Ninety-five percent of life insurance underwriters oppose the government's proposal to set up an Independent Insurance Authority (IIA), according to a survey issued by the insurance industry.

"We think the current self-regulatory system has been doing a fair job in regulating the local insurance industry. We can't quite get why the government wants this to be changed," said Samuel Lau, president of the Life Underwriters Association of Hong Kong while briefing the media on the survey results Friday.

Under the current self-regulatory system, the local insurance industry is regulated by three insurance-related trade bodies - the Hong Kong Federation of Insurers (HKFI), the Hong Kong Confederation of Insurance Brokers (HKCIB) and the Hong Kong Professional Insurance Brokers Association (HKPIBA).

The problem for the Hong Kong government is that these are non-statutory bodies with limited investigatory and sanctioning powers and varying regulatory standards. In addition, the issue of perceived and real conflict of interest is always lurking in the shadows under the current self-regulatory practices.

On the same day at a symposium organized for the Asian insurance industry in Dubai, Annie Choi, Hong Kong's commissioner of insurance, said that it is an important international regulatory principle to have financial regulators financially and operationally independent of the government. "If Hong Kong wants to maintain its position as an international financial center, we must align with this international practice," Choi said.

Under the proposed setup of IIA, the new agency is to be independent of the government. IIA will be endowed with the required regulatory powers to issue direct licenses to insurers and insurance intermediaries under its licensing regime, conduct routine supervision and inspection, and impose disciplinary sanctions. The current Office of the Commissioner of Insurance, which is a government department that supervises local insurance industry, will be scrapped after the establishment of IIA.

However, the insurance industry finds the proposal hard to accept for several reasons.

Firstly, they argue that insurance policyholders will have to shoulder additional costs.

Under the proposal, IIA's operation will largely be financed by additional fees collected from insurance policyholders as well as insurance companies and intermediaries. For every insurance policy sold, 0.1 percent of the premium will be collected for IIA's use.

"The word 'regulation' or 'supervision' is always easy on the ear. But be reminded that it is policyholders who will be paying for this government effort to enhance regulation," said Albert Kwok, president of the General Agents and Managers Association of Hong Kong.

Under the proposal, IIA's annual operating cost will stand at HK$240 million a year.

Moreover, the associations believe that to have "two regulators in the same industry" will be a waste of resources. Under the proposal, banks selling insurance products will be subject to supervision by the Hong Kong Monetary Authority instead of the new IIA.

"We don't understand why we must have two regulators to oversee the same practice. It is just a waste of time and money," said Kowk.

Secondly, the associations suggest that the industry professionals are underrepresented on the IIA's governing board.

Under the proposal, IIA's governing board will be constituted by people from different trades and professions other than the insurance industry. This absence of industry insiders, according to the associations, will prevent IIA from formulating the kind of policies that the insurance industry specifically needs.

China Daily

(HK Edition 09/25/2010 page2)