The Hong Kong government has started the legislative process to introduce a scheme under which insurance policyholders could get protection coverage of up to HK$1 million (US$130,000) in the event that their insurance company collapsed.
The Policy Holder’s Protection Scheme Bill will be submitted to lawmakers for debate during the coming 2018-19 legislative session, Ms Joan Hung, the Principal Assistant Secretary for Financial Services and the Treasury, said.
If approved, all insurers in Hong Kong will have to pay 0.07% of their premium revenue for all policies to establish two compensation funds. One, amounting to HK$1.2 billion, will be for the life insurance sector, and the other, amounting to HK$75 million, will be for general insurers and will be established over 15 years. The levy will be increased to 1% if the need arises.
The maximum cover will be HK$1 million per policy, either for life insurance or general insurance, and it will cover individuals as well as small and medium-sized companies.
The government first proposed setting up the scheme in 2003, but met strong opposition from the industry. But a three-month public consultation in 2011 drew support.
“Although Hong Kong has a very robust regulatory system, and there have only been a handful of insolvencies involving small non-life insurers in the past two decades, the 2008 international financial crisis highlighted the need for a more comprehensive compensation fund, for protecting policy holders with a view to strengthening their confidence in the insurance market,” said Mr Eddie Cheung, the Deputy Secretary for Financial Services and the Treasury.