MR CHAN KIN-POR (in Cantonese): Deputy President, after deliberation by the Bills Committee for eight months, the Insurance Companies (Amendment) Bill 2014 (the Bill) is finally submitted to this Council for endorsement.
With the passage of the Bill, the regulatory structure of the insurance industry will be changed from a self-regulatory mechanism to regulation by an independent body, thus bringing intensive and extensive impact on the whole industry. Hence, the legislative exercise has attracted great attention from the industry and a task force has been set up by the Hong Kong Federation of Insurers to follow up on every aspect of the Bill and put forward a number of proposals. Local lawyers and Queen’s Counsels from the United Kingdom have also been engaged to provide independent legal advice to assist me in the deliberation of the Bill. Our goal is to strive for a proper balance in the Bill so that apart from achieving the objective of protecting consumers, efforts will also be made to ensure that the legislation to be enacted will leave no grey areas or legal traps and insurance companies and the over 80 000 insurance intermediaries can rest assured that they may continue to provide their clients with professional services without fear for being unnecessarily caught under the law. In addition to the Hong Kong Federation of Insurers, assistance has also been rendered by many practitioners in the industry, intermediary bodies in particular. I would like to express my heartfelt gratitude for their assistance.
President, in the wake of the Lehman Brothers incident, the regulation of financial institutions in various places all over the world has been strengthened to such an extent that the measures implemented are sometimes more than necessary, thus giving rise to a substantial increase in compliance costs and the costs will inevitably be shifted to consumers. However, even though new regulatory measures have been introduced by regulators on an ongoing basis, consumers have not benefited from the over-regulation; rather, under the existing system, the pertinent responsibility has in fact been shifted to consumers. When purchasing financial products, consumers are first made to listen to audio recording lasted for about an hour regarding various points to note. They will then be given a document comprising several tens of pages, asked to sign their names in more than 10 different places on the document, and will even be videotaped so that in case there is anything wrong with the products they purchase in the future, they have to take up the greatest responsibility. I hope that after the establishment of the independent Insurance Authority (IIA), lessons will be learned from past experience and attempts will be made to refrain from taking measures which are more than necessary.
We have had a lot of arguments with the Government during the deliberation process and among the views expressed, some have been accepted while others have been flatly rejected by the Government. An issue which has taken up quite a lot of our discussion time is the principle of “best interests” under the conduct requirements specified in the Bill. According to the so-called “best interests” requirement, an insurance intermediary has to accord priority to the interests of the insured and in case there is any conflict of interests, he should prioritize his client’s interests over the interests of the insurance company concerned. This is a concept to which I think no one will object; however, when it is put into actual practice, many technical problems will arise. Insurance companies and insurance agents are concerned that making the requirement statutory without qualifications may create a new statutory cause of action, rendering them susceptible to legal actions by clients.
In fact, there are two categories of insurance intermediaries in Hong Kong. For insurance brokers, as they act on behalf of their clients, the “best interests” requirement will pose no problem to them. On the other hand, insurance agents act on behalf of insurance companies and while insurance companies should be fully responsible for their insurance agents’ sales activities, the legal liabilities of insurance agents are stipulated in the contract they enter into with insurance companies. If these two different categories of intermediaries are subject to the same “best interests” requirement, insurance agents will be in a constant state of anxiety because they may be accused of violating the “best interests” requirement due to their relationship with insurance companies. Hence, according to the legal opinion of the Queen’s Counsels engaged, the best way to solve the problem is to have the cases involving the two different categories of intermediaries handled separately in the legislation to be enacted, and this view is shared by the legal adviser to the Bills Committee.
After prolonged and repeated discussions, the Government maintains that the “best interests” requirement should apply at the same time to both types of intermediaries but agrees that guidelines on conduct requirements for intermediaries should be issued by the IIA after its establishment. When further elaborating on what constitutes “best interests”, the IIA should take into account the different roles of insurance agents and insurance brokers. At the same time, the Government has accepted the industry’s views and provisions will be added to clarify that a breach of the conduct requirements would not on its own render any intermediary or insurance company liable to judicial proceedings. Although we are not entirely satisfied with the decision of the Government, a positive response has after all been given and it is hoped that after the establishment of the IIA, a full consultation with the insurance industry will be carried out before the relevant guidelines are introduced.
Nevertheless, it is my opinion that some problems still remain unresolved. The IIA will be given extensive disciplinary powers and responsible for handling all of the processes involved, including the acceptance of complaints, the initiation of investigations, the conduct of an inquiry and the imposition of disciplinary sanctions, thus giving rise to concerns about the possible abuse of power. Industry practitioners have suggested setting up a disciplinary committee comprising mainly non-members from the industry such as representatives of the Consumer Council and other community members like accountants and lawyers to review the IIA’s disciplinary decisions, but the suggestion has been rejected by the Government. Besides, I have also suggested that the IIA should be required to seek the views of an expert panel to be established under the IIA during the disciplinary process. However, the Government has only replied that the IIA might consult members of the panel should a disciplinary case involve a highly specialized stream of insurance business or a sophisticated product. Honestly, this is tantamount to seeking advice only as and when necessary, which has a huge difference from what I have suggested. To me, the problems have therefore remained unresolved. I hope that upon establishment, the IIA will thoroughly discuss such issues with intermediary bodies.
In addition, disciplinary sanctions may be imposed by the IIA on insurance companies and insurance intermediaries, including a pecuniary penalty capped at $10 million. The proposed maximum level of fine is in fact too high. To an intermediary, a disciplinary fine of up to $10 million is really astronomical. After repeated discussions, the Government is unwilling to make a downward adjustment of the maximum level of fine. However, in order to address the concerns of intermediaries, it has undertaken to issue guidelines on fining, apart from specifying clearly that in determining the quantum of a pecuniary penalty, consideration should be given to factors such as the nature and seriousness of the contravention, the conduct after the contravention and the previous disciplinary record, it would also make it clear that the disciplinary fine imposed should not have the likely effect of putting the regulatee in financial jeopardy.
As mentioned earlier, during the deliberation of the Bill, there were arguments over a number of provisions, and in order to address our concerns, the Commissioner of Insurance (CI) had on a number of occasions in this Council elaborated the intention behind the relevant provisions and clarified some unclear points. It is my hope that after the IIA, upon establishment, will adhere strictly to the principles put forward by the Government, namely the explanation and undertaking made by the CI, and act according to such principles, instead of preaching one thing but doing another. If changes are required to be made, it is also hoped that prior consultation will be held by the IIA with various stakeholders.
As a summing-up of the deliberation work this time, many issues that are worth paying attention to have been brought up by insurance companies and intermediaries and on which detailed discussions have been held by the Bills Committee. Some of these issues have been tackled while some others have to be followed up by the IIA after its establishment. During the process, representatives of the Hong Kong Federation of Insurers and intermediary bodies went hither and thither to explain their stance to Members of different political parties in order to seek their support. As a matter of fact, there are as many as over 80 000 insurance intermediaries in Hong Kong and the Bill will have far-reaching implications on them, subjecting them to more responsibilities, heavier disciplinary penalties and higher level of fines; as such, we have to be sympathetic to their situation.
Finally, I would like to thank Mr Eddie CHEUNG, Deputy Secretary for Financial Services and the Treasury; and my special thanks also go to Ms Annie CHOI, the Commissioner of Insurance, who has accepted nearly every invitation to discuss the Bill and attended almost 100 meetings held for the purpose, listening carefully to views and thoughts expressed by representatives of insurance companies and intermediary bodies which represent tens of thousands of intermediaries. In addition, Secretary Prof K C CHAN has also met several times with me and trade representatives to discuss the Bill and listen to views expressed by industry practitioners on issues which involve significant controversy.
Transitional arrangements will be the most important work after the passage of the Bill and a working group has been established to facilitate a smooth transition. The working group has already held a number of meetings and I hope the Government will continue to maintain close liaison with the industry in order to ensure the smooth establishment of the IIA, which will then take the insurance industry on the road to enhanced professionalism so that consumers will be provided with better products and services.
I so submit.