23 June 2024
The diverse range of insurance policies offered in Hong Kong’s insurance market is one of the market’s enduring strengths. That’s why individuals from other jurisdictions, particularly Mainland China, come to Hong Kong specifically to source reliable insurance and advice from the multiple insurers and insurance intermediaries that ply their trade here. As case in point, during the first three months of 2024, new office premiums for life insurance bought by Mainland China Visitors (MCVs) reached HK$15.6 billion and accounted for almost 25% of all new office premiums from the life sector.
Our inspections, investigations and intelligence gathering, however, have uncovered business models that are increasingly reliant on unlicensed sales persons trying to tap this growing demand. These unlicensed persons, although positioning themselves as merely “referring” or “introducing” MCVs to buy insurance in Hong Kong, go well beyond this in their actions. They offer MCVs advice, make specific recommendations and actively promote particular Hong Kong insurance policies, even though they do not possess the requisite licence or proven qualifications to do this. In doing this, they put MCVs at considerable risk of being mis-sold insurance.
Unlicensed selling of insurance is a crime under Hong Kong law, punishable by both fine and the prospect of up to two years of imprisonment. The Insurance Authority (IA) has zero-tolerance for such pernicious activities which might place policy holders in jeopardy and risk undermining confidence in the insurance market.
To address the problem, in April of this year, the IA, in a joint operation with the ICAC, cracked down on unlicensed selling activities. We followed this up in May with a circular to the industry to reinforce our message of zero-tolerance, calling on insurers and insurance broker companies to tighten their controls on referral business, to prevent this from being used as a channel to foment unlicensed selling.
We want the insurance buying public, particularly MCVs, to be aware of the risk of unlicensed selling, and how you can (and should) check that any person seeking to sell you insurance has the requisite licence from the IA. After all, an empowered consumer is a protected consumer and best equipped to make a fully informed decision.
Why does unlicensed selling harm consumer interests?
Under Hong Kong law, if a person wants to sell insurance (i.e. earn money by advising on and recommending the right insurance policy to buy and assist in arranging the purchase), he or she must be a licensed insurance intermediary.
To obtain such licence, a person must pass relevant insurance exams, possess a minimum level of insurance expertise and have the right character attributes to be trusted to sell insurance. Once licensed, the insurance intermediary takes on a duty, under the insurance regulatory framework, to satisfy minimum regulatory standards and practices when selling insurance, act in the client’s best interests and keep their insurance knowledge up to date. Failure to do this brings with it the threat of disciplinary action by the IA.
Why does Hong Kong law require persons to be licensed to sell insurance? Whilst some types of insurance may be simple to understand, others are more complicated, particularly the life insurance products with savings and investment features that are most in demand from MCVs. These types of life insurance policies are long term contractual commitments and the savings and investment benefits take years to accrue. Depending on the policy terms and conditions, these benefits may not be fixed in value and may depend on, for example, the insurer’s profits or investment performance. A policy holder may have to commit to paying premiums over an extended duration and keep his/her monies locked up in the policy (and not terminate it) for multiple years, in order for the benefits to grow (or risk losing them).
It is natural for consumers looking to buy these insurance policies to want advice from persons who can be trusted and who have the right expertise. That is the role of licensed insurance intermediaries and why the licensing requirement is so important.
Licensed insurance intermediaries are duty bound and qualified, to assess a prospective buyer’s insurance needs, make a recommendation based on those needs and explain the benefits and risks associated with the insurance policies being considered. This enables consumers to make a fully informed decision.
If someone who is not licensed tries to sell you insurance, then they are not bound by the same regulatory duty to put your interests first, nor might they have the requisite insurance qualifications. Any recommendation they make may not take full account of your insurance needs. They may try and distract you from understanding the insurance policy you are considering, by offering you a rebate to entice you into buying. This would constitute straightforward mis-selling and you could find yourself committed to a policy that is entirely unsuitable. Even worse, if the person makes you sign a declaration stating that the policy was sold to you by someone who was licensed (when this was not the case), or asks you to tell the insurer this, this misrepresentation could put the validity of your policy in jeopardy.
The decision to buy insurance is an important one for you and your family’s long term financial wealth and health. Would you let an unqualified surgeon operate on you? Of course not, the risk to your health (and life) could be catastrophic. So why risk your financial health, by dealing with an unlicensed person when buying insurance?
How do you protect yourself? Check if the person is licensed
There are three simple checks you can make to verify whether the person you are dealing with when buying insurance, has the requisite licence:
Combatting unlicensed selling - A joint effort
The IA works on multiple fronts to combat unlicensed selling. Through supervision, we monitor the adequacy of governance and controls in the insurance sector on this issue. In particular we will be assessing whether remuneration structures are being aligned with the “treating customers fairly” principle, are fair, equitable and reasonable, and not being used to incentivise unlicensed selling. Through intelligence gathering and mystery shopping, we root out red-flags for unlicensed selling and take appropriate action. Through enforcement, we hold to account any person who sells insurance without a license or assists in doing this.
But consumers can also protect themselves by steering clear of unlicensed persons who want to sell them insurance and check that the person they are dealing with is indeed, licensed.
To assist further, we have rolled out a public education campaign to remind MCVs of the key points to note when buying insurance in Hong Kong. To learn more see our e-leaflet (in Chinese only) and FAQs on the IA website.
Remember, as a consumer it is in your hands to make an informed decision when buying insurance and to obtain the right advice you need from a person who is licensed to provide it. Don’t settle for anything less.
Peter Gregoire
Head of Conduct Supervision and General Counsel, Insurance Authority
23 June 2024