The importance of Continuing Professional Development in maintaining a strong ethical culture

December 2022

An individual licensed insurance intermediary¹ (“Individual Licensee”) has specialist insurance knowledge to assist clients in determining their insurance needs and the types of insurance coverage available to meet those needs. Possessing this specialist expertise, which is not easily accessible to the average member of the public, is precisely what makes Individual Licensees professionals. As professionals they must hold themselves to high ethical standards in carrying on their regulated activities so that the insurance market is based on trust.

Robust professional ethics provide the foundation for the conduct regulatory regime for licensed insurance intermediaries in Hong Kong, which has the following 8 Conduct Principles in section 90 of the Insurance Ordinance at its core:

1. Honesty and integrity
2. Treating customers fairly and acting in their best interests
3. Exercising care, skill and diligence
4. Being competent to advise
5. Giving advice which is suitable to the customer's circumstances
6. Disclosing adequate information to the customer
7. Avoiding and managing conflicts of interest; and
8. Protecting client's assets

These Conduct Principles are not “tick-box” compliance requirements. They are ethical principles of behaviour that all Individual Licensees must display when carrying on regulated activities.

Continuing Professional Development (“CPD”) – a cornerstone of professionalism, ethics and integrity

As with all other professions which are required to act in accordance with rigorous ethical duties (doctors, lawyers, accountants, etc.), Individual Licensees have an ongoing obligation to continually demonstrate, reinforce and update their expertise, knowledge and ethics through regular training and self-improvement. This is precisely why, as part of the insurance regulatory framework, Individual Licensees must complete – and demonstrate that they complete - a minimum number of CPD hours every year (with the assessment year running from 1st August to 31st July).

Pursuant to the Insurance Authority (“IA”)’s Guideline on Continuing Professional Development for Licensed Insurance Intermediaries (“GL24”), during the current assessment period (1st August 2022 to 31st July 2023) the number of required CPD hours an Individual Licensee has to complete (save for those only licensed to do restricted scope travel insurance business) has increased to 15 hours with 3 of these CPD hours required to be on subjects related to ethics and regulation. Equally imperative is that Individual Licensees are required to report their CPD completion status to the IA by the deadline of 30 September (following the end of the assessment period).

It is, of course, the primary responsibility of every Individual Licensee to comply with the CPD requirements and the insurance regulatory framework reinforces this with the proportionate deterrent of disciplinary action in the event of failure. After all, the “P” in CPD stands for “professional” and Individual Licensees who fail to demonstrate their ethics and knowledge by not completing the required number of hours or reporting their CPD status are anything but professional and deserve disciplinary action.

The responsibility of principals for CPD completion

As GL24 makes clear, authorized insurers, licensed insurance broker companies or licensed insurance agencies as principals also bear a significant responsibility for ensuring their appointed Individual Licensees comply with the CPD requirements. In this regard, the key person in control function for intermediary management (in the case of authorized insurers) and responsible officers (in the case of licensed insurance broker companies and licensed insurance agencies) bear the core responsibility for establishing requisite controls and processes and providing sufficient support to ensure this. Further, given the importance of CPD attainment, responsibility also falls on the board of directors as part of their remit for ensuring the insurer, broker company or agency (as the case may be) has in place adequate governance and controls. The absence of proper controls and procedures for CPD compliance may, therefore, reflect negatively on the fitness and properness of relevant key persons in control functions, responsible officers and directors.

The importance of CPD to corporate culture in the insurance industry

Completing CPD hours is a basic requirement for any profession and if a principal insurer, broker company or agency is not ensuring that its appointed Individual Licensees are completing and reporting their CPD hours, then it is not getting the basics right. This reflects badly on the image of the insurer, broker company or agency and is indicative of a poor ethical corporate culture.

By contrast, an insurer, broker company or agency with a 100% (or close to 100%) completion and reporting rate for CPD hours across its appointed Individual Licensees, demonstrates that it has a strong ethical corporate culture based on professionalism and ensuring knowledge and expertise is kept up to date so as to serve the best interests of its clients.

Disclosure of CPD non-compliances as a form of market discipline

Given the correlation between CPD completion, corporate culture and general levels of professionalism, the IA considers that the public should be made aware of those principals with multiple CPD non-compliances across their Individual Licensees (especially in relation to those principal insurers which have large agency forces or those broker companies or insurance agencies with a large number of technical representatives).

Disclosure is, after all, a means of facilitating market discipline and the disclosure of the percentage of the Individual Licensees of a principal who have failed to complete or report their CPD hours, would serve to encourage the principal to improve its governance, controls and culture generally across its Individual Licensees, particularly in relation to CPD attainment.

DISCLOSURE OF CPD NON-COMPLIANCE FOR THE ASSESSMENT PERIOD 2021/2022

Market level rate of CPD non-compliance

Accordingly, in order to promote and encourage the adoption of proper and robust standards of conduct in relation to CPD attainment, the IA publishes the following disclosure for the most recently completed CPD Assessment Period from 1st August 2021 to 31st July 2022 (“Assessment Period 2021/2022”).

For the Assessment Period 2021/2022, in view of the ongoing COVID pandemic the IA reduced the number of CPD hours an Individual Licensee was expected to obtain from 15 to 12.

A total of 108,283 Individual Licensees were required to complete and report their completion of CPD hours. Despite the concessions made by the IA, 1,661 (1.5%) Individual Licensees reported that they had failed to complete the required number of CPD hours and a further 8,469 (7.8%) failed to report on their CPD attainment at all. The total CPD non-compliance rate for the insurance market was 9.3%. As such, there is definite room for improvement.

Even though 7,034 of non-compliant Individual Licensees have since ceased to carry on regulated activities as of November 2022 (as they were no longer appointed by any principal and their licenses were then automatically suspended or revoked), because they were licensed during the Assessment Period they were required to complete CPD.

The non-compliance rate across licensed individual insurance agents representing authorized insurers was 10.2%. For technical representatives (broker) appointed by broker companies the non-compliance rate was 11.7%. For technical representatives (agent) appointed by insurance agencies the non-compliance rate was 5.2%.

Top-Ten Non-Compliant Principals

The following is a list of the 10 principals in the insurance market with the highest percentage rates of CPD noncompliance across their appointed Individual Licensees in the Assessment Period 2021/2022, each with a total number of more than fifty non-compliant Individual Licensees:

	Name of the top 10 principals	CPD non-compliance ratio
1.	Convoy Financial Services Ltd	23.8%
2.	Chubb Life Insurance Company Ltd	14.0%
3.	China Life Insurance (Overseas) Company Limited	10.2%
4.	YF Life Insurance International Limited	9.0%
5.	Manulife (International) Limited	8.7%
6.	FTLife Insurance Company Limited	8.3%
7.	AIA International Limited	8.1%
8.	China Taiping Life Insurance (Hong Kong) Company Limited	7.8%
9.	AXA China Region Insurance Company (Bermuda) Limited	7.3%
10.	BOC Group Life Assurance Company Limited	7.1%

A high percentage non-compliance ratio is indicative of potential inadequate controls and procedures on CPD attainment and reporting. As such, significant improvement from the principals named in this list on CPD attainment across their Individual Licensees is demanded going forward (and close follow up from the IA with these principals can be expected).

Best practices on CPD governance and controls

An analysis of the figures for CPD non-compliance for the Assessment Period 2021/2022 indicates that the most compliant section of the insurance market came from technical representatives (agent) appointed by licensed insurance agencies which are authorized institutions (i.e. banks). The non-compliance rate for CPD attainment in this sector was as low as 0.5%.

From this sector of the market (and also from our inspection of insurers and broker companies who do not appear on the noncompliance list because of their relatively low non-compliance rates), it is possible to glean the following good practices by principals for facilitating completion and reporting of CPD hours by their Individual Licensees.

Arranging sufficient CPD courses
A good principal arranges CPD courses throughout the year for its Individual Licensees to attend. This may be done by the principal itself or in cooperation with industry bodies. The good principal offers these courses free of charge to its Individual Licensees, as part of demonstrating investment in their careers and professionalism. Some principals will offer CPD courses for free up to a certain date (say 31 May, being two months before the end date of the Assessment Period) so as to encourage early completion of CPD (and for CPD courses offered after this date the Individual Licensee will have to pay).
Monitoring and encouraging attainment of CPD throughout the Assessment Period
A good principal will have in place an effective process for monitoring CPD attainment of its Individual Licensees throughout the Assessment Period (so that Individual Licensees are completing CPD evenly throughout the period rather than leaving it to the last minute). The principal may set benchmarks for Individual Licensees (e.g. 5 CPD hours every three months) and offer (and register) their Individual Licensees for CPD courses in line with this benchmark throughout the year. Reminders should be given to Individual Licensees from time to time on completion of their requisite CPD hours. Notifications should also be sent out to the line-managers of Individual Licensees who fall behind schedule during the year so they can encourage the Individual Licensee to catch up. The principal should encourage Individual Licensees to report their accredited CPD hours from external sources (i.e. CPD courses not organized by the principal) in order to update and keep track of their CPD records.
Setting an internal Advanced Date for completing CPD hours
The principals with the best CPD attainment records internally set a requirement for their Individual Licensees to complete their CPD hours either by 31 May or 30 June (one or two months in advance of the ultimate deadline of 31 July). This is reinforced by internal disciplinary action (e.g. suspension of new business or even termination – see below) being taken if compliance is not attained by the Advanced Date.
Internal Disciplinary Action for failure to complete CPD hours
The principals with the best CPD attainment records reinforce the imperative need to complete CPD hours, with the deterrent of suspension of new business (so that Individual Licensees can focus on completing their CPD hours) in the event of non-compliance by the internal Advanced Date, and then with automatic termination of appointment if Individual Licensees still ignore the requirement despite repeated reminders. This sends a strong message that only those who complete their CPD hours are professional enough to represent the principal in dealing with clients, and those who cannot keep to this standard of professionalism should not be representing the company. This approach is encouraged.
Fostering a high performance knowledge culture through e-learning
The IA has removed the cap on the number of CPD hours that may be completed by e-learning and good principals with high CPD attainment rates offer CPD courses through e-learning which their Individual Licensees can do anytime and anywhere. By doing this, good principals foster a culture of continuous self-development and learning across their distribution forces.
Onboarding and exiting Individual Licensees
The good principal will ensure that newly recruited Individual Licensees fully understand their obligations to complete their CPD hours and that the obligation continues for as long as the Individual Licensee is licensed. This means that even if the Individual Licensee leaves the principal (and does not move onto another principal), he or she is still responsible for fulfilling the CPD hours for as long as his/her licence continues. The same message must be given to Individual Licensees when they leave the principal as part of the exit process. For onboarding Individual Licensees who are already or were previously licensed (e.g. moving from another principal or re-entering the industry), the good principal will also ascertain their previous CPD compliance records (e.g. by making use of the search function available in the IA’s e-portal) to assess if they are fit and proper persons to be recruited.
Processes for reporting CPD Attainment
Individual Licensees can report their CPD attainment to the IA either via their principal or directly to the IA (through the IA’s e-portal). Either way, a good principal will have in place proper processes to ensure their Individual Licensees report the required declaration on time (e.g. utilize the function embedded in the IA’s e-portal to generate a progress report for monitoring purpose).

Concluding Remarks

Ensuring principals have in place robust governance, controls and processes to discharge their responsibility for attainment and reporting of CPD hours by their appointed Individual Licensees will continue to be a focus for the IA in its conduct supervision work (and, if necessary, in its disciplinary work). Authorized insurers, broker companies and agencies should therefore take this opportunity to review and (if necessary) strengthen their CPD controls, governance and processes in line with the good practices set out above.

Note:

¹ An individual licensed insurance intermediary means a licensed individual insurance agent, licensed technical representative (agent) or licensed technical representative (broker).