News Regulations02 Nov 2018

Hong Kong:Insurance Authority proposes increase to maximum number of insurers to be represented by agents

| 02 Nov 2018

The Insurance Authority (IA) has launched a two-month public consultation on the draft rules which stipulate a cap on the number of insurers by which a licensed individual insurance agent or insurance agency may be appointed under the new statutory licensing regime for insurance intermediaries. The regime is scheduled for implementation in mid-2019.

The IA proposes increasing the maximum number of insurers which a licensed individual insurance agent or insurance agency can represent from four to five, while keeping the existing sub-cap on the number of long term insurers (i.e. life insurers) at two. The IA further suggests that there should be no substantive change to the way the number of appointing insurers is counted.

The draft, titled “Insurance (Maximum Number of Authorised Insurers) Rules”, largely mirrors the existing framework set out in the Code of Practice for the Administration of Insurance Agents issued by The Hong Kong Federation of Insurers.

The draft Rules provide corresponding counting instructions, specifying, for example, when an appointment by one insurer should be counted as one appointment or two appointments for the purposes of the cap (which depends on whether the scope of the agent’s appointment is limited to one line of business or extended to both general business and long term business. The IA also proposes to effectively retain the same counting instructions for composite insurers, groups and Lloyd’s and the draft Rules have been prepared accordingly.

A new regulatory regime is planned to commence in mid-2019 under which the IA will take over the regulatory functions of the three self-regulatory organisations for insurance intermediaries (i.e. the Insurance Agents Registration Board (IARB), the Hong Kong Confederation of Insurance Brokers (CIB) and Professional Insurance Brokers Association (PIBA)) and become the sole regulator to regulate all insurance intermediaries in Hong Kong.

The IA puts forward the draft Rules for several reasons, including:

  • whilst the current system which has been in place for 25 years has worked well, technology, the market and products have dramatically developed in ways that may justify a modest increase in the overall cap so as to allow agents to offer policyholders a wider range of products which are available in the market;
  • there are fewer long term (life) insurers operating in Hong Kong than general insurers;
  • there is a wider variety of general insurance products than long term insurance products and several general insurers authorised in Hong Kong offer only specialist general insurance products;
  • there is an important legal distinction between insurance agents (appointed by insurers) and brokers (appointed by policyholders) and the cap was introduced in the 1990s in order to underpin this distinction which gives rise to different responsibilities and requirements (including the requirement for brokers to comply with minimum capital requirements, procure minimum levels of professional indemnity insurance and have client accounts), conduct requirements and liabilities;
  • relaxing the caps too much could reduce the effectiveness of the control which insurers are able to exercise over their appointed insurance agents and insurance agencies and make it more difficult for insurers to fulfill their responsibilities.


 

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