the first five years after the establishment of the IIA, and the IIA will have to review the levy level once its reserve has reached a level equivalent to 24 months of its operating expense, after deducting depreciation and all provisions.

Chan concluded that the launch of the new consultation “marks another milestone towards the modernization of the insurance industry regulatory infrastructure and the introduction of a statutory licensing regime for insurance intermediaries to facilitate the stable development of the industry and provide better protection for policyholders”.

Written comments are to be provided by January 26, 2013. The government aims to introduce an Insurance Companies (Amendment) Bill into the Legislative Council in 2013, with a view to establishing the IIA in 2015.

A comprehensive report in our Intelligence Report series which studies the 20 main offshore jurisdictions which offer captive insurance regimes is available in the Lowtax Library at and a description of the report can be seen at
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