3 October, 2015
The Insurance Companies (Amendment) Ordinance 2015 (the Amendment Ordinance) was published in the Gazette on 17 July 2015. The Amendment Ordinance is a result of more than four years of intensive industry and public engagement.
Key Aspects of Amendment Ordinance
- Establishment of the IIA – At present, the Insurance Authority is a public officer under the Insurance Companies Ordinance (the ICO), and is supported by the Office of the Commissioner of Insurance (the OCI), which is a government department. The Amendment Ordinance provides for a legal framework for the establishment of the Independent Insurance Authority (the IIA) and marks a significant step forward for establishing an insurance regulator which is independent of the industry and the Government, in line with international practice.
- Regulatory powers of the IIA– The IIA will be vested with the relevant regulatory powers to facilitate its supervisory and enforcement functions. With the new regulatory powers that will be conferred on the IIA, the IIA will be able to carry out actions such as initiating inspection or investigations, making inquiries and demanding access to records and documents, and imposing disciplinary sanctions. As checks and balances, the regulatory and disciplinary decisions made by the IIA will be subject to appeal to the Insurance Appeals Tribunal (the IAT). The IAT will be an independent quasi-judicial body, which may confirm, vary or set aside any such decisions of the IIA.
- A new statutory licensing regime for insurance intermediaries (i.e., insurance brokers and agents) – An independent regulatory regime for insurance intermediaries will be established to replace the existing self-regulatory system administered by the three self-regulatory organizations (SROs).
Under the new regime, the IIA will have the power to issue five types of licenses for insurance intermediaries. These licenses largely mirror the existing registration categories of the three SROs and are set out in the table below:
| Insurance agent | Insurance broker | |
| License to business entities | (1) licensed insurance agencies | (2) licensed insurance broker companies |
| License to individuals | (3) licensed individual insurance agents (4) licensed technical representatives (agent) |
(5) licensed technical representatives (broker)
|
Based on the provisions of the Amendment Ordinance, there will be a grandfathering arrangement for the intermediaries licensed under the pre-existing self-regulatory regime.
- Introduction of the concept of "regulated activity" – The Amendment Ordinance introduces a concept of "regulated activity." The new regime prohibits a person from carrying on or holding himself out as carrying on a regulated activity in the course of the person's business or emploiyment or for reward, unless the person is a licensed insurance intermediary. Under the new regime, a person will be regarded as carrying on a regulated activity if the person:
- negotiates or arranges a contract of insurance;
- invites or induces, or attempts to invite or induce, another person (I) to enter into a contract of insurance or (II) to make a "material decision"; or
- gives "regulated advice."
- Under the Amendment Ordinance, a person will be regarded to have made a "material decision" if the person has made a decision as to matters such as making of an insurance application or proposal, changes of any term or condition of a contract of insurance, or making or settlement of an insurance claim. A person will be regarded to have given a "regulated advice" if the person gives an opinion in relation to any of the matters specified above.
- Conduct requirements – The Amendment Ordinance also sets out the broad principles of conduct requirements on insurance intermediaries when they carry on regulated activities. Such principles will generally require insurance intermediaries to act honestly, fairly, in the best interests of the policyholder concerned or the potential policyholder concerned, and make necessary disclosure of information, etc.
Proposed Timeframe Going Forward
Based on the announcements made by the Government, the Amendment Ordinance will commence in three stages to allow for a transition from the OCI and the SROs to the IIA. By the end of 2015, a Provisional Insurance Authority (the PIA) is expected to be set up. By around the end of 2016 (i.e., approximately a year after the setting up of the PIA), the IIA will take over the work of the OCI. At the third stage, the statutory licensing regime for insurance intermediaries will commence and replace the existing self-regulatory regime. It is expected that the whole process will take two to three years.
For further information, please contact:
Martin Tam, Partner, Baker & McKenzie
martin.tam@bakermckenzie.com
