The Legislative Council (LegCo) finally passed an amendment to include a “Default Investment Strategy (DIS)” to the Mandatory Provident Fund (MPF) in May this year. The DIS has immense benefits to MPF members, with estimates showing the rate of return climbing from 0.3% up to 3% as well as lowering management fees. As such, the insurance sector supported the draft. In the past two years, the sector has worked hard at coordinating with the work for the DIS. It raised many suggestions on which there was a consensus, including a ceiling of 0.75% on management fee levels plus out-of-pocket expenses incurred. However, the results of the two years’ consultations were not recognized, as some LegCo members demanded an all-in rate of 0.75% to cover all expenses. Some members even demanded cutting the fees down to 0.59 % that fundamentally did not consider whether it was workable or not. In addition, some members called for a ceiling of 0.75% on management fees plus 0.2% for out-of-pocket expenses. Due to political considerations, many parties supported an all-in rate amendment. After weighing up the pros and cons, the sector decided to accept the amendment of 0.75% for management fees plus 0.2% out-of-pocket expenses. As the situation was getting acute, we immediately started lobbying work with the final result being a close-run victory of 13 votes against and 12 in favour, thus passing the 0.75% + 0.2% amendment. The sector hopes that the new amendments will come into effect in the first half of 2017.
The government originally proposed a Voluntary Health Insurance Scheme (VHIS), demanding that all insurance products on the market comply with 12 requirements. The insurance sector thought some of them were unworkable. After a long period of lobbying by the Hong Kong Federation of Insurers and myself, in early 2016 the government decided not to insist on compliance with all 12 requirements and furthermore did not insist on only permitting the sale of products that complied with the 12 requirements. In addition, it agreed not to implement regulation by way of legislation and adopted our suggestion of having the Office of the Commissioner of Insurance issuing guidance notes. Presently the government is finalizing the proposal and will soon announce the details. This is the achievement that the sector has been striving for.
The bill to establish an Independent Insurance Authority (IIA) was passed by LegCo in July 2015. Thus, monumental changes are on the way for the regulatory framework for the insurance sector. In May this year, LegCo approved funding of HK$450 million in start-up costs with the government looking to hire staff and open an office. Recalling the time when we debated on the bill, because it involved the future of the entire sector, the Hong Kong Federation of Insurers, intermediary groups, sector organizations and I worked hard to minutely scrutinize the contents of the bill word by word to protect the rights of the sector. In the end, we did not fail in our mission and the government accepted most of our demands. We will continue to follow up on the preparatory work for the IIA and to make sure the government is able to realize its commitments made to the sector.
In recent years, many mainlanders have come to Hong Kong to buy life insurance, the development of which has been rapid but has raised controversy. Recently I have reminded the sector that this will constitute an important revenue source for the sector and everybody should have due regard for the big picture by strictly complying with regulations. This includes no selling of insurance in the mainland and keeping an eye on the source of capital. I have also already requested the Office of the Commissioner of Insurance and the Hong Kong Federation of Insurers to closely monitor developments and to take measures to ensure people coming to Hong Kong to buy insurance understand the policy contents, fees and other conditions, so as to ensure the trend of mainlanders buying insurance in Hong Kong can develop in a healthy manner.
Countries all around the world have been making strong advances into the development of financial technology. Hong Kong has also established a Steering Group on Financial Technologies to promote its development. However, increasing use of smart technologies in the financial sector will change manpower demand. It will be difficult for some traditional jobs to be retained and traditional financial organizations are also concerned that newly emerging financial technology companies will take away their business by using new technologies and platforms. Recently I have requested that the government pay attention to the afore-mentioned problem to avoid traditional financial talent being sacrificed as a result of technological development and to assist traditional financial talent to integrate themselves with financial technologies as early as possible. As the government is promoting development of financial technology, it should be aiming for expanding and strengthening the financial sector as its goal, and should not be nurturing new companies to be taking away business from traditional firms.
There has been good development in the insurance sector in recent years but with Hong Kong’s economy facing many challenges, along with the looming establishment of the Independent Insurance Authority, the sector will have to face much more regulation. In squaring up to the present circumstances, the sector must continually improve its competiveness. Hong Kong has the advantage of “leveraging China while engaging the world”. I believe that this advantage should be fully utilized to develop business opportunities for the sector, especially on the development of the “One Belt, One Road” initiative. If Hong Kong is able to take part in this massive scheme, we will be on the road to internationalization with the scope for development becoming unprecedented in size. We are closely monitoring developments so as to actively take part. In addition, the newly established Independent Insurance Authority will assume the responsibility of promoting development of the sector and we will push the authority to open up the development potential for the industry.
One of the important tasks in my current term is cracking down on insurance fraud. I have been pushing strongly for the establishment of a database for the effective collection of data on persons involved in insurance fraud for use by the insurance sector. At present the Hong Kong Federation of Insurers is supporting this proposal and has commissioned a consulting firm to draft a scheme. We believe that the database will come into operation in the near future. The work on curbing insurance fraud will continue.
Earlier LegCo approved funds for a pilot programme to enhance talent training for the insurance sector, which will be rolled out in the second half of this year. Hong Kong has witnessed healthy development in the insurance sector in recent years but the industry has suffered from chronic shortage of professional talent, for example, in marine insurance and cargo insurance, the development of which has been hampered due to a shortage of talent. Moreover, the sector has shortages of talent in underwriting, claim assessment, compliance, policy administration, etc. After promotion by the government, I believe more young people will be attracted to the profession. The government has also promised that after the three-year pilot programme is completed, it would consider continuing the scheme.
After many years of striving, in the budget for the 2013-14 financial year, the government finally accepted the proposal to promote offshore insurance business development of captive insurance companies in Hong Kong. LegCo passed the related bill in 2014 and large enterprises from the mainland have come to Hong Kong to set up captive insurance companies. I hope the scheme will make Hong Kong a centre for captive insurance and drive other related business, including the development of Reinsurance.
In 2009, the government proposed setting up a policyholders protection fund but to date, has not drafted a bill for it. In recent days, the authorities have responded to my questions saying that they have commenced preparatory work on legislation and have all along maintained communication with the sector on the fine details. The sector has also provided many views on the fine detail of operation including ceilings on the fund levy, continuation of a policy when an insurance company closes down, etc. In drafting the bill, the relevant articles are quite complicated and will need more time to handle. However, the government promises that they will submit a bill for LegCo scrutiny as soon as possible. I will continue to follow up on this to ensure the bill fully meets the demands of the sector.
The government has decided to introduce a risk-based capital framework and conducted its first consultation in 2014. At that time, I had arranged representatives from the sector to meet the government. Recently, in reply to my questions, the authorities said that they have commissioned a consultant to draft up the detailed proposals and to carry out research to quantify the impact for all insurance companies. Moreover, it has planned to carry out a second stage consultation in 2017, requiring two years to complete. Afterwards, work on legislation will proceed. We will closely monitor the situation and if necessary, will arrange for the sector to meet government officials.
I have all along been advocating tax deductions for insurance. Such tax allowances would encourage the middle class to buy insurance so as to fully prepare for the future and reduce use on government services and support. At present, the government has promised to include a tax deduction mechanism in the Voluntary Health Insurance Scheme to provide a financial incentive. We will continue to call for more tax deduction items.
As the legislator for the insurance constituency, I assume the responsibility of communication between the insurance sector, the government and politicians. In the past four years, there have been many topics of concern in the insurance sector, including the Voluntary Health Insurance Scheme, the Independent Insurance Authority , reform of the Mandatory Provident Fund, cracking down on insurance fraud, etc. Apart from meeting representatives from the insurance sector to understand the demands of the sector, I have arranged for the sector to meet government officials and legislators of other political parties, to facilitate greater communication between the industry and political circles. As such many problems have been satisfactorily resolved.
In 2015, the government proposed to vigorously develop Hong Kong’s shipping services business including driving the development of maritime insurance. This will become an important opportunity for Hong Kong. I support the government’s decision but at the same time, I would like to remind the government that, at present, the development of the supporting infrastructure is not mature yet. For example, there is a shortage of professional talent; the business environment is not attractive enough yet. At present, the government is planning to set up a high level new maritime organization to promote further development of the maritime industry. I will closely follow up on the developments.