Hong Kong will soon transfer responsibility for supervision of insurance to a new, strengthened independent regulator with recruitment for staff and the search for office premises already underway, the current regulator said. The territory's new regulator is expected to become operational in late 2016 but will not have fully assumed all responsibilities from the Office of the Commissioner of Insurance ("OCI") until 2018.
In the meantime, the burden on insurance companies in the territory only looks set to increase. The industry faces a new risk-based capital framework, based on international solvency standards, for which the consultation conclusions were released in September 2015.
The OCI is now looking at the next phase, which involves developing the detailed rules and carrying out quantitative impact studies for different types of insurers, said John Leung, the Commissioner of Insurance, in the regulator's latest annual report.
The regulator said it would conduct another consultation exercise after this, followed by the rolling out of the risk-based capital regime in phases, with a sufficiently long run-in period so insurers will have time to understand the requirements.
"Looking ahead, with the transfer of insurance regulatory functions to the Independent Insurance Authority ("IIA") and implementation of new regulatory requirements in the coming year, there will be considerable challenges for both the insurance industry and OCI," Leung said.
The OCI has also released several guidance notes on the selling of insurance products that will come into effect in the years ahead of the IIA becoming fully operational in 2018.
In July last year, the OCI released Guidance Note 16 on Underwriting Long-Term Insurance Business, to enhance consumer protection. The changes introduced in the note include product design, provision of adequate and clear information, suitability assessment, advice to customers, continuing monitoring and post-sale control, and are being implemented. All insurers are required to comply with it from 1 April 2016 for new products and 1 January 2017 for existing products.
In addition, the regulator in June issued a guidance note on reinsurance (GN17), which also becomes effective on 1 January 2017.
The regulator said it was also working on the enabling legislation for establishing a Policyholders' Protection Fund, with the aim of introducing it into the Legislative Council in 2017.
The OCI has been active in working with its overseas counterparts in recent years, having engaged to a much greater degree in work at the International Association of Insurance Supervisors, in particular in its work to develop a risk-based insurance capital standard.
"With some global systemically important insurers operating in the local market, cooperation with our international counterparts has become more important than ever," the regulator said. "In 2015, we organised a supervisory college for an important insurance group headquartered in Hong Kong and actively participated in other supervisory colleges."
Growing cross-border activities between Mainland China and Hong Kong has ensured there is closer cooperation between the OCI and the China Insurance Regulatory Commission ("CIRC"). The two authorities have met on several occasions in the past year to discuss cooperation on insurance regulation between China and Hong Kong.
The regulator has also set up a fintech liaison team to facilitate communication between the insurance industry and the fintech community.
"As an insurance regulator, we would update our regulatory and compliance requirements to keep up with technology development and to facilitate innovation among market players, while maintaining consumer protection and a level playing field," the regulator said.