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Hong Kong’s Insurance Companies (Amendment) Bill 2014 may soon pass, June 2015

Briefing
23 June 2015
5 MIN READ
1 AUTHOR

We have previously written about the most important future regulatory change in Hong Kong – namely the establishment of an Independent Insurance Authority (IIA) (http://www.hfw.com/Insurance-regulation-in-HK-April-2014).

Since its publication, the Hong Kong Federation of Insurers (HKFI) and other bodies have been lobbying for changes to be made to the Insurance Companies (Amendment) Bill 2014 (IIA Bill). They have had some success. On 15 May 2015, the administration published a “Response to Outstanding Issues Arising from the Discussions at Previous Meetings and Raised by the Industry” (http://www.legco.gov.hk/yr13-14/english/bc/bc06/papers/bc060518cb1-858-3-e.pdf). This document suggests that the changes to the IIA Bill requested by the HKFI and other bodies have been considered and to some extent adopted.

The government hopes that the IIA Bill, which amends the key insurance legislation and establishes the IIA, will pass before the Hong Kong Legislative Council’s summer recess (in July). While opinions are split on whether the IIA Bill will pass this quickly, or whether it will be delayed by filibustering or the recent failure to pass the electoral reform package, the official timetable is that the provisional IIA will be established in October 2015, with a Chairman and staff being recruited over the following 12 months. By the end of 2016 or beginning of 2017, the government aims that the IIA will be operative and the Office of the Commissioner of Insurance (OCI) will close. Thus the new IIA will replace the old IA (a public officer, currently Annie Choi, the Commissioner of Insurance) and her department the OCI.

In this briefing, we summarise some of the key amendments that are likely to be made to the IIA Bill before it passes.

Amendments likely to be made to the IIA Bill (and currently being proposed as Committee Stage Amendments)

1. Best interests obligation on intermediaries (new section 89)

The concerns are that:

Proposed IIA Bill amendment:

2. Activities performed by employees of insurers (new section 121(2) and new schedule 1A)

New schedule 1A sets out the scope of the regulated activities. To ensure a level playing field and to prevent possible circumvention, the proposed IIA regime is activity-based, ie persons who engage in “regulated activities” (whether they are individual insurance agents, technical representatives of insurance agencies or insurance broker companies, or employees of insurers) should be subject to the same licensing and conduct requirements. New section 121(2) provides that a person acting on behalf of an insurer does not need to be licensed if he carries on a “regulated activity” that only involves the discharge of clerical or administrative duties for an insurer.

The concerns are that:

Proposed IIA Bill amendment:

3. Insurance agents’ relationship with insurers (revised section 68)

The government seeks to maintain the existing requirement under the Insurance Companies Ordinance (ICO) regarding the liability of an insurer for the acts of its appointed insurance agent under the ICO. Specifically, the existing section 68(2) provides that an insurer is not able to exclude or limit its liability for the actions of its appointed insurance agent in the dealings for the issue of a contract of insurance and insurance business relating to the contract.

The concerns are that:

Proposed IIA Bill Amendment:

4. Award of legal costs by the Insurance Appeals Tribunal (IAT) (new section 104)

The suggestion is that:

Proposed IIA Bill Amendment:

5. Disciplinary proceedings

The concerns are:

Proposed IIA Bill amendment:

6. Reasonableness of pecuniary penalty on insurance intermediaries (new section 82)

The concern:

Proposed IIA Bill Amendment:

7. Access to information, oral hearing and cross-examination (new section 81(1))

The concerns are:

Proposed IIA Bill Amendment:

Conclusion

The above-listed proposed amendments to the IIA Bill follow relentless lobbying by the insurance industry. While some will say that the amendments do not go far enough (eg the best interests requirement has not been retained in the body of the legislation), the proposed amendments do clarify the IIA Bill and as such hopefully facilitate its implementation and forestall major difficulties.

For more information, please contact Caroline Thomas, Senior Associate, on +852 3983 7664, or caroline.thomas@hfw.com, or your usual contact at HFW.

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authors
John Court
Global Director of Information Technology