Hong Kong was destined to become a global financial centre with an enviable reputation. The insurance sector was destined to be the jewel in the crown of that financial centre. This would never have been possible without the Hong Kong Federation of Insurers.
To tell the full history of the Hong Kong Federation of Insurers (HKFI) would take many hundreds of pages and would involve telling the stories of many dozens of people. Quite simply, since its conception back in 1988 to the present day, the federation has seen the insurance industry in Hong Kong grow from a wild, untamed foal into a sleek racehorse.
Without the untiring efforts of HKFI’s succession of leaders and staff over the last three decades, Hong Kong’s leadership position on the global insurance stage could not have been guaranteed. HKFI is unquestionably one of the foundation building blocks for the well-regulated sector that is today the envy of other financial centres throughout Asia and the rest of the world.
The story begins
So, what was the spark that lit the flame that conjured HKFI into existence back in 1988? Quite simply, the need to bring order to chaos.
HKFI inaugural chairman Michael Somerville played an integral part in ushering the federation into being for some years before its official launch. “The 1970s and 1980s were a period of massive change in the insurance world,” Mr Somerville said. “The old associations were under attack from all directions. There was a lot of corporate turmoil going on at that time. In Hong Kong, the insurance industry was dominated by the expatriate managing agency houses. They dominated the market and they represented the world.”
When the Harbour Tunnel was opened in 1972 everything changed. With the tunnel came the motor car and with the car came the fly-by-night motor insurance companies. It was a wild time when anyone could set up an insurance company with HK$10,000, work hard for a few years, collect premiums and then skip the country. “Hong Kong was a pretty cowboy place in many respects and there was very little regulation,” said Mr Somerville.
Hong Kong had also become a building site and there was a breakdown of the tariff insurance companies. Clients no longer took out a fire policy and an accident policy but a new-fangled all-risk policy. Very soon the international insurance brokers arrived in great numbers.
With the rise of the Chinese middle class came the need for life insurance but there was still very little coordination in the insurance sector. “The only organised representation within the industry was the Marine Insurance Association and the Fire Insurance Association, but they were mainly concerned with policy wordings, not with the public posture of the industry,” Mr Somerville said.
Mr Somerville arrived in the territory in 1973 to work for Jardines with some experience working in insurance in Australia. Within months of arriving, he was summoned to meet the top people. “They said, ‘Look, we have been approached by government who have said the insurance sector is getting out of control. We need to do something about it and we want you, with your experience of working with the insurance council in Australia, to represent the industry. We will set up a working group and we will negotiate with government on how government is going to deal with the regulation of the industry,” said Mr Somerville.
Mr Noel Gleeson was the registrar general at the time, and during his first meeting with Mr Somerville, extracted an insurance regulation bill from a dusty old filing cabinet. The document had originated in Whitehall and Mr Gleeson indicated that he was proposing to introduce the bill. “I looked at it and told him that the industry would not be happy with it. So he said, ‘OK what do you want?’”
Thus negotiations began and lasted for seven years.
Since Mr Somerville had an insurance industry background, his start point was to promote self-regulation. He had to establish the criteria on which regulation could be conducted.
“We came up with two criteria: fit and proper person; and sufficient capital,” said Mr Somerville. The Hong Kong authorities eventually agreed but only if regulation was undertaken within parameters laid down by the government – and as long as the industry had a body that could regulate.
The response to this was that the life insurance industry set up its own council, the general sector followed and then the medical insurers did the same. The government was not satisfied with such a patchwork and so eventually it was agreed that these councils would come together under one body and HKFI was born.
The first year of HKFI was spent on foundation building. “The first thing we had to get across was that we had to employ calibre people and this meant that we had to cajole the membership into understanding that they had to make a reasonable financial contribution. That wasn’t easy,” said Mr Somerville. “Then there was dealing with the big issue of how much funding should come from life and how much from general, how much should come from the local companies, how much should the hongs pay. In the early days it was that sort of nitty-gritty issues, sorting it out and getting the people to start thinking responsibly about HKFI’s position in society and community responsibly. And that meant hiring calibre people who were capable of dealing with these issues.”
The legacy continues
HKFI chief executive Peter Tam echoes this same theme today. “We are the voice of the industry,” he said. “That is why we were set up in the first place, to represent the voice of the industry. Although we are made up of insurers, of course we also represent the interests of many other stakeholders like consumers and intermediaries. We make sure that we make suggestions to the government when they are producing new legislation or regulations. At the same time, if we see something and we feel that we need to speak up, we will do so.”
The insurance industry in every market is naturally made up of very diverse interests, from life to general, from local to global, and this is one of the main reasons why an impartial and considered opinion is required. “That is the most important part of our function,” said Mr Tam. “Not just as a trade body but as a body that has the long-term interests of the industry at heart. So we are a progressive force in the industry. It is not just to articulate our own interests but we represent how we want to grow the market, how we can do a better job to meet the needs of our customers, and also how we can meet the expectations of society.”
Building consensus amongst these disparate elements is a crucial part of what HKFI does. “We have been able to build and foster a platform of trust among our membership,” said Mr Tam. “Our members are competitors. But at the same time they understand that if we don’t come together and work together we would just be fighting our own corner and this is no good at all. Over the years, our members have understood the value of having a platform where they can come together and be trusted by all the participants.”
The reality is that self-regulation can be a difficult task. “We are a self-regulatory regime and that is our goal,” said Mr Tam. “We were encouraged by the government to set up this body so that we could look after our own market conduct. We license our agents. After they have done their examinations they get registered with our Insurance Agents Registration Board (IARB). We set the rules to regulate their behaviour to make sure that they continue to be fit and proper intermediaries.”
The role of HKFI has clearly changed over the past 30 years as societies have become more interconnected and communication has become instantaneous. “Over the years we have strengthened our engagement with various stakeholders outside the industry,” Mr Tam said. “We don’t want to be sitting in our ivory tower thinking everything is fine. We want to be relevant. We want to listen to the people who have interests in what we are doing. So that kind of stakeholder engagement is important.”
Stakeholder engagement includes government, NGOs, the media and the public. “We do a lot of public education and that is another form of stakeholder engagement,” said Mr Tam. With the tremendous leaps that HKFI has made since its establishment, there must still be achievements that stand out as being particularly important. Mr Tam is keen to emphasise that all HKFI successes are as a result of team effort.
“The first achievement has been to transform the Insurance Claims Complaints Bureau (ICCB) into a new body called the Insurance Complaints Bureau (ICB). In the past ICCB, used to deal with cases where people bought an insurance policy and they had a claim and they were not happy they could write to this bureau. It had been criticised because it was formed from within the industry and so its independence was questioned. I persuaded the board to open it up and have it governed by an independent board with an independent chairman with the majority of board members from outside the industry. This is not only symbolic, it shows that we are prepared to be led by an independent body.”
Technology has played a major role in HKFI’s development story and that continues to the present day. “We are also in the process of setting up an insurance anti-fraud claims database using AI and deep learning technology to help us identify suspicious cases,” said Mr Tam. “We can send alerts to companies involved to follow up in any potentially fraudulent cases. We have been able to set up a body to help us scrutinise the data privacy protection requirements so that we are able to convince the public that, although we are doing it to protect honest consumers, we are also paying attention to data privacy.”
HKFI has also played a significant part in the internationalisation of the insurance industry and was able to persuade the International Union of Marine Insurance (IUMI) to set up its Asian hub in Hong Kong. Prior to this IUMI had been very western-centric.
The Young Insurance Executive Development Programme (YIE) is an example of how HKFI has been focused on addressing the insurance industry talent crunch. “This is an ‘earn and learn programme’,” said Mr Tam. “You work four days and study one day. The programme is geared towards attracting more talent to the industry. We work with local training institutes and persuade their memberships to send their talent to this programme.”
In the face of the rising importance of issues like InsurTech, China’s Belt and Road Initiative and the projected business boom from the Greater Bay Area, HKFI has set its sights firmly on the future. “We are here to serve our membership so that we can continue to be the effective voice of the industry so that we can stay relevant,” said Mr Tam. “We need to continue to find better ways to use the platform of the trust that we have built up to serve our membership better. We need to consider whether we can do this by using new technology. For any knowledge application, in terms of fraud prevention, KYC, data privacy training – it is good to use these platforms to do it together. This will be our strategy for the next five to 10 years.”
Nurturing insurance talent for tomorrow’s market conditions is also a core tenet of HKFI’s strategy for the future. “Education and talent development will continue to be important and we also need to fill the knowledge gap so I want to spend more time looking into setting up a key knowledge management information system,” said Mr Tam. “This cannot be done by a single company but it is part of capacity-building to help improve the ecosystem and we are in a good position to coordinate this. It is a simple matter for us because we have a clear focus. Everything is timing but is important to be prepared.”
The Insurance Authority
June 2017 was an historic month for Hong Kong’s insurance sector as the Insurance Authority (IA) replaced the Office of the Commissioner of Insurance (OCI) to regulate insurance companies in the territory. While OCI had been a government department, the IA is a regulatory body independent of the government and the industry.
This regulatory change in the insurance sector is very much in line with similar changes to various sections of the financial services community across the world since the global financial crisis. The IA’s principal function is to regulate and supervise the insurance industry to promote the general stability of the insurance industry and protect policyholders. Originally established in December 2015, the IA has been preparing for the takeover of regulatory functions in phases.
The IA is also set to take over the direct regulation of insurance intermediaries from the three self-regulatory
organisations through a statutory licensing regime. The three SROs are the Insurance Agents Registration Board, established under HKFI, the Hong Kong Confederation of Insurance Brokers and the Professional Insurance Brokers Association.
HKFI chairman PL Chan said, “After the middle of next year IA will assume all regulatory functions. HKFI must position itself as the representative body of the members of the insurance industry in Hong Kong.”
One voice for the industry
It is of vital importance that the industry has a unified voice in its discussions with the new regulator. “To do this we have had to do a number of things including strengthening our position as the one and only voice of the industry,” said Mr Chan. “We can deal with issues on an industry level which individual companies could not do. One example of this is we plan shortly to launch a claims database to combat insurance fraud. This is one of the most important things we are doing now and it will be a benefit to all members of the Hong Kong insurance industry.”
The main thrust is in ensuring that the industry gets a fair hearing. “We are also very proactively representing our member companies in speaking with the regulators on important issues that will affect their operations and the efficiency of our member companies,” Mr Chan said. “For the Policyholders’ Protection Scheme, this will increase the burden on insurance companies because they charge a levy on the premium size of the company. And this will be serious for life insurers.”
Mr Chan also echoes Mr Tam’s concern about ensuring Hong Kong has enough skilled manpower to remain at the forefront of the sector throughout Asia. “HKFI has also noticed a very serious shortage of insurance talent in the market,” said Mr Chan. “How do we attract young people into the market? We have partnered with the Vocational Training Council training centre in Hong Kong to develop curriculums to attract graduates to study the professional insurance course. The purpose is to train people for the future and to supply talent to the insurance industry. We also hold conferences and provide professional training for our insurance practitioners. This is what we want to strengthen in the future.”
The role of HKFI will have to change and grow to take account of the new regulatory landscape and this means doing new things in a new way. “We have formed many task forces to tackle emerging issues like IFRS17, for the Voluntary Health Insurance Scheme in Hong Kong, the Policyholders’ Protection Scheme and for RBC,” said Mr Chan. “These task forces study how each of these factors will affect members and to hold a dialogue with the regulator. Members of each of these task forces are volunteers from the member companies.”
Priorities for the future
The HKFI story is set to continue for some time to come. “As HKFI is ending its historic role as an SRO, we would like to set up a framework of collaboration with the Insurance Authority,” said Mr Tam. “The idea is to continue to strengthen the role of HKFI in helping the industry to improve its ecosystem and better serve the people of Hong Kong. In this framework, we hope to define clearly the role of the federation as the voice of the industry, a facilitator in promoting industry professionalism and consumer education and a partner with the regulator to help grow the industry and reinvigorate the position of Hong Kong as a regional insurance and reinsurance hub.”
Mr Chan also has a very clear vision about what the future holds in store for HKFI and where its priorities must lie. “One of the most important things is how to maintain the competitive edge of our member companies,” he said. “The regulator will strengthen its regulatory function after the setting up of IA. But how to balance this, not to over-regulate it? And also at the same time maintain the competitive edge of the insurance industry in Hong Kong?
“The second priority is how we nurture young people within the industry and improve the image of the industry in Hong Kong. The image has improved a lot in recent years but it is still not enough. The third thing is InsurTech. We need to decide if we want to be a leader or a follower. We must make sure we don’t get left behind. Finally, we need to grasp Belt and Road Initiative and the Greater Bay Area opportunities. We are part of China and we have privileged treatment from China and we need to grasp that so that there is a bright future for the sector in Hong Kong.”
What seems clear is that HKFI will have an increasingly important role to play in the years ahead as the insurance sector grows and as Hong Kong continues to build on its stellar reputation as a financial services hub.
There can be little doubt that the continued rise of China as an economic power will only serve to feed the growing life and general insurance sectors in Hong Kong while offering plentiful opportunities for all the major players. It seems equally certain that HKFI will play an important role acting as the voice of the industry and ensuring that the requirements of all market participants are met for many years to come. A