People tend to have mixed feelings about insurance.  They may see it as a good means to manage uncertainties and risks.  But very often they are not entirely clear about how it works.  Nor are they sure that they are always given suitable products at reasonable prices.  So there is a growing public demand for further tightening of the supervision of the insurance industry to protect consumers and enhance people’s confidence in insurance.

On 12 July 2010, the Hong Kong SAR Government released a public consultation document proposing the establishment of an Independent Insurance Authority (IIA) to strengthen the regulatory regime in line with international practices.  While the thinking of the Government is spelt out clearly in the 32-page consultation paper, more details are required on certain key aspects including the transitional arrangements.

The absence of such details, however, can be viewed positively.  It shows that the Government has no preconceived ideas on how things should get done and this is going to be a genuine consultation.  From our latest conversations with the Secretary for Financial Services and the Treasury, Professor K C Chan, the message is more than clear.  The Government, according to Professor Chan, wants to transform the present Insurance Authority into an independent entity for better regulation of insurers and insurance intermediaries.  As to exactly what needs to be done, the Government has an open mind and is prepared to listen.

We welcome this sensible approach, not least because the industry can, and is keen to, help change the present regulatory framework to make it stronger and more effective.  Market discipline and vibrancy of the market are not mutually exclusive.  These two policy objectives are merely two sides of the same coin.  They can and should co-exist.  Better market regulation, in fact, is good for everyone.

On this premise, we the Hong Kong Federation of Insurers support in principle the proposed establishment of an independent and accountable Insurance Authority.  That said, we want to see some thought given to preserving those good elements of the existing system which have worked well over the years in regulating market conduct.  On prudential supervision the present Insurance Companies Ordinance, enacted decades ago, is clearly outdated.  It is time to undertake a broad review of the legislation, and provide the future independent regulator with sufficient powers and latitude to do what is needed to safeguard the integrity of the market for the benefit of all.

We are witnessing the turning of a new and important chapter for the local insurance industry. The establishment of an IIA involves a full-scale restructuring of the present regulatory landscape.  We need a good plan of execution and transition to ensure this new body is off to a sure-footed start.  A possible way forward is to set up a provisional body of the IIA and have it run for a while before the permanent authority begins operation.  In suggesting this we are guided by considerations of similar exercises as in the case of the Provisional Hospital Authority, Provisional Airport Authority, etc.

Peter C H Tam
Chief Executive
The Hong Kong Federation of Insurers