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In this May 2023 edition of Regulatory Insurance Update, the Hong Kong Corporate and Commercial Team provide the latest updates relating to the law and regulations, developments, and news in the insurance industry in Hong Kong.
Updates on insurance law and regulations
Date: 25 May 2023
The Insurance Authority (“IA”) has revised its Guideline on Anti-Money Laundering and Counter-Terrorist Financing (“GL3”) to reflect amendments to the Anti-Money Laundering and Counter-Terrorist Financing Ordinance (Cap. 615) (“AMLO”).
The main amendments relate to the treatment of “politically exposed persons” (“PEPs”) and beneficial owners in relation to trusts and the use of digital identification systems for customer due diligence.
The revised GL3 came into effect on 1 June 2023.
Insurance institutions (“IIs”) (authorised insurers and reinsurers carrying on long term business and licensed insurance intermediaries carrying on regulated activities in respect of long term business) are required to review their existing policies and procedures and adopt measures to ensure compliance with all applicable requirements under the revised GL3. IIs should also consider the IA’s updated FAQs[1] in relation to the anti-money laundering and counter-terrorist (“AML/CFT”) requirements.
Major amendments to GL3 include:
- amending the definition of PEP to align with the revised definition in AMLO and the Financial Action Task Force (“FATF”) requirements;
- amending the definition of “former PEPs” and updating guidance to allow flexibility in the treatment of former PEPs who no longer present high risks of money laundering or terrorist financing (“ML/TF”);
- amending the definition of “beneficial owner” in relation to a trust to align with the revised definition in AMLO and updating the steps that IIs may take to verify identity of a beneficial owner;
- allowing the use of a recognised digital identification system for customer identification and identity verification and for exempting the additional measures required in non-face-to-face situations;
- updating guidance on higher ML/TF risk attributes and indicators of suspicious transactions specific to the insurance sector; and
- updating guidance to require IIs to put in place proper safeguards to prevent carrying out outgoing wire transfers without compliance relevant originator or recipient information requirements.
[1] https://www.ia.org.hk/en/infocenter/faqs/faqs_9.html
IA Circular on amendment to Guideline
Insurance industry news and developments
Date: 31 May 2023
The IA has released provisional statistics for Hong Kong’s insurance industry for Q1 2023 showing a decrease in the total gross premiums by 7% to $147.2 billion over the corresponding period in 2022.
Brief summary of the provisional statistics
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Long-term business in Q1 2023 |
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Total revenue premiums (in-force business): |
HK$126.6 billion (8.9% decrease) |
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Total amount of claims and benefits paid to policy holders: |
HK$78.5 billion (9.6% increase) |
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New office premiums (excluding Retirement Scheme business): |
HK$47 billion (10.7% increase) |
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New business premiums derived from Mainland visitors: |
A striking HK$9.6 billion (2686.4% increase), representing 20.5% of individual businesses. Due to increased demand following resumption of cross-boundary passenger movement and a relatively low comparison base for 2022. |
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General business in Q1 2023 |
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Gross and net premiums: |
HK$20.7 billion (6.9% increase) and HK$12.5 billion (4.1% increase) respectively |
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Total gross claims: |
HK$7.5 billion (4.7% decrease) |
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Direct business generated overall underwriting profit: |
HK$387 million (59.9% decrease), with the net claims incurred ratio improving from 54.5% to 60.5% |
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Gross and net premiums for reinsurance inward business: |
HK$5.7 billion (increased by 12.7%) and HK$2.4 billion (3% increase) |
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Overall underwriting profit generated from reinsurance inward business: |
Increased from HK$98 million to HK$127 million, with the net claims incurred ratio lowered from 61.6% to 52.9% |
2023 1Q provisional statistics press release
Date: 12 May 2023
2022 Complaint statistics
The IA received 1092 complaints in 2002, a decrease of 16.3% from 2021. Most complaints (24%). related to “Representation of Information” e.g. complaints relating to the presentation of an insurance product’s features, policy terms and conditions, premium payment terms or returns on investment, dividend or bonus shown on benefit illustrations etc.
IA’s on-site inspections of licensed insurance broker companies
These inspections are part of the IA’s ongoing monitoring and supervision function to ensure that standards demanded by the insurance regulatory framework are being maintained. This is to ensure that policyholders have trust and confidence in the licensed insurance broker companies they use for their insurance needs.
The IA explains the importance of on-site inspection as an effective supervisory tool and provides licensed insurance broker companies with an outline of what they can expect if they are selected for inspection, including what happens if the IA finds significant non-compliance.
The IA generally adopts a “prevention is better than cure” approach. However, if it finds something badly wrong, it will act accordingly. The IA has been very transparent about matters for which it has zero-tolerance. The biggest red-flag is if it discovers a business model which involves a broker company relying on (or even incentivising) unregulated sales activities by third party referrers (rather than carrying on substantive regulated activities itself) e.g. the broker company driving such unregulated sales activities by paying virtually all its commission to third party referrers in referral fees. The IA is likely to refer these business models to its enforcement division for investigation and to take appropriate enforcement and disciplinary action.
For the most part the IA considers itself akin to a doctor or a consultant aiming to leave a broker company in a better place than where it started before the start of the inspection.
Mainland China visitors buying insurance in Hong Kong
The IA highlights three key lessons for potential Mainland China visitors to take into account when purchasing insurance in Hong Kong:
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Lesson 1: |
Pay premium directly to the authorised insurer and not to their individual insurance agent to avoid the risks of money not being passed onto the insurer either on time or at all. |
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Lesson 2: |
Do not participate in any sales activities of Hong Kong life insurance in the Mainland as this could have an adverse impact on effectiveness of their insurance policy. |
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Lesson 3: |
Do not deal with unlicensed persons offering insurance and if they are interested in buying insurance in Hong Kong, they should do so from a licensed insurance intermediary. |
Chatbots and artificial intelligence (“AI”)
The use of Chatbots powered by AI is a hot topic. The IA offers its views on their deployment in the insurance sector and the regulatory requirements that might apply. These include:
- If an insurer licenses the use of a Chatbot in the insurance process, the IA’s Guideline on Enterprise Risk Management (GL21) requires the insurer to evaluate all risks associated with its use in the specific context. Adequate risk mitigation, ongoing monitoring, reporting controls and contingency plans would need to be put in place and disclosure would need to be made as to Chatbot’s limitations and usage, the data set it is trained on, data storage and data retention. Further, consideration would need to be given to the application of standards and principles in the IA’s Guideline on Cybersecurity (GL20).
- Obligations and duties in relation to “regulated activities” would apply to individuals and companies licensed and authorised by the IA deploying the Chatbot (rather than the Chatbot itself which is merely software). Insurers or insurance intermediaries deploying the Chatbot should be aware that they bear the responsibility in respect of responses from the Chatbot. It is therefore advisable for insurers or intermediaries to consider the risks before deploying a Chatbot. The insurer will need to have regard, amongst other matters, to the guidelines relating to outsourcing, risk management and cybersecurity and insurance broker companies or insurance agencies must adhere to the corporate governance requirements under their respective Codes of Conduct for Licensed Insurance Brokers and Licensed Insurance Agents.
Regulatory Focus on Claims Handling
The IA has published a “Claims Handling” supplement to provide insurers and insurance claims practitioners with an overview of the existing regulatory principles and standards applicable to handling claims and sets out guidance on how the IA evaluates whether an insurer satisfies these requirements in the context of medical insurance claims).
When handling and settling claims under insurance policies, insurers must abide by the following principles and standards set out in the guidelines issued by the IA:
- handling policyholder claims fairly and promptly;
- transparency and guidance on the claims handling process;
- robust corporate governance, policies and procedures to ensure that the authorised insurer is able to discharge its obligations in a and b above.
Date: 1 May 2023
Insurance Authority opens Northbound travel scheme for motorists
Date: 5 May 2023
The IA welcomed the launch of the Northbound Travel for Hong Kong Vehicles (“Scheme”) on 1 May 2023. To facilitate the introduction of the Scheme, the IA has been working with Hong Kong insurers for the implementation of the Unilateral Recognition policy for cross-boundary motor insurance[1].
From 1 July 2023 onwards, Hong Kong car owners or drivers entering Guangdong under the Scheme can procure a Unilateral Recognition policy from Hong Kong insurers with coverage extended to include the statutory third-party liability motor insurance for the Mainland. This means that they will only need to procure a Hong Kong statutory motor insurance policy compliant with the Motor Vehicles Insurance (Third Party Risks) Ordinance and its coverage can be extended to include the Mainland Compulsory Traffic Accident Liability Insurance for Motor Vehicles (Compulsory Motor Insurance)[2]. Car owners will have the benefit of not having to purchase separate policies for the two places, making travel between Guangdong and Hong Kong more convenient. Policyholders are recommended to further extend the coverage to include the Mainland Commercial Insurance for Motor Vehicles (Commercial Motor Insurance) for more comprehensive protection.
The Unilateral Recognition policy marks a major breakthrough in introducing cross-boundary insurance products for Guangdong and Hong Kong. This echoes the comments made by Mr Simon Lam, Executive Director, General Business of the IA:
“The Unilateral Recognition policy does not only facilitate cross-boundary travelling of Hong Kong residents to and from Guangdong, fostering the flow of people within the Greater Bay Area, but it is also a breakthrough for the Hong Kong insurance industry in introducing cross-boundary insurance products for Guangdong and Hong Kong. It will help promote the development of the industry in the long run by bringing more diversified insurance products and services with broader coverage to the market, thereby further enhancing the social value of insurance,”
[1] The HKSAR Government, the IA and the relevant Mainland authorities reached an agreement for implementing the Unilateral Recognition policy for the convenience of Hong Kong car owners and drivers. A Unilateral Recognition insurance policy issued by a Hong Kong insurer comprises a main policy (which is the Hong Kong motor insurance cover) and a top-up policy (which is the Mainland motor insurance cover and is effective in the Mainland). The entire insurance policy is issued by a Hong Kong insurer so that Hong Kong car owners and/or drivers do not have to purchase two separate policies for Hong Kong and the Mainland.
[2] The Mainland Compulsory Traffic Accident Liability Insurance for Motor Vehicles is a statutory third-party liability motor insurance covering liability arising from property damage and bodily injury or death of third parties in the Mainland.
Link to Insurance Asia article
“The Unilateral Recognition policy does not only facilitate cross-boundary travelling of Hong Kong residents to and from Guangdong, fostering the flow of people within the Greater Bay Area, but it is also a breakthrough for the Hong Kong insurance industry in introducing cross-boundary insurance products for Guangdong and Hong Kong. It will help promote the development of the industry in the long run by bringing more diversified insurance products and services with broader coverage to the market, thereby further enhancing the social value of insurance,”
Insurance and reinsurance
Hong Kong