The Office of the Commissioner of Insurance is preparing to change existing rule-based capital adequacy framework to risk-based. As it would affect mostly small and medium insurance companies, I have arranged the Commissioner to meet over 20 of them and exchange views for mutual understandings at an early stage. Public consultations will be conducted. You are welcome to submit your views directly or through my office.
Independence of the Insurance Authority would have far-reaching impacts on our industry. The legislative process has commenced with the introduction of Insurance Companies (Amendments) Bill at LegCo in April 2014. I am elected Vice-Chairman of the Bills Committee. Together with our Federation and trade associations of intermediaries, we have held many meetings with the Government in the past years. The Government has accepted many of our views but we are still pressing for sufficient representation in the new Authority and opposing unreasonable regulations and penalties on intermediaries. Some would be dealt with by supervisory guidelines that clarify the legislative intent. Our Federation is engaging substantial resources on legal advices to help me during the legislative process so that our views would be fully reflected and our inherent rights would not be upset.
Insurance scams are still serious. Together with the Hon Frankie Yick Chi-ming, representing the Transport Constituency, and taxi and public minibus operators, I have held meetings with Home Affairs Department and reiterated our concerns. There are grounds to suspect that lawyers assigned by Legal Aids are unduly holding up cases and participating in champerty. The Legal Aid Department have undertaken to follow up and asked us to refer suspicious cases for investigation. If complaints are substantiated, these lawyers would be put on the blacklist and held accountable for their offence. Meanwhile, I shall continue to urge the Government to pay attention to insurance scams through Questions and Debates in LegCo.
We have been working closely with the Police in recent years to fight insurance scams. With our support, the Police clamped down on 13 August 2014 a champerty gang that might have existed for more than six years. The gang is involved in at least nine cases of fraudulent claims on traffic accident. The Police searched adjustors, car dealers, and garages, and confiscated many documents and computer equipment for investigation. According to Police reports, the gang approached owners of commercial vehicles involved in traffic accidents and offered total service on claims sharing basis at the rate of 15 percent to 20 percent. It is suspected that the gang even teamed up with adjustors, garages and even lawyers to fabricate documents and overstate repair charges in submission of claims. As told, the Police are investigation over 100 similar cases involving over 10 insurance companies.
Together with our Federation, I met Secretary Ko Wing-man in July to oppose that only Standard Health Insurance policies are allowed in the future. Actually, the proposal is against freedom of choice doctrine in open society and would shake Hong Kong’s core value. Existing schemes that fall short of minimum criteria would shrink on failing to enroll new participants. Eventually, healthcare insurance would become more expensive, driving more people back to public hospitals. Owing to inflation, premium of schemes meeting minimum thresholds is bound to go up almost every year. Healthcare insurance might turn into financial burden. Citizens who are financially incapable of bearing the premium of standard plans may not be insured. Secretary Ko is asking for more data in support of our views and our Federation will follow up.
Populace politics is dominant in LegCo in recent years. Many Members have been criticizing MPF for low returns and high fees. In fact, some members do not fully understand the scheme and often speak out merely to appease voters. I have repeatedly clarified their misconception at LegCo and on other occasions. I have reiterated that sizable schemes would take time to evolve and mature. When the scheme is well-developed, these issues would be duly resolved. For instance, simplification and automation of administration in progress would bring down management fees in phases. Some Members are expecting fees to come down if funds were managed by public institutions instead. They might not realize that fund administration, like monthly contributions collection, is meticulous and costly if the MPF system is not simplified. Moreover, public bodies are known for their bureaucracy and management fees might go up instead.
The Bill is under drafting. We still have reservations on some particulars, including expiry of policies of companies under liquidation. As defunct companies are problematic, underwriting practice would be also dubious. If their underwriting liabilities were taken up by the Fund without time limit, the potential risk would be infinite. Thus, we have counter-proposed a time bar of, say one month, to limit its exposures and to allow time for clients to find alternative arrangements. On the question of levy, the Government proposes a progressive model and the charge rate might increase on necessity, which is undertaken by other insurance companies in the market. We wish the law would state clearly a ceiling rate of 0.175% for life and 1% non-life insurance, so that it will not cause any unreasonable burdens on insurance companies.