Aware that the overhaul of insurance sector regulations must create a strong, well balanced framework, officials charged with the task have consulted widely with all interested parties.
A guiding principle for their work is to ensure financial, operational and political autonomy for the planned independent insurance authority (IIA). An International Monetary Fund report in 2003 noted deficiencies in this respect, so the aim is to establish a regulatory structure that meets required standards and provides transparency for policyholders, insurance companies and other stakeholders.
Conclusions from the consultations and further detailed proposals were issued in late June and draft legislation should be tabled for comment early next year.
"We note that there is general public support for the establishment of an IIA," says a spokesman for the Financial Services and the Treasury Bureau (FSTB) which is co-ordinating developments. "It will assume other functions in addition to its primary role as a prudent regulator of the insurance industry."
As things stand, these extra duties will include direct supervision of the conduct of intermediaries, or sales agents, and organising public education programmes.
More extensive powers will also allow the new authority to examine insurers' financial statements and business returns, as well as conduct on-site inspections. There will also be express powers for the IIA to initiate investigations and, if necessary, to search and seize materials with a warrant. And a range of measures will be in place making it possible to prosecute offences summarily and impose sanctions in cases of misconduct by insurers.
"Enhanced regulation [will help to] raise consumer confidence in the industry, maintain competitiveness, and reinforce Hong Kong's position as an international financial centre," the FSTB spokesman says.
In response to points made during the consultation process, the draft legislation reflects various changes and clarifications.
For example, the IIA will be the lead regulator and sole standard setter for insurance intermediaries, including those who work for banks. It will collaborate closely with the Hong Kong Monetary Authority to ensure consistency in regulatory decisions and a uniform set of disciplinary procedures.
Also, while a levy of 0.1 per cent on premiums for all policies will be used to fund ongoing IIA operations, there will be clearly defined limits.
"The cap is set at a premium level of HK$5 million for non-life policies and HK$100,000 for life policies; reinsurance contracts will also be exempted from the levy," the spokesman says.
"Overall, we have taken on board the views received and developed revised proposals."
