Hong Kong Regulatory Insurance Update February 2023

Date: 10 February 2023

On 10 February 2023, the Insurance Authority (“IA”) issued the Interpretation Notes to supplement the guidance provided to authorised insurers in paragraph 4.1(a)(v) of Appendix 1 and paragraph 4.2 of Appendix 2 to the Guideline on Underwriting Long Term Insurance Business (other than Class C Business) (GL16).

The Interpretation Notes take effect from 1 January 2024 and will supersede the “Fulfillment Ratios & Historical Crediting Interest Rates – Guide on Calculation Methodology and Disclosure Format” issued by the IA in the circular of 18 September 2015.

The Interpretation Notes set out the IA’s views as to how the fulfillment ratios for participating products and the historical crediting interest rates for universal life products should be calculated and disclosed to the public. At the same time as  issuing the Interpretation Notes, the IA has also made corresponding changes to GL16, including the scope of insurance products subject to the disclosure and the terms of “fulfillment ratio” and “historical crediting interest rates” in Chinese.

Link to circular

Link to Guideline GL16

Link to Interpretation Notes 

Date: 27 February 2023

The IA issued a circular on 27 February 2023 reminding authorised insurers that they have an inherent incentive and commercial responsibility to manage their fraud risk. Fraudulent claims erode an insurer’s financial position (on which genuine insurance claimants rely to cover their losses) and the costs of fraud are ultimately passed onto policyholders by way of increased premiums.

A key industry initiative in this respect has been the establishment of the Hong Kong Federation of Insurers (“HKFI”)’s Insurance Fraud Prevention Claims Database (“IFPCD”) which currently covers motor insurance and medical insurance claims and mirrors industry-led initiatives in other developed insurance markets.

The IFPCD was designed as a tool with self-learning capability to detect potential fraudulent  claims  so  that  insurers could trigger focused investigation speedily whilst continuing to ensure the prompt settlement and payment of genuine claims and thus improving customer experience and the public image for the industry as a whole.

The IA notes that, although it may not be tasked with or empowered to adjudicate whether or not a claim is payable under terms and conditions of an insurance policy (and disputes in this respect fall outside its statutory ambit), it is responsible for ensuring that insurers have adequate policies and procedures in place in relation to the manner in which claims are handled.

When assessing the adequacy of measures put in place by authorised insurers to combat fraudulent claims, the IA indicates that it will take into account whether an insurer participates and is an active member of the IFPCD, contributes data to the database as required and uses its output to expeditiously identify and investigate suspicious cases.

The IA also notes that authorised insurers who do not actively participate in the IFPCD can expect a greater degree of scrutiny and will need to explain, as and when required by the IA, what measures they are taking to combat fraudulent claims and how these measures strike a sound balance between investigating potential fraud whilst ensuring genuine claims are settled in a fair and prompt manner.

Link to circular

Link to the Guideline on the Corporate Governance of Authorized Insurers

Date: 23 February 2023

On 23 February 2023, the IA launched the “QDAP Selection Made Easy”, a one-stop search tool which allows users to choose and compare among available Qualifying Deferred Annuity Policy[1] (“QDAP”) options based on their needs and preferences to make informed purchase decisions.

Users answer five designated questions on (i) the current age, (ii) preferred policy currency, (iii) duration of premium payment period, (iv) annuity commencement age and (v) duration of annuity payment options. Based on the information that they provide, users can obtain and download a list of QDAP options that meet their preferences. Users can sort the available QDAP options by various criteria, such as guaranteed and total internal rates of return (“IRR”) and first-year surrender value as a percentage of the annual premium paid.

[1] QDAP is a retirement planning tool that enables policyholders to receive a stable stream of income against longevity risk. Since its inception in 2019, more than 235,000 QDAP policies have been issued, contributing over HK$16.8 billion in annualised premiums. QDAP policyholders can claim a tax deduction for the premiums paid up to $60,000 per assessment year, if eligible.

Link to IA press release

Link to QDAP Selection website

Date: 22 February 2023

Hong Kong to extend ILS Grant Scheme by two years

On 22 February 2023, the IA welcomed two specific initiatives announced by the Financial Secretary that provide for extension of the Pilot Insurance-linked Securities Grant Scheme (“ILS Grant Scheme”) for two years and the Pilot Programme to Enhance Talent Training for the Insurance Sector (“Talent Training Programme”)  for three years respectively.

The HKSAR Government launched:

• the Pilot Programme to Enhance Talent Training for the Insurance Sector (“Talent Training Programme”) in August 2016 to attract talent and improve the professional competency of practitioners in the insurance sector; and
• the ILS Grant Scheme in May 2021 to incentivise insurance companies and organisations to issue insurance-linked securities in Hong Kong.

Link to IA press release

Link to Artemis.com

Date: 14 February 2023

Mr. Tony Chan, Associate Director of the Policy and Development Division of the IA gave a presentation on the Strategic Roles of Insurance in Green and Sustainable Finance.

In particular, he noted that:

• the Green and Sustainable Finance Cross-Agency Steering Group[1] (“CASG”) formed a collaborative partnership with the Task Force on Green Insurance established by the HKFI [2]; and
• the Guideline on Enterprise Risk Management (GL21) requires authorised insurers to include climate risk in their Enterprise Risk Management (“ERM”) framework but most insurers have not considered climate factor in their risk assessment and mitigation. In view of this, he expects that there may more guidance on climate risk management and disclosure requirements aligning with the Task Force on Climate-related Financial Disclosures and the International Sustainability Standards Board.

[1] The CASG comprises the Hong Kong Exchanges and Clearing Limited, IA, Mandatory Provident Fund Schemes Authority, Hong Kong Monetary Authority and Securities and Futures Commission.

[2] The Centre for Green and Sustainable Finance (“GSF”) is a cross-sector platform launched by CASG and coordinates the efforts of financial regulators, Government agencies, industry stakeholders and the academia in capacity building and policy development. The GSF serves as a repository for resources, data and analytics which support the transition to a more sustainable development pathway. In this regard, the insurance sector contributes its expertise in risk modelling, risk assessment as well as climate risk management and mitigation tools, bridging the data gaps in the GSF data source repository.

Link to the presentation

Link to Guideline on Enterprise Risk Management