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hk plans for insurance comp scheme worry industry

By International Adviser, 28 Feb 12

Hong Kongs insurance industry is fuming over government plans to implement a compensation scheme that would pay policyholders in the event that an insurer were to collapse, the South China Morning Post said today.

Hong Kongs insurance industry is fuming over government plans to implement a compensation scheme that would pay policyholders in the event that an insurer were to collapse, the South China Morning Post said today.

In particular, insurance industry insiders are said to be alarmed about a new element to the plan which would require small- and medium-sized insurance industry enterprises, not just large ones, to participate, the SCMP noted.

As reported, a consultation recently concluded on the so-called Policyholders’ Protection Fund (PPF), after years of discussion about whether such a scheme would provide a desirable layer of extra protection for consumers, or merely an extra layer of costs for insurers.

Now that the fund is due to be launched either next year or in 2014, though, insurance executives in China’s Special Administrative Region “have become increasingly worried about a government proposal to expand a safety net to corporate policyholders in the event an insurer collapses”, the SCMP article noted.

“Having the safety net in place is good for policyholders and is in line with international practice, but industry insiders said the current proposal had undergone some changes, which may add risks to the whole industry.”

Under the proposed scheme, all insurance companies in Hong Kong would be required to contribute to the setting up of two compensation funds: one for life insurance policyholders and another for general insurance policyholders.

The funds would pay policyholders up to HK$1m ($129,000) each in the event that their insurer failed.

SME inclusion ‘changes risk profile’

Quoting Hong Kong "insurance industry insiders", the SCMP noted that if the proposed compensation scheme were expanded to cover SMEs, as is now apparently being planned, the risk profile would increase "substantially" as it would begin to cover "such things as product liability, business interruption and natural catastrophes".

This could mean the fund might not be capable of covering all the claims, should there be "thousands".

"Another concern for the general insurer is that an overseas company could set up an SME in Hong Kong to buy insurance products not available in their home market," the SCMP said.

Hong Kong first consulted the industry about the possibility of implementing a compensation scheme in 2003, but was dissuaded initially by opposition from insurers and brokers.

In the wake of the financial crisis, which saw a number of high-profile banks and other financial services institutions fail, the idea resurfaced, and a three-month public consultation last year revealed general support for the idea.

Tags: Hong Kong

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International Adviser covers the global intermediary market that uses cross-border insurance, investments, banking and pension products on behalf of their high-net-worth clients. No news, articles or content may be reproduced in part or in full without express permission of International Adviser.