Regulatory Update – All Change

In September 2019 the Insurance Authority is due to take over responsibility for the supervision and regulation of licensed insurance intermediaries. Insurance intermediaries fall into two broad categories – brokers and agents.

In brief, insurance agents act as agents for and can represent a capped maximum number of authorised insurers (see – “Insurance (Maximum Number of Authorised Insurers) Rules”). Insurance brokers act as agents for policy holders and can deal with any number of authorised insurers on behalf of the policy holders that they represent.

In amending the Insurance Ordinance (Cap. 41), one of the key objectives of the Insurance Companies (Amendment) Ordinance 2015 (the “Amendment Ordinance”) is to replace the self-regulatory regime for insurance intermediaries.

Under the new statutory licensing regime an insurance intermediary will mean a “licensed insurance agent” or a “licensed insurance broker”. The categories of insurance intermediaries under the new statutory licensing regime will mirror the five categories under the self-regulatory regime and will be known to as: a licensed insurance agency, a licensed individual insurance agent, a licensed technical representative (agent), a licensed insurance broker company and a licensed technical representative (broker).

Any person who carries on a regulated activity under the Insurance Ordinance will need to obtain a licence from the Insurance Authority, unless an exemption applies with respect to certain insurance intermediaries’ employees – for example, such as claims handlers or staff carrying out solely clerical or administrative tasks (see the Insurance Authority’s “Explanatory Note on Licensing Requirements for Employees of Authorised Insurers”). Those insurance agents and brokers who are properly registered with a relevant self-regulatory organisation on the coming into force of the new statutory licensing regime will be treated as “deemed licensees” for a transitional period of three years.

To date, the Insurance Authority has consulted on various guidelines and codes of conduct prior to the commencement of the new statutory licensing regime. These include:

• guideline on fit and proper criteria for licensed insurance intermediaries;

• guideline on the imposition of a pecuniary penalty in respect of regulated persons; and

• guideline on continuing professional development and minimum education requirements for licensed insurance intermediaries.

The Insurance Authority has also prepared new financial rules for insurance brokers that are based on the current guideline on minimum requirements but increase the level of policy holder protection – for example, with respect to (among other things) the minimum amount of paid up capital and the minimum limit of insurance cover.

At the time of writing, the Insurance Authority’s most recent public consultation is with respect to two proposed codes of conducts – one for licensed insurance agents and one for licensed insurance brokers. The deadline for submissions closed on 28 May 2019 (as extended in individual cases). The two new Codes will replace the Hong Kong Federation of Insurers’ Code of Practice (for insurance agents) and the “Guideline on Minimum Requirements for Insurance Brokers”. Both new Codes take effect on the day that s. 74 of Amendment Ordinance comes into operation, which will be confirmed by a commencement notice published in the Government Gazette. From that day, the Insurance Authority’s direct regulation of licensed insurance intermediaries begins and the new legal provisions of the Amendment Ordinance, together with the rules, regulations, codes, guidelines and other regulatory instruments issued by the Insurance Authority, will replace the self-regulatory regime for insurance intermediaries.

Chief among the new rules and regulations are the new statutory conduct requirements for licensed insurance intermediaries and their responsible officers (new ss. 90, 91, 92, and 93 of the Insurance Ordinance), as supplemented by the Codes’ eight core general principles of professional conduct and accompanying standards and practices (s. 95), which licensed insurance intermediaries should adopt when carrying on regulated activities.

The new statutory licensing regime to come into effect this year represents a generational change to the regulatory environment for insurance intermediaries in Hong Kong. At its heart is the enhancement of stability in the industry and protection for policy holders. Insurance intermediaries and their responsible officers and senior management can expect a much tougher regulatory environment.

Editorial Note: The Law Society of Hong Kong’s submission with respect to the two Codes of Conduct is available on the “News Update/Law Society Submissions” section of its website. The submission commendably declines to give “Yes/No” answers to the overly simplistic type of questions that one sometimes sees in government or regulatory consultations and instead offers substantial replies/comments.

The Commencement notice has been published confirming that the uncommenced provisions including s. 74 of the Amendment Ordinance will come into operation on 23 September 2019.