Commencement of the new regulatory regime for insurance intermediaries

A new regulatory regime for insurance intermediaries will come into effect on 23 September 2019. It will mean direct regulation of insurance intermediaries by the Insurance Authority (IA), rather than the existing model of indirect regulation of insurance agents and insurance brokers by industry self-regulatory organisations (SROs). It will also mean that some people who do not currently need to be an appointed insurance agent or authorized insurance broker will become subject to regulation as an insurance intermediary.

The effective date of the new regulatory regime was set out in the Insurance Companies (Amendment) Ordinance 2015 (Commencement) Notice 2019 (Notice), which was gazetted on 15 May 2019.

Licensing Requirements

Under the new regime, any person who carries on or holds themselves out as carrying on “regulated activity” as defined under the Insurance Ordinance must be licensed by the IA, unless an exemption applies. Some people who do not currently need to be an appointed insurance agent or authorized insurance broker may be conducting “regulated activity” and so will need to be licensed. In particular, staff within an insurance company that give “regulated advice” (which includes advice on a wide range of matters relating to contracts of insurance, such as applications, renewals, cancellations and the making and settlement of claims) may need to be licensed.

Intermediaries who are registered with an SRO immediately before 23 September 2019:

  • will be deemed licensed under the new regime for a period of three years from 23 September 2019; and
  • will need to apply for licences from the IA within this 3 year transitional period.

A person who has submitted an application for registration to an SRO before 23 September 2019 but whose application is not approved by the SRO by that date will need to re-submit the application to the IA.

An existing intermediary who has submitted a notification of change in particulars to an SRO before 23 September 2019 will need to re-submit the notification to the IA if the change has not been processed by the SRO prior to 23 September 2019.

Transitional Arrangements for Complaints and Disciplinary Cases

Complaints and disciplinary cases that have not been resolved by the relevant SRO before 23 September 2019 will be passed to the IA for further investigation and action. In dealing with such complaints and disciplinary cases, the IA will apply the requirements under the codes and guidelines issued by the SROs rather than the new conduct requirements that will apply from 23 September 2019.

New Rules, Codes and Guidelines

The Insurance (Maximum Number of Authorized Insurers) Rules (Maximum Number Rules) and the Insurance (Financial and Other Requirements for Licensed Insurance Broker Companies) Rules (Broker Rules) will come into operation on 23 September 2019, at the same time as the new regulatory regime for insurance intermediaries.

The Maximum Number Rules continue the existing requirements limiting the number of authorized insurers that an insurance agent may act for to a total of 4 authorized insurers, of whom not more than 2 can be authorized for long term business.

The Broker Rules contain financial and other requirements for insurance broker companies. The Broker Rules have refined and enhanced certain of the existing requirements under the Guideline on Minimum Requirements for Insurance Brokers issued by the IA. Changes include increasing the minimum paid-up share capital and net assets requirement from HK$100,000 to HK$500,000 and introducing a cap on the professional indemnity insurance deductable up to 50% of net assets. Existing insurance broker companies will have a transitional period of slightly more than four years to fully comply with the enhanced requirements in the Broker Rules.

The IA has also consulted on a code of conduct for insurance intermediaries and guidelines on “fit and proper” criteria and continuing professional development. The consultations indicate that the IA expects insurance intermediaries will be subject to higher standards in relation to internal controls, conduct and competence requirements under the new regulatory regime.

Next Steps

Insurance intermediaries should prepare for the new regulatory regime, should ensure that their policies and procedures are compliant with the changes made by the new regulatory regime and should continue to monitor announcements by the IA.

The IA has indicated that it intends to consult on further rules, codes and guidelines for the new regulatory regime and that these rules, codes and guidelines will take into account the existing requirements of the SROs, international regulatory standards issued by the International Association of Insurance Supervisors and market feedback.