The recent proposal by the Insurance Authority to review the financial requirements of insurance companies in Hong Kong would enhance protection for policy holders, say industry insiders.
The authority launched a two-month public consultation last month on the draft insurance rules under the new regulatory regime for insurance intermediaries. The consultation will end on January 23.
The proposed regime for broker firms works toward continuously enhancing the industry players' financial stability and reliability in an ever-changing market, which aligns with the common goal of insurance practitioners and regulatory bodies in strengthening protection for consumers and promoting the sustainable development of the industry, said Jeff Wong Kwan-kit, chief agency officer of FWD Hong Kong & Macau.
The major proposals include raising the minimum amount of paid-up capital and net assets of an insurance broker company from HK$100,000 to HK$500,000, as well as raising the amount of minimum indemnity limit from HK$3 million to HK$5 million for its professional indemnity insurance.
The Insurance Authority said such proposals aim to help ensure that an insurance broker company has sufficient financial resources to meet its operational needs and potential claims for professional negligence against it.
Wong said the newly proposed level of minimum amount - HK$500,000 - should be able to strike a balance between the general situation in the financial services industry and the norm of broker firms.
In relation to existing insurance brokers, the authority proposes to provide a transitional period of three years to ensure they have sufficient time to raise their paid-up capital and net assets, and to arrange the professional indemnity insurance.
As for the indemnity limit of professional indemnity insurance, the proposed increase is believed to be able to have broken firms better covered from claims made by clients, said Wong.
"We believe the three-year transitional period is appropriate for smooth and progressive implementation of the new regime," he said.
Meanwhile, legislator Chan Kin-por, representing the insurance functional constituency, said the capital and professional indemnity insurance limits need to be reviewed in line with the latest consumers' protection standard, as both items have not been reviewed for many years.
Since the existing requirements were set two decades ago, the Insurance Authority proposes to update and refine certain requirements to take into account price level changes and other developments to enhance protection for policy holders and foster sustainable development in the insurance sector.
The draft rules will be effective on the commencement of the new regulatory regime for insurance intermediaries and applicable to newly licensed insurance broker companies. They are expected to come into operation in the middle of next year.