This transparency obligation is not new, having its origins in a 1997 law known as the Prevention of Bribery Ordinance. But pressure to abide by it has increased recently, in part as a result of a recent, voluntary industry agreement to disclose commissions received, promoted by what some brokers argue was a relatively small number of insurers.
"In essence, a broker will be required to sign a declaration to the insurer to confirm that he has advised the customer that he will receive a commission if the customer takes up the insurance policy," the Hong Kong Federation of Insurers (HKFI), a self-regulatory insurance industry body, explained in a statement. The HKFI added that it had taken legal advice on the matter, which it circulated to all its member companies.
The result, claim the brokers, is that they are being burdened with a major competitive disadvantage relative to the insurance companies’ tied agents, since these operate under a different business model that lacks a visible commission element.
(The commission, such agents would point out, is embedded in the insurance premiums paid by their clients.)
At the same time, there are fears among some in Hong Kong’s insurance brokerage community that this newly-emphasised commission disclosure requirement could saddle them with a significant potential historical liability, were they to be accused by a client – to whom they may have sold a policy years ago – of failing to obtain his or her consent to receive the commissions that were subsequently paid.
One such case is understood to have come to court in Hong Kong last month, although this could not immediately be confirmed.
As a result of such concerns, industry sources say, a number of meetings on the matter have been scheduled for this month, while an atmosphere of frustration pervades an unknown number of brokers’ offices.
‘Where is agents’ transparency?’
“What we want to know is, where the heck is transparency for the agents as well [as the brokers] in all of this?” said Glenn Turner, chief operations officer with Altruist Financial Group, who is also chairman of the Independent Financial Advisors Association.
“It’s a mess,” he added. “It will be very difficult to live with this situation, but there does not appear to be any interest in introducing industry-wide transparency either.
“It’s very simple: [the current situation gives] the agents an opportunity to churn existing policies…[and to] compete with brokers for new business.”
How they stack up
|Authorised insurance broker firms (includes around 150 who call themselves ‘IFAs’, around 80 of which will also have an SFC licence)||585|
|Registered chief executives/technical reps for the brokers||8,599|
|Insurance agencies (which is also equivalent to the number of responsible officers)||2,369|
|Individual insurance agents (may register to represent up to four insurers)||34,779|
|Technical representatives for individual agents/insurance agencies||25,054|